Monday, December 7, 2020

The Shock Audits Keep On Coming

 I know I've visited this subject before, but it bears repeating. Just today, I had two more small contractors reach out to me, each one a small employer crushed under a Workers Compensation insurance Shock Audits--where the premium developed after the policy has ended is far, far larger than the employer ever anticipated, based on the original policy premium.

One was an email from a Chicago small contractor, who bought a Workers Comp policy for $1,515.00, but who has now received an audit bill for $177,555.00 in additional premium for the policy.

The problem, as it often is, was that no one explained to this small business that payments to subcontractors would be picked up just the same as payments to regular direct employees of his company. This small biz had purchased an Assigned Risk policy, with Minimum Premium, and as is so common in such situations the insurance agent had not taken any time to explain the potential for this particular trap.

Agents who sell Assigned Risk policies to tiny employers often don't spend much time and effort explaining how the premium charges will ultimately be computed, after the policy has ended. And so these tiny employers are left thinking their Workers Comp insurance will cost only $1,500 or so in premium, only to be traumatized when they get the Shock Audit billing, after the policy has ended.

You might think such small employers might have a basis for holding the insurance agent responsible for this SNAFU, but that is not such an easy proposition.

Unlike professionals like accountants or attorneys, insurance agents typically have a much lower professional responsibility, generally. As long as the agent obtains the insurance requested, or explains that it can't be obtained, and doesn't steal money from the insured, the agent's professional responsibilities are generally viewed as having been satisfied--unless, and it is a big unless, the agent has voluntarily started serving as an insurance advisor or otherwise voluntarily taken on greater duties towards a client. But absent that, insurance producers typically have a very low level of professional responsibility.

And when producing Assigned Risk Workers Comp policies for tiny clients, agents often just don't spend much time or effort advising clients about potential problems with the insurance.

So in this case, it doesn't appear the insurance company is necessarily wrong with this huge additional premium increase--although I'm still checking it to see if there are any potential avenues for reducing the bill--it's just that the insurance industry operates in such a way that these Shock Audit scenarios happen commonly.

I know, because I get the phone calls and emails when the bill arrives, every darn day. Sometimes I can help reduce the bill. Sometimes not. The devil is always in the details.

But it shouldn't be such an issue for small employers. Obtaining Workers Comp insurance should not constitute an existential threat to small business, and yet it does, surprisingly often.

Insurance companies tend to assume insurance agents explain all this stuff at the outset. They also assume most business people, even really small business managers, already understand these details.

Based on all these calls and emails, those assumptions too often don't hold up, with tragic results for small business.

My second Shock Audit contact today was from a Massachusetts small contractor. I'll cover that one in a separate post.

Saturday, November 14, 2020

Staffing Companies and Workers Comp Classifications and Premiums

 Recently, I was approached by a staffing company looking for assistance in figuring out correct Workers Compensation classification codes for the workers they were placing at a variety of client companies all across the U.S. I can certainly understand why this staffing company is seeking such assistance, as figuring out correct Workers Compensation classifications can be vital for a staffing company's financial well being. Staffing companies have some unique exposures to serious problems with Workers Comp insurance costs, mainly due to issues involving determining correct Workers Comp insurance classifications.

The staffing industry in the U.S. is composed of two distinct kinds of labor placements and it is not uncommon for a single staffing company to blend and blur those two kinds of labor placements in a single business enterprise.

The first is the sort of temporary labor placement that has historically been common--supplying workers on a "temporary" basis to third party employers. Originally such labor placements were truly temporary, providing "temps" to replace workers on vacation or for similar short-term engagement. In more recent years such placements have commonly involved providing workers for longer periods of time, sometimes as a trial period before selecting workers to become permanent additions to an employer's workforce, but sometimes serving as a more long term source for outsourced labor, although the individual workers provided may typically change over time. One common example of this kind of labor placement is where a staffing company provides warehouse workers to a client company on an ongoing basis. The individuals making up that outsourced labor force may vary over time but the contractual relationship between the staffing company to the client company can be a long-standing one.

The second kind of labor placement in the staffing industry is what has come to be called a PEO arrangement--a Professional Employer Organization, in the parlance of the staffing industry. This is an arrangement where existing employees of a client company contractually become "co-employed", at least on paper, with an outside staffing company. This contractual arrangement provides a legal basis for the staffing company to be able to provide Workers Compensation insurance coverage to workers at a client company, as well as the basis for the staffing company to provide other services such as withholding and reporting taxes for those workers. But the provision of Workers Compensation insurance to client companies is often the most important service provided by a PEO type staffing company.

In a typical PEO arrangement, the PEO staffing company charges fees for their services that are based, in large part, on the cost of providing Workers Compensation insurance (along with costs of providing other services that may be part of the contract, and provisions for overhead and profit for the PEO.)

But this means the PEO staffing company must anticipate what their cost of Workers Compensation insurance actually is for workers at a client company. And since the fees charged to those client companies are a separate contractual arrangement from the insurance coverage purchased by the PEO, a potential exists for a dangerous mismatch to occur (dangerous from the point of the view of the PEO and also from the point of view of the insurance company.)

This same kind of dangerous mismatch can apply to the more traditional "temp' type of staffing company as well, because the fees charged to clients typically also include a significant component for the cost of Workers Compensation insurance.

If the staffing company operates on the assumption that workers being provided are doing clerical work, and thus should be classified in the inexpensive clerical class for Workers Compensation insurance, but the insurance company later concludes that those workers actually belong in a more expensive classification, the staffing company can be left in a position where it cannot retroactively adjust the fees it has charged the client, but the insurance company can (and often does) retroactively adjust the premium charged for those workers.

I remember a case where the staffing company classified workers as clerical, because they were doing things like collating printed documents together and stapling those pages together. But at the end of the year, when the insurance company did the premium audit for the Workers Compensation insurance policy purchased by the staffing company, the insurer's auditor learned that those workers were doing that collating work not in an office environment but in a warehouse area at the client company. The insurance company decided this meant those workers properly did not qualify for the inexpensive clerical class but instead in a significantly more expensive class for warehouse workers.

This left the staffing company in a difficult position. Since insurance companies often only really determine classifications after the insurance policy has ended, when an audit is done, the staffing company had priced their fees to this client based on using the clerical rate for Workers Comp insurance. By the time the insurance company performed the premium audit, a year had passed with the staffing company charging fees that turned to be inadequate to cover the cost of Workers Comp insurance. Overnight, this turned a profitable account into a very unprofitable account.

A staffing company can often have hundreds of different client companies, each one carrying the potential for such a classification error.  Under the rules that govern Workers Compensation insurance, workers provided by a staffing company are supposed to be classified based upon treating those workers as if they were direct employees of the client company. So a staffing company needs to try and determine the correct classification for all those client companies. And often those client companies may be scattered across different states--and the classification definitions can sometimes vary significantly between states. What is a correct class in one state for a type of business might not be the correct class in another.

Complicating things even further, some staffing companies in recent years have engaged in a controversial practice of providing "staffing on staffing" coverage, where one staffing company enters into a PEO style contractual arrangement with another staffing company, and it is this second staffing company that actually places workers with client companies. This practice increases the chances of a classification mismatch occurring, as the staffing company obtaining the Workers Comp insurance does not have a direct relationship with the client company and thus can lack a proper understanding of the nature of the client's business operations.

Insurance companies, in my experience, do not wish to insure staffing companies engaging in this kind of "staffing on staffing" business but it can be difficult for the insurer to determine if this practice is happening, at least, not at the time the policy is being "underwritten" and produced. Such issues are typically only uncovered at the time an audit is conducted, after a policy has expired.

I put "underwriting" in quotes because I have learned that some insurance companies perform little or no actual underwriting for staffing companies (and even other kinds of companies, particularly in the assigned risk plans) in the sense of expending any effort whatsoever to determine correct classifications at the time the policy is issued. 

Another complicating factor is that many staffing companies find that "voluntary market" Workers Comp insurance is only available through a Large Deductible policy. That introduces additional levels of complexity to determining the ultimate cost of Workers Comp insurance, with complicated side agreements and the significant potential for unexpected additional costs based on the ultimate cost of claims under the policy. Under such policies, getting classification correct is still important, but it is coupled with the very significant possibility of very large additional premium charges becoming due years after a policy has ended. Many staffing companies, in my experience, purchase such policies without fully understanding the potential for significant additional premium charges down the road, simply because they are the only alternative available to Assigned Risk policies (which can have their own drawbacks for a staffing company.)

Such Large Deductible polices can appear to be attractive at the outset, only to later generate very significant additional premium charges years after the policy has ended, additional premiums that have been calculated according to arcane and complicated formulas that were poorly understood at the time the insurance was calculated. Often, those additional premium charges are based, at least in part, on changes in classifications done at the time of the audit.

In short, determining correct Workers Comp insurance classifications at the outset is vital for staffing companies, but it is also challenging to do because of the complexity of the rules that govern Workers Comp insurance.

Monday, November 2, 2020

A Triple-Whammy Shock Audit For California Contractor

 So I just finished looking over a Workers Comp Shock Audit for a small California contractor. For those who came in late, a Shock Audit is where the audited premium for a Workers Comp insurance policy is unexpectedly much higher than the original policy premium.

Turns out, it looks like this is one of those frustrating times when it doesn't look likely I can help reduce this Shock Audit. But it is nonetheless an illustrative case study of how employers, particularly small employers, can get clobbered by one of these Shock Audits.

In fact, this case illustrates three different ways in which employers, particularly California contractors, can get blindsided about the cost of Workers Compensation insurance. 

A triple-whammy of premium traps, you might say.

First off, this employer was puzzled because the policy had been one of those "pay as you go" setups, where premium gets calculated monthly based on actual payrolls. These programs are often touted as providing a solution for the problem of unexpectedly high audit bills--you know, Shock Audits--so this employer was puzzled as to how he could be getting a Shock Audit. So that's the first element of our triple whammy case study--the "pay as you go" fallacy that it solves the problem of Shock Audits.

The second part of the triple whammy comes in because this Shock Audit is an 'estimated audit". I know, I know, a classic oxymoron like jumbo shrimp, but the COVID-19 pandemic has made these "estimated audits" more common, as field auditors were unable to get out into the field to conduct real audits. So forms were sent out to employers, many of which were themselves shut down or disrupted by the pandemic, and many smaller employers were unsure of how to complete the forms, or were just too disrupted by the pandemic and the associated business crisis to respond.

An estimated audit isn't really an audit at all--it's the insurance company's educated guess (and often a bit of a worst-case-scenario guess as well) about what the final premium should be. But rest assured, if an estimated audit isn't paid on a timely basis, an insurer will send it out for collection efforts, just like was the case with this small contractor.

But the final blow of our triple-whammy came thanks to a unique California trap for contractors: Dual Wage Classifications.

California has a unique bunch of Workers Compensation insurance classification codes that apply for construction work in that state. These classifications are bound pairs, so, for example, this client had two carpentry classes shown on the policy, a cheaper class with rates just over $8.00 (for workers paid $32 per hour or more) and a much more expensive class, with rates over $22 per hour, for workers paid less than $32 per hour.

Both classes were on the original policy, this "pay as you go" policy, but all the policy's estimated payroll was the cheaper class, with the more expensive class shown with "If Any" for the remuneration.

So month by month, under the pay as you go system, this employer reported actual payrolls and they got applied under the cheaper class.

The audit, however, put all of the "estimated audit" payroll into the much more expensive class and rate. Hence, a Shock Audit. It wasn't that payroll was different from what had been reported month by month, it was that all that payroll got switched, on the estimated audit, to a vastly more expensive class.

This happens because the rules for these Dual Wage Classifications are detailed and a bit onerous and often not well explained when the policy begins. But auditors are trained and motivated to enforce these rules on the audit;

I've written in more detail about the problems with the Dual Wage Classifications before. It can be a nasty problem because many small contractors don't learn about the rule requirements until it's too late to do anything about it.

I've explained the situation to this particular small contractor, and if he can produce the required time records then I can definitely help reduce this Shock Audit. But if he didn't keep sufficiently detailed time records, as I fear he may not have, there may be no recourse here.

This one is a very frustrating example of a Shock Audit that exemplified multiple problems with Workers Compensation insurance. Fingers crossed, perhaps I will be able to help these folks, if they kept detailed time records.

Tuesday, October 27, 2020

When Insurance Companies Are Less Than Honest About Overcharges

 I've had an interesting day today, dealing with an insurance company that overcharged one of our clients in Illinois for Workers Compensation insurance by using the wrong classification (and thus the wrong manual rate) for year after year after year.

My client reached out to the audit manager at this insurance company, based on information provided by us, and instead of getting apologies for their mistake got vituperation and lies.

The audit manager told my client that companies like ours "extort" money from insurance companies. You know, because we insist they actually follow the goddamn terms of the policy, which requires insurers to use the correct class and rate even if different than what was originally used. Some extortion.

Then, the insurance company manager said they had reached out to the Illinois Department of Insurance for guidance. That's because Illinois has a unique statute on the books, one I consulted on when it was drafter way back in 1983. That statute requires insurers to refund any overcharges of Workers Comp premiums due to errors in classification (and other technical errors). In all my past dealings with the Illinois Department of Insurance over the enforcement of this statute, the department has consistently held that the statute means what it says and that insurers must refund any overcharges that have occurred since the statute went into effect in 1984.

But this insurance company audit manager told our client that the Department told them that they only had to go back three years in refunding overcharges, and even dropped the name of a particular guy at the Illinois Department of Insurance.

Now, if this client didn't have Advanced Insurance Management as a resource, they might well have accepted this at face value. Too bad it was all falsehoods. As we explained to our client.

You see, I've worked with that particular guy they named, the guy at the Illinois Department of Insurance, as part of my work getting refunds for clients. I've worked with that particular guy for decades and he has always taken the position that the statute means exactly what it says. And I confirmed that the Illinois Department of Insurance has not revised their position on that.

Oh, one last thing: that particular guy at the Illinois Department of Insurance, the guy the insurance company said was the basis for their intransigence about those refunds for older policies?

That guy retired back in 2015. So I don't think he gave them any guidance on the department's position about the statute and its requirements. Instead, the insurance company manager probably still had his name on a Rolodex and tossed it out to bolster his bald faced lie.

What really gripes me is that insurance companies go apoplectic if they think a policyholder has misrepresented material facts that impact coverage or premium. Sometimes they find a friendly prosecutor to bring criminal charges against a policyholder they think was dishonest with them.

Yet if this particular policyholder didn't have someone knowledgeable to catch these lies, the insurance company would likely have gotten away with it.

But somehow, in their collective mind, we're the bad guys, for insisting they retroactively fix an obvious mistake that they should have never made in the first place. Grrr.

Friday, September 11, 2020

Answering A Question From A Premium Auditor

 I just got an interesting communication from an insurance company premium auditor, regarding a challenging audit she was tasked with performing.

And this brought to mind something that I thought I should share more widely: I'm always happy to discuss technical issues with insurance premium auditors, underwriters, and agents, on a pro bono basis. 

I get such communications on a semi-regular basis, but I wanted to put this offer out into the world on a more formal basis.

So keep those cards and letters coming in, folks.

Tuesday, September 1, 2020

California About to Amend AB 5 For Many Freelancers

 California's strict test for employment status, known as AB 5, is about to get adjusted to provide some relief for a number of traditionally freelance workers who said their business was harmed by the law, which kicked in early in 2020 and mandated that many of these workers be legally treated as employees.

The new bill is going to the governor, who is expected to sign it, and it will then go immediately into effect.  This new bill will:

  •  strike the 35-submission cap for freelance writers and photographers. Under current rules, any California-based freelancer who contributes more than 35 submissions to an outlet per year must be reclassified as an employee.
  • add translators, appraisers and registered foresters to the "professional services" exemption. This exemption currently covers graphic designers, travel agents and marketers, among others.
  • allow workers in much of the music industry to continue working as freelancers. The list of exemptions includes recording artists, songwriters, producers, promoters and many others.

The new bill also adds exemptions for:

  • youth sports coaches,
  • specialized performers,
  • home inspectors,
  • insurance industry field service contractors,
  • appraisers,
  • underwriting inspectors,
  • premium auditors,
  • risk management, or loss control specialists
  • sports competition judges, umpires, and referees,
  • graphic design,
  • web design,
  • tutoring,
  • consulting,
  • caddying,
  • wedding planning & event vending,
  • yard cleanup,
  • captioning,
  • interpreting and translating services.

Tuesday, August 25, 2020

Workers Comp and COVID-19 in Illinois-an Overdue Update

 After certain business groups successfully got the courts to overturn the governor's emergency order, the Illinois legislature turned that emergency order into legislation, legislation that was signed by the governor on June 10, 2020.

So once again, at least until December 31, 2020, workers in a wide variety of employments have a rebuttable presumption that COVID-19 is an Occupational Disease and is covered by the Workers Compensation Act.

The list of covered work goes well beyond first responders and health care workers; it covers a great many types of businesses and essentially extends Workers Comp coverage for COVID-19 for workers in those businesses who must have contact with the public or groups of workers greater than 15.

The list of covered employments includes: 

grocery and pharmacy; food, beverage and cannabis production; charitable and social service organizations; gas stations and businesses needed for transportation; financial institutions; hardware and supply stores; critical trades; mail, post, shipping, logistics, delivery and pick-up services; educational institutions; laundry services; restaurants for consumption off-premises; essential business and work-from-home suppliers; home-based care and services; residential facilities and shelters; professional services; day-care centers for children of essential workers; manufacture, distribution and supply chain for critical products and industries; critical labor union functions; hotels and motels; and funeral services.

Wednesday, June 17, 2020

Minority-Owned Businesses and Illinois Workers Comp Costs

My company is in the process of trying to initiate some outreach with minority-owned businesses in Illinois, as I've come to suspect that such minority-owned businesses might be disproportionately impacted by the kinds of overcharges we routinely find when we review Workers Compensation insurance premium charges for employers. I suspect certain features of the Workers Comp insurance system might be causing even greater harm for minority businesses than they do for employers in general.

One of those features of the Illinois Workers Compensation insurance system that I fear may disproportionately harm minority businesses is the Assigned Risk Plan. Since Illinois mandates most businesses carry Workers Compensation insurance, the Assigned Risk Plan was created to make sure that businesses can obtain Workers Compensation insurance even when insurance companies, operating in the so-called “voluntary market”, are unwilling to offer this coverage.

The Assigned Risk Plan is sometimes called an “insurer of last resort” because the insurers taking part in the plan cannot reject an application for coverage (save only if the employer has failed to pay a prior premium bill for a policy from the Plan.)

But the downside of the Assigned Risk Plan is that it is much, much more expensive than identical coverage offered through the voluntary market. By means of a combination of higher rates and the loss of certain discounts, premium charges for an Assigned Risk policy can often be close to double what the premiums would be for an identical voluntary market policy.

The only requirement for acceptance into the Assigned Risk plan is an insurance agent who attests that a couple of different voluntary market carriers declined to cover a business. This is a fairly low bar, and for a variety of reasons I suspect minority-owned businesses might get shunted to Assigned Risk policies disproportionately, even though voluntary market coverage might, with just a bit more marketing effort, be available.  

Workers Compensation insurance in Illinois is sold by insurance agents, of course. And not all insurance agents and agencies have the same access to desirable Workers Compensation insurance companies. 

So if a minority-owned business approaches a small insurance agency with limited access to voluntary market Workers Comp insurers, I fear that those agents may often place these businesses into the Assigned Risk Plan-- not because of any inherent problems with the business but because small insurance agencies typically have less access to a variety of voluntary market insurers.

This process would often not be particularly transparent to the business owners, who may have limited understanding of the fine points of the insurance system, particularly in regards Workers Compensation insurance. In my experience, even very experienced business managers have little understanding of the hidden pitfalls of the insurance system.

But it's not just the inherent higher cost of Assigned Risk policies.

My company specializes in finding and correcting technical errors by insurance companies, errors that overcharge the business that purchased the insurance. Such overcharges are, unfortunately, far from uncommon. I’ve been doing this kind of work since the mid-1980s, and I started my company in 1987 to specialize in it.

These kinds of technical errors, when they happen in Assigned Risk policies, get amplified by the higher rates and lack of discounts that are the norm in the Assigned Risk Plan.  So minority businesses may well be getting doubly harmed—first, by being disproportionately placed in the more expensive Assigned Risk Plan, and second, by the increased impact of technical errors within the more expensive Assigned Risk policies.

Well, anyway, that's my concern, at any rate. And like I said, we're in the process of initiating some outreach to minority business owners, to see if we can help them catch and correct the overcharges that I've spent the past few decades finding and correcting for employers all across the U.S.

I'll keep you posted regarding what we find. My gut feeling is that there is a lot to find, and a lot of overcharges to recover.

Tuesday, May 19, 2020

The Great California Workers Comp Insurance Dual Wage Classification Scam

I've just finished reviewing my second California Shock Audit today that was caused by the same outrageous insurance industry scam, one that is unique to California and that typically ambushes small contractors: The Dual Wage Classification Scam.

Here's how it worked for one of these contractors, a small plumbing contractor in Los Angeles. When the policy was written, all the non-clerical payroll was placed into Code 5187, the plumbing classification to be used when workers are paid $26.00 per hour or more. This class had a rate of 5.21 per hundred dollars of payroll.

Also on the policy was Class 5183, for workers paid less than $26.00 per hour. That class had a rate of $10.41 per hundred dollars of payroll. But that class had no payroll shown, just "IF ANY", so since there was zero payroll in that class it generated zero premium--at least, zero initial estimated premium, on the original policy that was sold to this plumber.

But of course, the initial estimated premium on the policy isn't the actual cost for the insurance. After the policy ends, the insurer normally wants to determine what the actual payroll was for the policy period--after all, premiums for Workers Comp insurance are based on payroll.

But audits often do more than just adjust payroll. In this case, the audit did a classic Shock Audit switcheroo--the audit, unlike the original policy, placed all non-clerical payroll into the $10.41 classification, and none into the $5.21 class.

Presto, change-o--this plumber's insurance rate just doubled, after the policy was ended and it was too late to do anything about it.

And all perfectly according to Hoyle, or rather, according to the self-serving rules the insurance industry has created.

The insurance industry rules require very specific timekeeping records be kept, and if they are not kept exactly as required then the payroll shifts to the more expensive one and it doesn't matter a bit how the policy was set up when purchased.

Now, with my small plumber, this was not explained when he purchased his policy. It doesn't matter.

The easy to understand rules that were not explained are:

 1. Original time cards or time book entries for each employee. Original records must include the operations performed, the total hours worked each day and the times the employee started and ended each work period throughout the workday. At job locations where all of the employer’s operations cease for a uniform unpaid meal period, recording the start and stop times of the uniform break period is not required. 2. A valid collective bargaining agreement that shows the regular hourly wage rate by job classification of worker. If using a collective bargaining agreement, the records must include an employee roster by job classification that permits the reconciliation of individual employees to the job classifications set forth in the collective bargaining agreement.  

This clever arrangement guarantees that a fair number of small employers will think they are buying a policy with a five dollar rate, only to learn after the policy ends that they really owe based on a ten dollar rate.

Sure wish I could run my business like that.

And unless this insured kept those kinds of records, there's nothing at all he can do about this legal bait and switch operation.

Fortunately, it looks like there might be other errors in how these premium charges were computed, errors that might be more amenable to correction.

But it rankles me that the existing rules allow this kind of classification hocus-pocus to happen. And it happens to a lot to small contractors in California, and they typically have to just suck it up and pay.

Wednesday, April 22, 2020

Employers' Groups in Illinois Fight to Screw Over Sick Workers

I know, I know, a provocative headline. 

But that's how I see the new lawsuit brought by the Illinois Manufacturers Association and the Illinois Retail Merchant Association. The lawsuit seeks to block the recently enacted emergency amendment to the Illinois Workers Compensation rules, an amendment that provides a rebuttable presumption, for workers at businesses not shut down during this pandemic, that any COVID-19 infection is causally connected to their employment.

In short, the amendment extends Workers Comp coverage for COVID-19 to a lot of people who are working at places exempted from the emergency shutdown.

The amendment covers places like gas stations, hotels, restaurants (those still allowed open to serve take-out) professional services (like my own company here) funeral homes, grocery stores, and more, which were allowed to remain open and where lots of people are risking their lives by showing up to work every day.

These two powerful business groups claim that the emergency amendment was created improperly, bypassing the usual legislative process. About that I can have no professional opinion.

But the lawyer who filed the suit also claims that this emergency amendment will force employers to pay for "additional medical and salary costs regardless of whether an employees' illness was contracted outside of the workplace."

About that, I have some thoughts.

First off, most of the members of these two groups buy insurance for their Workers Comp coverage. That means that the immediate "medical and salary costs" from the amendment will be born by insurance companies, not the employers currently struggling with these unprecedented times.

Of course, to the extent that these COVID-19 claims are significant and substantial in the aggregate, Workers Comp insurance rates will likely increase--in future years.

But those increased insurance costs won't be immediate-- except for the largest employers who likely are on loss sensitive Workers Comp plans like Large Deductibles. For those bigger employers, any increases in claims costs will likely translate into additional insurance costs much sooner than for smaller companies on what are known as "Guaranteed Cost" Workers Comp policies.

But even those insurance increases may not come to pass, because it seems quite possible the federal government will have to come up with an emergency reinsurance program for insurers regarding COVID-19. It's already been proposed in Congress, and if it comes to pass, premium increases for Workers Comp would be significantly diminished.

One of the lawyers bringing the suit also has inadvertently highlighted the very reason this emergency amendment was so very much needed. Scott Cruz, one of the attorneys for the two business groups, was quoted in Crain's Chicago Business thusly: "At a time when many are waiting for relief from the federal and state government in an effort to make payroll and retain workers, they will now be forced to pay for additional medical and salary costs regardless of whether an employees' illness was contracted outside of the workplace."
Yeah, about that. See, without this emergency amendment, a worker who gets sick with COVID-19 would have to somehow prove it came from work, and not from somewhere else. As is readily evident, that is a practical impossibility. The emergency amendment establishes that, for these workers who are working at businesses that are specifically exempt from the general shut-down order, workers won't have to prove the impossible in order to get Workers Compensation benefits.
How outrageous!
Of course it's impossible to prove where one contracted this goddamned virus. So for people who are working in workplaces where common sense and logic tell you they are going to be exposed to this virus, there needs to be a presumption it came from work.

Without this presumption, workers who do catch the virus at work likely would not be able to get Workers Comp benefits, precisely because it's impossible to prove it was contracted at work. That's why the emergency amendment was needed for workers in those businesses who were exempt from the shut down orders.

But let me get this straight. The workers at these companies are risking their lives, risking the lives of their families, to show up to work where an incredibly infectious virus likely exists. And these business groups want to whine that protecting these people with Workers Compensation coverage is unfair and expensive?

My immediate reaction is not with words, but involves a certain notorious middle digit.

I don't know what overpaid geniuses at these organizations thought this was a good idea, to file this suit, but I have a news flash for them:

It was a fucking horrible idea. And it essentially spits in the face of that whole "We're all in this together" business that a lot of good folks have been using as a rallying cry in these dark times.

The day after this emergency amendment was announced, I filed a claim with my Workers Compensation insurer, because we have a worker at our little shop who was diagnosed with COVID-19 and we are a professional services company, which means we are covered by this emergency amendment.

And the reason I made this filing was that I want my worker to get the Workers Compensation benefits that could be so important. So I made the filing without my worker even realizing that she might be eligible for coverage, and then I informed her to expect a call from the insurance company.

I might well have been the first employer to file a claim under the emergency amendment, and I was happy to do it.
Because it's the right goddamned thing to do.
Maybe the big shots at these big employer groups got their noses out of joint because this emergency amendment came about without their involvement. These groups tend to view Workers Compensation as a big political football game, and they love being players in that big game, so maybe their bruised egos account for part of the motivation for this lawsuit.
Maybe they think their members are really cheapskate skinflints who don't give a damn about what happens to those people currently risking their lives to keep their businesses running. I don't think that's really the case--that is, I don't think most of their members are that way, but perhaps these big shots think that's the case.
Look, making COVID-19 infections for these workers covered under Workers Comp gives important protections to the employers involved, not just to the workers. Workers Comp is what's known as an Exclusive Remedy--so it generally shields employers from lawsuits. That's a fundamental part of the "Great Compromise" aspect of Workers Compensation--it provides no fault coverage but gives employers important legal protections.
So if these brilliant business groups should prevail, it might well create unanticipated negative consequences for their members. Without the protection of the Exclusive Remedy that is Workers Compensation, these employers might well end up on the receiving end of a number of individual lawsuits on behalf of sick workers or their survivors.
Be careful what you wish for, Illinois Manufacturers' Association and Illinois Retail Merchant's Association. You might get it. And the butcher's bill for dead workers not covered by Workers Compensation might be worse than the costs of covering those workers.
That's the kind of cold-blooded argument that be most important for those who view workers only as expendable inputs to their business. I don't really think most employers in Illinois see things that way. I think most employers, certainly most employers I've known over the years, value and respect those whose labors make their companies possible. Those employers want to do right by their people, I believe.
But these two business groups appear to have not gotten that memo. Perhaps they think they will score points with their members by this provocative action. I hope they don't. I suspect they won't. At the very least, the optics are horrible. The phrase "stinks on ice" comes to mind. If members of these two groups feel the same, perhaps now is the time to communicate that to the organizations.
Right now, these two business groups think they are speaking for their members. I suspect that may not really be the case.

In any event, the lawsuit has been filed. We shall see if it proves successful. I pray it is not, but money talks and working people walk. Especially folks who work at hotels and gas stations and grocery stores.

I think it's fair to say you can color me disgusted.

Thursday, April 16, 2020

California Orders Insurance Premium Refunds Over COVID-19

Insurance companies have been ordered to return premiums to customers and businesses affected by the novel coronavirus pandemic by order of California Insurance Commissioner Ricardo Lara, his office announced early Monday, April 15.

The commissioner's office said the shelter-in-place order across the state has reduced the overall risk of loss and thus these premium refunds were warranted.

"With Californians driving fewer miles and many businesses closed due to the COVID-19 emergency, consumers need relief from premiums that no longer reflect their present-day risk of accident or loss," Lara said in a statement. "Today's mandatory action will put money back in people's pockets when they need it most."

The premiums covered are for March, April and May of 2020, if the shelter-in-place order continues through then.

The particular categories of insurance premiums covered by the order are: private passenger automobile, commercial automobile, workers' compensation, commercial multi-peril, commercial liability, medical malpractice and "any other insurance line where the risk of loss has fallen substantially as a result of the COVID-19 pandemic."

Insurance companies have until August to comply with the order -- whether through premium credits, reductions, return of premiums or other appropriate premium adjustments.

A Lot of Illinois Workers Just Got Workers Comp for Covid-19

Illinois Governor J.B. Pritzker has announced an emergency amendment to the Illinois Workers Compensation Act that retroactively makes the COVID-19 virus an occupational disease for a great number of workers in Illinois, with a 'rebuttable presumption" that the infection was "casually connected" to their work.

The Amendment makes this change retroactive back to March 20, 2020 and covers workers in a considerable number of industries. These industries are described as "Front Line Workers" which may confusingly suggest that these workers are medical folk or first responders, but those workers are separately included in the amendment. Front Line Workers are defined in this amendment as workers in:

grocery and pharmacy; food, beverage and cannabis production; charitable and social service organizations; gas stations and businesses needed for transportation; financial institutions; hardware and supply stores; critical trades; mail, post, shipping, logistics, delivery and pick-up services; educational institutions; laundry services; restaurants for consumption off-premises; essential business and work-from-home suppliers; home-based care and services; residential facilities and shelters; professional services; day-care centers for children of essential workers; manufacture, distribution and supply chain for critical products and industries; critical labor union functions; hotels and motels; and funeral services.

This makes COVID-19 a covered occupational disease for workers in all these fields, retroactive back to March 20.And the "rebuttable presumption" that it is connected to work means that the worker would not have to prove the infection came through work, but rather it would fall to the insurer or employer to prove that it was not, which in most cases would not be easily done.

Workers Compensation provides no-deductible, no co-pay medical insurance, coverage for lost time, and death benefits, if God forbid they were called for. Workers Compensation also provides coverage in the case of long-term disability or permanent disability.

In other words, this is a very big deal for a lot of workers in Illinois who might have lacked regular health insurance or paid sick leave.

This writer, in fact, has already turned in what might well be the first Workers Compensation claim under this new amendment, for one of our workers who was diagnosed with COVID-19 ten days ago. Until this amendment went into effective April 15 (but retroactive to March 20) COVID-19 would be difficult to establish as having been connected to work, but with this new amendment it is automatically presumed to be so.

Monday, April 13, 2020

NCCI Changes It's Rules Re: Payroll and Classifications During the Pandemic

The National Council on Compensation Insurance (NCCI) has announced it is changing its rules regarding Workers Compensation insurance premiums. NCCI is the Workers Compensation insurance rating bureau used in most (but not all) states in the U.S. and the manuals of rules NCCI produces are used by all Workers Compensation insurance companies writing insurance within those states.

Just a couple of weeks ago, NCCI issued a notice that payroll paid to workers who were not actually working (due to the pandemic) would still be included in the payroll used to compute Workers Comp premiums.

That has now changed. NCCI has indicated it will be filing revised manual rules so that remuneration paid during the pandemic to workers who are not actually working will be excluded from insurance premiums.

The separate California rating bureau, WCIRB, had made a similar announcement a week or so ago.

NCCI has also announced the revised rules will allow for classification changes for workers who have changed the nature of their work duties (like working from home) as long as employers document when the change occurred.

So a small bit of good news amidst all the angst and anxiety of our current crisis.

Friday, April 10, 2020

Illinois Department of Insurance Order re: Cancellations

The Illinois Department of Insurance has directed insurers that write Property and Casualty Insurance in Illinois, a Bulletin dated April 3, 2020, that there is a moratorium on cancellations and nonrenewals as of March 9, 2020. Insurers should postpone or withdraw any previous notice of cancellation or nonrenewal in which the cancellation or nonrenewal occurs on or after March 9, 2020.

This applies to Automobile and Home insurance policies and Commercial P&C Insurance other than Fidelity/Surety and Ocean Marine policies issued in Illinois.

Saturday, March 28, 2020

COVID-19 and Workers Comp

Our collective coronavirus crisis has upended lives and businesses in an unprecedented manner. It has abruptly and rudely shoved millions of people into the ranks of the unemployed. It has also shut off many businesses’ cash flow just as abruptly and rudely. But once we get past these initial existential threats (assuming we do, of course) there are likely going to be unexpected ramifications to threaten those workers and businesses that survive the immediate disasters.
One question being asked is whether COVID-19 infections could be the basis for Workers Compensation claims by workers who feel they likely contracted the virus through work. At the moment, the best answer appears to be that’s unlikely for many workers, possible for some, and subject to change depending on future actions by state legislatures.
Workers Compensation is primarily a state matter, and the particulars of Workers Compensation statutes can vary significantly from one state to another. Many states exclude “ordinary diseases of life” from the occupational diseases covered by Workers Compensation. But there are occupational exposures where that could be a different matter — healthcare workers, for example. But even for those workers, there likely will be significant disputes over coverage.
And since, in most states, Workers Compensation coverage is provided by private insurance companies (although mandated by state laws and subject to the specific benefits established by the varying states) initial decisions about coverage for COVID-19 will be made by insurance company claims people, subject to review and determination by state adjudicators, when a worker disagrees with a decision by an insurer.
Another potential complication: health insurance routinely excludes coverage for injuries and illness covered by Workers Compensation. And employers commonly use different insurers for health insurance and Workers Comp insurance.
It is conceivable workers could be caught between different insurance companies, each claiming the other should be responsible for paying for COVID-19 medical costs. And while those insurers try to pass the buck between themselves, the healthcare providers may well come after the worker for the unpaid bills.
Some state legislatures have already voiced interest in addressing these issues, so it may be likely that at least some states will address COVID-19 coverage issues in the near future. But given the patchwork nature of the Workers Compensation system in America, these decisions will also likely be a patchwork of differing rules.
For businesses that survive these initial disruptions, there may well be later significant financial threats to them, thanks to Covid-19 and Workers Compensation. And that has to do with the fact that in most states, businesses obtain their Workers Compensation coverage from insurance companies. And those insurance companies base premium charges, in large part, on payroll.
On March 26, 2020, the National Council on Compensation Insurance(NCCI) issued a FAQ on the subject of COVID-19 and Workers Compensation insurance. NCCI is the insurance industry trade organization that writes the manual rules that govern Workers Compensation insurance premiums in most states. And in that FAQ, NCCI revealed the likely causes of this coming financial threat to employers.
For one, NCCI spells out that, in cases where employers continued to pay people even when they were not working, insurance companies will count that payroll when they compute premium charges for Workers Compensation insurance. So if employers pay out significant remuneration to workers who are not actually working, no good deed will go unpunished when it comes time to compute Workers Compensation insurance premiums.
NCCI also made it clear that employers will need to clearly document when certain workers shifted their duties in response to the crisis in such a way as to potentially become eligible for a less expensive rate for Workers Compensation insurance. Without such documentation, the NCCI’s arcane rules will deny any adjustment in rate by insurance companies.
Because Workers Compensation insurance premiums are based on payroll, and use obscure rules to determine the rates assigned to those payrolls, there can be very significant additional premium charges that are billed to employers after a policy ends. This is a routine and fairly well understood aspect of Workers Compensation insurance, although newer businesses can often be unpleasantly surprised by it.
Insurance companies audit the payrolls and operations of insured businesses after policies end, and sometimes those audits produce unexpectedly large bills for additional premiums. Given the complexity of the rules involved, it is not uncommon for insurance companies to make errors in computing these additional premium charges, even in normal times. These times are not normal.
Insurance companies are not currently conducting in-person audits for Workers Compensation insurance, and it is unclear at this writing when they may resume that practice. They will still adjust premiums after policies end, of course, but now they will rely on information provided by phone or online. And since employers typically don’t understand the complicated rules about these things (Does overtime pay get counted? Whose pay goes into the cheap clerical class? What about vacation pay? Sick pay? COVID-19 time-off pay?) the odds of errors and overcharges likely will increase.
So just when surviving businesses may be trying to get back on their feet, the bills for additional Workers Comp insurance premiums may be coming in. And insurance companies historically have not been overly patient with policyholders when they think those policyholders owe them money.
Worse yet, recent changes to the rules allow for punitive premium increases if an insurer feels a policyholder has not cooperated with a premium audit. So business owners who have already been stressed to the breaking point may find they unexpectedly are dealing with an insurance company demanding money they cannot afford to pay, based on payrolls that happened in the past, before we were all living in a disaster movie.
Insurance companies historically have not been hesitant to file suit over additional premiums they feel are owed them, even when those additional premiums have been erroneously calculated. And insurers have another powerful hammer to hold over employers: they can get current Workers Comp coverage cancelled over unpaid bills for past policies.
Workers Compensation insurance is subject to the oversight and regulation of the various state insurance regulatory agencies. And those agencies have been far from vigilant in limiting errors and abuses by insurers over Workers Comp insurance premiums. State insurance regulators have, in recent decades, largely abandoned rigorous oversight of Workers Compensation insurance premiums, adopting an attitude that price competition will serve to prevent overcharges. That laissez-faire approach has left insurers free to overcharge with abandon, in my experience, even in normal times.
In the times to shortly come, alas, American employers may find that their recovery is threatened even more than was formerly the case, by an insurance industry that gets to largely write its own rules, in language that is far from accessible, for insurance coverage that is required by law if the employer wants to be in operation.
Of course, for the moment, workers and employers have far more immediate concerns. But once this storm runs out of rain, we will be mopping up for quite a while.

We're updating this information on an ongoing basis at our website, so check there for updates.

Thursday, March 19, 2020

We Need A Coronavirus Lifeline for Business on Workers Comp Audits

We're in the midst of an unprecedented pandemic emergency. Entire categories of business have been abruptly shut down by authorities in the desperate attempt to curtail the growth of this dangerous infection. Workers in the restaurant and hospitality industries have just been tossed to the curb en masse. And a great many other businesses are trying to survive in a world where no one has any damn idea what their cash flow will be next month--or next week.

Pennsylvania's governor has just ordered the closure of all "non-essential" businesses. There are serious plans to suspend evictions and foreclosures. Courts all over the country are closed for business.

But the insurance industry shows no sign of relenting on Workers Comp Shock Audits. If anything, the industry may be intensifying its efforts.

I got an email from a client I helped last year. Back in 2019 I got an insurance company to correct their excessive audit for this client. Now, a year later, the apparently panicked insurer has informed them they are now retroactively reversing the correction, and if they don't pay up promptly they will file suit.

Well, I'm not sure what court these geniuses will file in at the moment, but beyond that, I'm starting to get other phone calls and emails that make me realize the insurance industry has not the slightest intention of giving employers any slack in billing for additional premium generated by Workers Comp audits.

So businesses that are abruptly being shut down by government order are still facing financial ruin over their past Workers Comp insurance. And businesses that, while still in business but may be struggling to cope with a workforce suddenly displaced to working from their kitchen tables, will still be vulnerable to the often error-riddled audit charges for their past Workers Compensation insurance coverage--coverage from, you know, back before we were all living in a real world horror movie.

What businesses need right now is a moratorium on insurance companies billing additional premium charges for audits of past policies.

Without that relief, the insurance industry's habit of issuing Shock Audits for Workers Comp insurance (many of which are improperly inflated by technical errors) will be the final nail in the coffin for many of these operations.

Sure, it looks like this self-serving practice by the insurance industry looks likely to generate lots of additional work for us here at A.I.M. But we were plenty busy before this crisis.

I used to joke that the insurance industry must be worried about the Priz boys not having enough work, so they set out to traumatize employers with Shock Audits. Now that joke isn't funny any more.

It's not like insurance companies are likely to be able to collect a lot of the additional premiums they bill out now. You can't get blood from a stone, and all that. But apparently that won't stop them from trying. So once the courts open up again for business, there may be a lot of lawsuits filed by insurers over uncollected Workers Comp premiums.

And since a fair number of those premiums will likely be improperly inflated by technical errors regarding classifications, payroll audits, experience modifiers, and other underwriting and auditing errors. we're likely to be busier than ever.

But it really shouldn't be that way.