A.M. Best Co.

Founded in 1899, A.M. Best Co. is a full-service credit rating organization dedicated to serving the insurance industry.

Accident Year

The year in which an injury occurred.

Accident Year Experience

The matching of accident year losses with accident year premium. Accident Year Experience changes as losses develop and premium finalizes.

Accident Year Losses

The losses that occurred during an accident year. Accident year losses for a given year change as claims develop.

Accident Year Premium

The combined premium that is attributed to the accident year. Accident year premium for a given year changes as premium adjusts in subsequent years. Accident year premium includes the pro rata portion of premium activity for the accident year.

Actuary

A person who compiles and analyzes statistics and uses them to calculate insurance risks and premiums.

Adjuster

An individual who settles a claim filed by an insured. The adjuster evaluates the merits of a claim and determines the proceeds that might be payable for the claim.

Adjustment

The process of settling a claim. The settlement process includes evaluating the cause and amount of a loss, determining coverage and payment of any proceeds required under an insurance policy.

Admitted Assets

The assets that are permitted by a state to be used in determining the solvency, or financial condition of an insurance company.

Adjusting and Other Expenses (A&O)

The loss adjustment expenses that are not related to the defense, litigation, or cost containment of a claim. Includes the cost of adjusters. Also includes the cost of inspectors, appraisers, fraud inspectors, while working in the capacity of an adjuster.

Agent

An individual authorized to represent an insurance company to sell insurance. A direct agent sells exclusively for one insurance company. An independent agent represents two or more insurance companies.

Aggregate Limit

The maximum amount an insurer will pay for all claims covered by a policy during a policy period.

Allocated Loss Adjustment Expenses (ALAE)

See Defense and Cost Containment Expenses

American Medical Association (AMA)

A national physician’s group. The AMA publishes a set of guidelines called “Guides to the Evaluation of Permanent Impairment.”

Americans With Disabilities Act (ADA)

A federal law that prohibits discrimination against people with disabilities. 800-669-4000 or 1-800-669-6820 (TTY).

Anniversary Rating Date (ARD)

The date that is used to determining the effective rates on a policy. The date is usually the effective date of the policy, unless the rating board establishes a different date.

Annual Statement

The annual report that an insurance company is required to file with the state insurance department, in each state in which they do business. The report is compiled using statutory accounting principles (SAP) by using forms designed by the NAIC. The report provides information needed to assure that an insurance company has adequate reserves, and that the assets are available to meet all benefit payments for which they are liable.

AOE/COE

Arising out of and occurring in the course of employment.

Applicants’ attorney

A lawyer representing an injured worker in a workers’ compensation case.

Apportionment

A way of figuring out how much of a permanent disability is due to a work injury and how much is due to other disabilities.

Assigned Risk Adjustment Program

An additional fee placed on Assigned Risk policies (In NCCI jurisdictions) with experience modification factors higher than 1.00.

Assigned Risk Plan – Assigned Risk Pool – State Fund

A state designated program that ensures all employers can have access to workers’ compensation insurance even if insurance companies are not willing to voluntarily write the insurance. Often the last resort option for companies with poor experience ratings. Assigned risk plans usually have higher rates than the voluntary market.

Association Credit

A premium discount provided to members of a trade association that has selected WCF as its workers’ compensation insurance carrier of choice. Members must meet the program’s requirements to obtain the discount.

Assume

The acceptance by a reinsurer (assuming company), of part or all of the written insurance transferred to it by the primary insurer or another reinsurer. Assumed premium is the premium received from risk transfer to a reinsurer. Assumed losses are the corresponding losses related to the Assumed premium.

Assuming Company

The reinsurance company that accepts risk from a primary insurer or another reinsurer.

Audited Premium

The final premium for the term of the policy, calculated by auditing actual payroll values for the type of work being performed.

Average Daily Wage (ADW)

A calculation of an injured worker’s average daily earnings. This term is sometimes used to determine entitlement to wage loss benefits following an injury.

Average Weekly Wage (AWW)

A similar calculation to the ADW in determining the entitlement to wage loss benefits by week for a fixed period of time.

Basic Premium

A percentage of the standard premium used in calculating the premium of a retrospectively rated policy. Basic Premium is the portion of the retrospective premium that is loaded to reflect a policy’s expected overhead cost and profit.

Benefits

Monetary payments and other services provided by insurers under the terms of an insurance policy.

Bulk Reserves

An additional amount added to reserves to account for claim development that has not been included in the case reserves. Bulk reserves can not be attributed to any individual claims, but are an adjustment related to all outstanding claims.

Calendar Year Experience

The matching of calendar year losses with calendar year premium. Calendar year experience does not change as losses develop and premium finalizes.

Calendar Year Losses

The combined losses that occurred during a calendar year. Calendar year losses do not change as claims develop in subsequent years. Calendar year losses include claim activity for the current year claims and additional claim activity for prior year claims that occurred during a given calendar year.

Calendar Year Premium

The combined premium that transpired during a calendar year. Calendar year premium, for a given year, does not change as premium adjusts in subsequent years. Calendar year premium includes premium activity for the current calendar year only, regardless of the policy period.

Cancellation

The termination of an insurance policy before its expiration date by either the insurance company or the policyholder.

Carrier of Last Resort

The insurance company designated to accept a policyholder after the policyholder has been refused coverage by all other insurance companies. The Carrier of Last Resort is usually a state fund. Not applicable in monopolistic states and in states that have assigned risk pools.

Carve-out

Carve-out programs allow employers and unions to create their own alternatives for workers’ compensation benefit delivery and dispute resolution under a collective bargaining agreement.

Carve-Out (PEO Workers’ Compensation Policy)

A hybrid PEO arrangement where the employers maintains their own workers’ compensation policy and does not obtain coverage through the PEO workers’ compensation master policy.

Cede

To pass on to another insurance company (reinsurer) all or part of the insurance written by an insurer (ceding company), to reduce the possible liability of the reinsurer. Ceded premium is the premium paid for the transfer of risk to a reinsurer. Ceded losses is the corresponding losses related to the ceded premium.

Ceding Company

The insurance company that transfers risk to a reinsurer.

Certificate of Insurance

A document issued by an insurance company that provides evidence of the existence and terms of a policyholder’s insurance coverage.

Claim

A request to an insurance company for payment of a loss covered by an insurance policy.

Claimant

An individual who submits a claim to an insurance company for an incurred loss.

Claims Outstanding (or Claims Pending)

The total number of open claims at any given time.

Claims Reserve

The reserves attributed to an individual outstanding claim. Claims reserves contrasts with bulk reserves that cannot be attributed to an individual claim, but are attributed to all outstanding claims. Claims Reserves are equal to total incurred less net payments (gross payments less subrogation).

Claims Severity

The average cost per claim. Severity can be based on accident year or policy year, for an individual policy, a group of policies or all policies.

Class Codes

Also called work comp code or class code. Each type of work has risk of injury. Workers’ compensation codes are established that identify the type of work being performed and provide an associate code. Workers’ compensation premium rates are established by codes and are meant to be commensurate with the risk associated with that workplace exposure. Codes descriptions are maintained by NCCI in the SCOPES manual.

Collected Premium

The amount of premium that has actually been received as payment.

Combined Ratio

The sum of the loss ratio and expense ratio. The combined ratio indicates whether an insurance company is making a profit on the business it is writing, without taking into account the investment returns on the premium received.

Commutation

An order by a workers’ compensation judge for a lump sum payment of part or all of an injured worker’s permanent disability award.

Cumulative Injury

An injury caused by repeated events or repeated exposures at work.

Death Benefits

Benefits paid to surviving dependents when a work injury or illness results in death.

Declarations Page (Dec Sheet)

The portion of a policy describing a risk. It includes the insured’s name and address, policy term, policy premium, and amount of coverage.

Deductible

The amount of loss that the policyholder pays in a claim. The policyholder is liable to pay the deductible before the insurance company is obligated to pay the claim. The policyholder receives a discount by adding the deductible to the policy. The higher the deductible, the lower the premium.

Defense and Cost Containment Expenses (D&CC)

The loss adjustment expenses that are related to the defense, litigation, or cost containment of a claim. Includes surveillance, appraisers, private investigators, and fraud investigators, if working in defense of a claim. Also includes rehabilitation nurses and the cost of engaging experts. Prior to 1/1/98, Defense and Cost Containment Expenses were referred to as Allocated Loss Adjustment Expenses (ALAE).

Deposit Premium

The premium paid at the beginning of the policy that provides for future premium adjustments based on an estimate of the final premium.

Disability Management

A process to prevent disability from occurring or to intervene early, following the start of a disability, to encourage and support continued employment.

Dividend

A payment to the policyholder by an insurance company out of its surplus or net worth.

Date of Injury (DOI)

The date of the accident that caused the injury.

Earned Premium

The pro rata portion of written premium applicable to the expired portion of the policy term for which the insurance was in effect.

Effective Date

The date coverage begins on an insurance policy.

Employer’s First Report of Injury

A report that an employer is required to file with its workers’ compensation carrier when one of its employees is injured while working.

Employers Liability

Employers liability insurance applies to bodily injury by accident or bodily injury by disease. Bodily injury includes resulting death. The bodily injury must arise out of and in the course of the injured employee’s employment.

Endorsement

A written amendment attached to a policy modifying the terms of the insurance contract. The modification can only become effective with the agreement of the insured, unless it is clearly made solely for the benefit of the insured.

Estimated Premium

The premium on a term policy calculated using estimated payroll exposure. Estimated premium is the policy premium prior to the final premium calculation.

Expense Constant

A flat charge added to small account premiums to cover the cost of issuing and servicing a policy.

Expense Ratio

The percentage of premium used to pay for the acquisition, writing, and servicing of a policy. The expense ratio is equal to underwriting expenses divided by written premium. The expense ratio shows how much it costs the insurance company to write the premiums.

Experience Modification Factor

A premium modifier that reflects the loss experience of a policyholder compared with payroll exposure during the same time period. The modifier increases or decreases the current premium depending on how the actual exposure and losses, for the past three years, compares with expected losses for the same amount of exposure. Experience mods are calculated by the NCCI.

Experience Period

The window of time for loss and payroll data used to calculate an experience modification factor for an employer. Traditionally a three-year period, starting four years prior to the effective date of the experience modifier. Rating bureaus may not wait until three years before establishing an experience rating for an employer. If an employer reaches a certain, relatively low threshold of workers’ compensation insurance premiums in any one of the three years in the experience period the employer is eligible for experience rating. Each state has different thresholds for premium amounts before a company is eligible for experience rating.

Expiration Date

The date coverage ends on an insurance policy.

Exposure

Being subject to the possibility of a loss.

Extraterritoriality

A provision in workers’ compensation insurance law that extends protection to an employee that is injured in a state other than his state of hire.

Facultative Reinsurance

The reinsurance of part or all of a single policy. In facultative reinsurance, both the primary insurer and the reinsurer have the faculty or option to accept or reject the policy to be reinsured.

Fair Employment and Housing Act (FEHA)

A state law that prohibits discrimination against people with disabilities.

Family and Medical Leave Act (FMLA)

A federal law that provides certain employees with serious health problems or who need to care for a child or other family member with up to 12 weeks of unpaid, job-protected leave per year. It also requires that group health benefits be maintained during the leave.

Final Order

Any order, decision or award made by a workers’ compensation judge that has not been appealed in a timely way.

Final Premium

The premium on a term policy calculated using actual payroll exposure. Final premium is calculated after the policy has expired.

Frequency

The number of claims occurring. Frequency can be based on accident year or policy year, for an individual policy, a group of policies, or all policies.

Governing Classification

A policyholder’s workers’ compensation class code that has the most payroll exposure. The governing classification generally describes the main business operation of an employer. The governing classification cannot be a standard exception unless there are no other class codes other than the standard exceptions.

Guaranteed Cost

A workers’ compensation insurance policy that cannot be adjusted due to losses that occur during the policy term. Only payroll values affect the premium charge.

Hearings

Legal proceedings in which a workers’ compensation judge discusses the issues in a case or receives information in order to make a decision about a dispute or a proposed settlement.

Impairment Rating

A rating established by a claimant’s physician that quantifies a claimant’s physical disability. The Impairment Rating is determined by medical examinations, using American Medical Association (ADA) guidelines. Individual states may have additional guidelines that supercede the ADA guidelines. The impairment rating reflects the percentage of a claimant’s whole body impairment.

Incurred But Not Reported (IBNR)

Covered losses that occurred but have not yet been reported to the primary insurance company. A reserve is set up to account for this unknown liability, to more accurately reflect the expected ultimate losses.

Incurred But Unpaid Benefits (IBUB)

The general liability accounts that reflect the reserves that have been booked to pay any future liabilities on outstanding claims and IBNR claims.

Incurred Losses

Paid losses plus additional loss reserves for anticipated future claims. Many loss sensitive insurance policies adjust premium based on incurred losses rather than solely on paid losses.

In-Force

When a policy is active and coverage is extended; reflects the exposure for which an insurance company is providing insurance coverage.

Indemnity

Compensation for a loss.

Indemnity Claim

A claim which includes payments and reserves for lost wages and medical expenses. Indemnity claims occur when an injured worker is out of work long enough to receive compensation for lost wages.

Independent Contractor

An individual who does a job for another individual, or company, according to a contract and is not an employee of the individual, or company.

Independent Medical Examination (IME)

An examination of an injured worker by a physician selected by the insurance company. Independent Medical Examinations are usually done to determine the appropriateness of a course of treatment, or to provide an evaluation of permanent impairment.

Installment Premium

A partial payment of premium made by a policyholder for coverage on a term policy. The installment premium is determined by dividing the estimated premium into smaller amounts at set intervals during the policy period.

Insurance

The transfer of risk from one party (insured) to another party (insurer), in which the insurer promises to pay the insured (or others on behalf of the insured) an amount of money, or service, for losses sustained from an unexpected event, during a period of time for which the insured makes a premium payment to the insurer.

Insurance Commissioner

The official of a state charged with the duty of enforcing its insurance laws. Also called the superintendent of insurance and director of insurance.

Insured

The person or party protected by an insurance policy.

Insurer

The insurance company or other organization providing insurance coverage and services to an insured.

Interstate Rating

An experience modification factor that applies across several states. Interstate ratings are calculated by a rating bureau (like NCCI) for employers operating in more than one stated. Most, but not all states (Michigan, Pennsylvania, and Delaware are exceptions), participate in the interstate rating system. Employers can have one experience modifier applying to their operations in most states but a separate modifier calculated by the stand-alone state rating bureau. The separate state modifier(s) apply only to workers’ compensation insurance premiums for the employer’s operations in that stand-alone state.

Investment Income

Money earned from invested assets. An insurance company’s invested assets usually include reserves and policyholder surplus. Net investment income is investment income less investment expenses. (Does not include realized, or unrealized, gains or losses).

Long-Tail Line

A line of insurance coverage where the occurrence and reporting of a loss and the payout of the claim is often spread out over a long period of time. The uncertainty of the length of the time period makes it difficult to determine the value of the claim when the claim is first reported.

Loss Adjustment Expenses (LAE)

All of the costs associated with the settlement of a claim. (See Defense and Cost Containment Expenses and Adjusting and Other Expenses.)

Loss Conversion Factor (LCF)

A multiplier used in calculating the premium of a retrospectively rated policy to include the cost of settling claims. Incurred losses are multiplied by the loss conversion factor to obtain an amount equal to incurred losses plus loss adjustment expenses.

Loss Cost Multiplier

A factor an insurance company files with the state insurance department that reflects the increase, or decrease, in state rates that the insurance company will charge for workers’ compensation.

Loss Ratio

The percentage of losses plus loss adjustment expenses to earned premium. The loss ratio shows how much premium was used to cover losses and the cost to settle the losses.

Loss Run

A report that lists the losses and expenses for the claims filed on a policy for a given period of time. A Loss Run also reports the premium earned for the period of time and the calculated loss ratio. A loss run also provides a breakdown of losses by paid, reserves, and subrogation. In addition, losses are broken down further by type of loss (medical and compensation) and type of expense (rehab: vocational rehabilitation and ALAE: defense and cost containment). Only expenses charged to a claim are listed on the loss run.

Losses Incurred

An amount representing the losses paid plus the change (positive or negative) in outstanding loss reserves within a given period of time. On the annual financial statement, Losses Incurred is the loss paid during the year plus the loss reserves at the end of the year less the loss reserves at the beginning of the year.

Lost Time Claim

A claim in which an injured worker is determined by a doctor to be unable to work for a period of time. These claims involve the payment of disability benefits in addition to medical costs and other expenses.

Manual Premium

Premium calculated by multiplying the exposure by the manual rate. Manual premium is the premium before experience modification and premium discounts.

Manual Rate

The rate used to calculate premium on a policy. The manual rate is equal to the state rate multiplied by the appropriate loss cost multiplier (preferred, standard, non-standard) that was filed with the state insurance commissioner.

Maximum Medical Improvement (MMI)

The maximum level of medical improvement of an injured worker’s condition. Once a claimant has obtained MMI, it is expected that significant improvements in the future will be minimal.

Medical Case Management

Professional services for the evaluation, monitoring and coordination of medical treatment of claims with specific diagnosis or requiring high-cost or extensive services.

Medical Only Claim

A claim that includes payments for medical expenses only. A medical only claim occurs when the injured worker was not out of work long enough to receive compensation for lost wages.

Minimum Premium

The smallest premium charged by an insurer to issue coverage for an annual period.

Modified Premium

Premium after the adjustment for experience modification.

Monopolistic State Fund

State operated insurance company that is the sole provider of workers’ compensation insurance in a state. In these states, no other insurance companies are permitted to write workers’ compensation insurance. Currently, there are five monopolistic state funds: North Dakota, Ohio, Washington, West Virginia and Wyoming.

Mutual Insurance Company

A company owned and controlled by its policyholders. A mutual insurance company’s surplus may be distributed to its policyholders in the form of a dividend.

National Association of Insurance Commissioners (NAIC)

An organization of state insurance commissioners that promotes uniformity by drafting regulations and model legislation. The NAIC has achieved considerable multi-state uniformity through the annual statement, which insurance company’s use for financial reporting.

National Council on Compensation Insurance (NCCI)

The organization responsible in many states for determining proper workers’ compensation classifications, experience modification factors, and collecting data used for establishing work com rates. NCCI also writes the manuals used in many states to calculate workers’ compensation premiums, and administers the assigned risk plan in many jurisdictions. NCCI is a private company.

Net Investment Income

Money earned from invested assets less investment expenses. An insurance company’s invested assets usually include reserves and policyholder surplus. (Does not include realized, or unrealized, gains or losses).

Net Investment Income Ratio

The percentage of net investment income to net earned premiums.

Non-Admitted Assets

The assets that are not permitted by a state to be used in determining the solvency, or financial condition of an insurance company.

Not Otherwise Classified (NOC)

A class code term denoting that the policyholder’s operations cannot be classified more specifically.

Occurrence

A repeated exposure or event that unexpectedly causes loss or damage.

Operating Ratio

The combined ratio less the net investment income ratio.

Owner Controlled Insurance Program (OCIP)

An insurance program written to cover large construction projects, usually exceeding $100 million in construction value. Under this program, all labor performed under the contract is covered. The program usually includes insurance policies covering workers’ compensation and general liability. Also called “wrap-up” policies.

Paid Losses

The actual amount of total losses paid by an insurance company.

Payment Plans

The payment of premium in periodic installments. The payment periods are usually monthly.

Payroll Exposure

A measurement of the amount of loss possibility to which an employer’s workers are subject. Payroll Exposure is used to calculate the amount of premium that is due on a workers’ compensation insurance policy.

Permanent Partial Disability (PPD)

An injured worker that has a permanent impairment rating of less than 100 percent after maximum medical improvement has been reached. Benefits for PPD are paid over a specified period of time, spending on the severity of the permanent impairment.

Permanent Total Disability (PTD)

An injured worker whose injuries have rendered him permanently unable to perform the kind of work for which he is qualified, and who cannot perform other work that is reasonably available. In most cases, benefits for PTD are paid for the remainder of the injured worker’s life.

Physician’s First Report of Work Injury

A report that a physician files with a workers’ compensation carrier after an injured work is examined by the physician, for the first time, after the accident.

Policies In Force

The total number of policies that are active at a given point in time. Policies-in-force is used to calculate claims frequency.

Policy Period

The time period during which a policy is effective or in force.

Policy Year

The year of the inception date of a policy.

Policyholder Acquisition Costs

The expenses incurred by an insurance company that are directly related to writing a policy.

Policyholder Surplus

The excess of an insurance company’s assets above its legal obligations to pay benefits to its policyholders and claimants. The policyholder surplus is net worth as stated on the statutory annual blank.

Preferred Provider Organization (PPO)

A formally organized entity consisting of hospitals, physicians, and other healthcare providers. A PPO allows insurance companies to negotiate directly for healthcare services at lower price than would normally be charged. Insurance companies recommend the PPOs they have negotiated with to the insureds.

Premium

The price paid by a policyholder to an insurance company in return for insurance coverage.

Premium Audit

An examination of a policyholder’s operations, books and records by a premium specialist to determine the actual insurance exposure for the coverages provided.

Premium Discount

A premium discount, based on size of the premium paid. A premium discount is usually at the discretion of the insurance provider.

Premium Refund

The premium returned to the policyholder, which is the amount of premium that has been collected over and above the final earned premium.

Premium Reserves

1. Premium Earned But Not Received (EBNR) – Premium due but not received by the end of the accounting period. 2. Unearned Premium Reserve (UEPR) – Premium paid for coverage beyond the end of the accounting period.

Premium Specialist (also known as Premium Auditor)

An individual who does premium audits for an insurance company.

Premium Tax

Payment made to a state or municipally by an insurance company based on written premium.

Proceeds

Benefits payable under an insurance policy.

Professional Employer Organization (PEO)

A company that provides outsourced insurance benefits and human resource consulting to other companies. The insurance benefits are provided as part of a group policy. Also known as employee leasing.

Prospective Rating

The determining of premium rates based on loss experience over a specified past period of time. The state rates for workers’ compensation are prospectively rated based on prior loss experience for the state.

Recoveries

Amounts received as reimbursement from paid losses. Recoveries include amounts from overpayments, subrogation and second injury fund.

Reinsurance

An agreement whereby the reinsurer, for consideration, agrees to compensate the ceding company for all or part of the losses that the ceding company may experience under the policy or policies which it has issued.

Reinsured

An insurance company that has placed reinsurance risk with a reinsurer in the business of buying reinsurance. Also known as ceding company.

Reinsurer

A company that assumes the liability of another by way of reinsurance.

Reserves

Insurance company funds set aside to met future obligations.

Residual Market

Workers’ compensation written through an assigned risk plan.

Retrospectively Rated Policy

A policy where the final premium is determined based on a formula using the current policy period’s incurred losses. The formula elements and factors are included on the policy. Initially, premium is estimated using expected losses. After policy expiration, the premium is adjusted using actual losses. A retrospectively rated policy is similar to self insurance due to the risk assumed by the policyholder, but unlike self insurance the assumed risk under a retrospectively rated policy is limited.

Risk Based Capital Requirements (RBC)

The minimum capital standards that an insurance company must meet based on an assessment of the risk associated with the insurance company’s operations.

Risk Unit

The intrinsic item insured, e.g. the employee covered by workers’ compensation insurance.

Scopes Manual

Document produced by NCCI that defines workplace exposures and assigns the particular workers’ compensation classification codes.

Second-Injury Fund

An insurance fund set up by most states that encourage companies to hire workers that have been handicapped by a prior workplace injury. When a worker has a second injury, after being hired by another company, the current company’s insurance company is responsible for only the costs of the second injury. The second-injury fund will pay the difference between the total costs and the costs of the second injury. Such entities usually are funded by general state revenues or by assessments on workers’ compensation companies.

Self Insurance

Protecting against losses by setting aside a company’s own money rather than purchasing an insurance policy. By being self insured, a company saves expenses that an insurance company charges for acquisition, premium tax, and general overhead.

Sliding Scale Dividend

A premium adjustment (rebated) after policy expiration, based on the actual loss experience of the insured business. The size of the dividend varies depends on the actual loss ratio of the insured.

Solvency

The minimum standard of financial health for an insurance company, where assets exceed liabilities. State laws require insurance regulators to step in when the solvency of an insurance company is threatened and proceed with rehabilitation or liquidation.

Social Security disability benefits

Long-term financial assistance for totally disabled persons. These benefits come from the U.S. Social Security Administration. They are reduced by workers’ compensation payments received.

Standard Exception

Certain employee groups rated separately instead of being included under the main class code. The standard exception for workers’ compensation are 8810 Clerical Office, 8742 Outside Sales, and 7380 Drivers, unless the main class code description states that one of these employee group are included under the main class code.

Standard Premium

Premium after adjustment for experience modification, safety credits/debits, schedule credits/debits, and association credits, but prior to adjustment for size discount and expense constant. Standard Premium is used in retrospective rating to calculate the basic premium, maximum, and minimum.

Statewide Average Weekly Wage (SAWW)

A computation of average wages paid to employees in a jurisdiction for a set period of time. It is typically used to calculate the minimum and maximum amounts of workers compensation benefits that an injured employee will be entitled to receive.

Statutory Accounting Principles (SAP)

The rules of accounting and reporting required by state law that must be followed by insurance companies in submitting their financial statements to state insurance departments.

Statutory Employee Exclusion Policy

A waiver of insurance coverage, available in some states, that an independent contractor can purchase as proof to other companies that the contractor has elected to not be covered by workers’ compensation insurance. The waiver also excludes the contractor from being covered by another company’s policy.

Stop Loss Provision

A policy provision on a retrospectively rated policy that limits the loss amount for any individual claim that is included in calculating the retrospective premium. A stop loss provision is an additional election, made by the policyholder, for which they are given a higher basic premium factor.

Subrogation

An insurance company’s right to take legal action against a third party responsible for a loss to an insured for which a claim has been paid.

Temporary Partial Disability (TPD)

An injured worker’s status prior to reaching maximum medical improvement has been reached, during which he can perform some work, usually in a modified duty capacity or at fewer than normal hours per day. Benefits for TPD are paid until the worker is released to full duty work, or has reached maximum medical improvement.

Temporary Total Disability (TTD)

An injured worker’s status prior to reaching maximum medical improvement has been reached, during which he is unable to perform any work, as determined by a physician. Benefits for TTD are paid until the worker is released to return to work, or has reached maximum medical improvement.

Term Policy

An insurance policy that is written with an established expiration date. Coverage only continues if the policy is renewed. The policy is written with estimated premium based on estimated payroll exposures. After expiration, a premium audit will gather actual payroll exposures, from which the final premium can be determined. The difference between the estimated premium and the final premium will be either refunded if estimated is greater than final, or billed if final premium is greater than estimated, assuming the estimated premium has been collected.

Terms

The provisions of an insurance policy.

Third Party Administrator (TPA)

The performance of the claims functions related to an insurance plan by a company that is not an original party to the insurance plan.

Total Incurred Loss

An amount that represents the current expected payout on a claim over the life of the claim. Incurred loss is equal to net paid losses (paid losses less recoveries) plus reserves.

Total Reserves

All reserves on outstanding claims, whether known or unknown. Includes case reserves, IBNR reserves, and bulk reserves. Also includes reserves for loss adjustment expenses.

Treaty Reinsurance

The reinsurance of part of the policies written by an insurance company. Treaty reinsurance may be by participating type, where the insurance company and reinsurer share the risk based on a pro rata share agreement, or by excess type, where the reinsurer reimburses the insurance company for claims that exceed a predetermined loss amount. Compare with facultative reinsurance.

Ultimate Net Loss

The total payments resulting from a claim over the life of the claim, plus all related expenses, less recoveries and reinsurance. Total payments reflect that the loss has fully developed, and all loss payments are known.

Underwriter

An individual who decides which applicants are accepted or rejected, what coverage is provided, and what price to charge for the coverage.

Underwriting Profit or Loss

An insurance company’s profit or loss strictly from its insurance operations, as opposed to investment operations.

Unearned Premium

The portion of the premium applicable to the unexpired period of the policy.

Utilization Review

The process used by insurance companies to decide whether to authorize and pay for treatment recommended by your treating physician or another doctor.

Voluntary Market

Workers’ compensation insurance written by private insurers outside of the assigned risk plan.

Waiver Policy

See Statutory Employee Exclusion Policy

Workers Compensation Insurance

Insurance coverage for employees required by law in case of injury or death due to an occupational accident, regardless of employer’s negligence.

Workers Compensation Unit Report

A statistical report that provides information about payroll, premium and losses for a specific policy and state. Unit Reports are used to calculate e-mods for a policyholder. Unit reports are submitted to the NCCI or other rating organizations.

Wrap-up Policy

See Owner Controlled Insurance Program

Written Premium

The entire amount or premium written during a certain period regardless of which portions have and have not been earned.

In addition to controlling and lowering your mod, it is possible to better understand your company’s operations through mod analysis. Changes in loss frequency or severity over time may indicate problems in your operation that have not been identified. Your experience worksheet may be the easiest way to “benchmark” your company against other companies with similar operations. There are certain numbers on the worksheet that can help you identify if your company is experiencing more workers’ compensation claims or more severe losses than average. The experience worksheet will actually tell you whether or not you’re beating the competition in this important cost area.

There are several types of mod analysis and the agents at FloridaWC would like to assist your business in working to reduce your experience mod. Please contact us for more details.

Contact your claims examiner or the doctor to determine what exactly are the employee’s medical needs and medical restrictions. Does the employee have temporary restrictions that prevent performance of the regular work duties?

2) Evaluate Your Work Processes

“Think Task, Not Job” Although many of your current “jobs” may require tasks that exceed the employee’s temporary medical restrictions, he or she may be able to perform many of the required tasks, despite the injury. Analyze all of your work activities, not just those included in the employee’s regular job. This will help to identify alternative tasks that bring value to your operation. You want to allow your employee to to safely transition back to full duties as part of the recovery process.

3) Formalize the Transitional Work Assignment

Once you have identified suitable tasks within the employee’s temporary restrictions, it is important to formalize the transitional work offer process. It is usually desirable to prepare a summary of the work tasks and physical demands of the transitional work assignment. This may be submitted to the doctor for medical authorization. Documenting the offer of transitional work in writing to the employee will clarify expectations and eliminate confusion.

4) Work Within Restrictions

Make sure that you and your supervisors carefully monitor the employee’s work to ensure that the temporary medical restrictions are maintained. It is important that the supervisor understand why you are providing a transitional work assignment, how it benefits your company and the employee, and the exact nature of the temporary medical restrictions.

5) Follow-up for Transition Back to Full Duty

Maintain regular contact with your claims specialist, the doctor and the employee to review medical status for changes in restrictions and/or release to regular duty work. If the employee’s condition prevents a return to full duty on a long term or permanent basis, depending on your jurisdiction, it may be necessary to take other steps to meet state legal requirements.

A study by the Workers Compensation Research Institute titled “CompScope Benchmarks for Florida, 12th edition” says the market showed signs of growth from 2005 to 2009 following reforms in 2003.

The research association says the “average indemnity cost per claim—payments for lost wages, loss of earning capacity, or permanent impairment or disability—rose three percent per year after decreases of more than 20 percent due to reforms related to permanent disability benefits.”

WCRI says part of the moderate growth in indemnity costs per claim came from wage growth; and another part was driven by increases in lump-sum frequency and growth in the average lump-sum payment per claim.

Adding to the increase, medical costs per claim in Florida continued to increase rapidly for most cases in 2009. For all paid claims and medical-only claims, the average medical cost per claim grew 7 percent and 10 percent, respectively, in 2009.

Medical costs per claim in Florida grew 5-to-6 percent per year starting in 2005, following one-year of stabilization due to the fee schedule reforms. A main driver of the growth in medical costs per claim in 2005 was the price increase for chiropractors and physical and occupational therapists, resulting from a fee schedule increase.

From 2006 to 2008, growth in the average payment per service for hospital outpatient services was a driver of the growth in medical costs per claim.

The study also notes the frequency of defense attorney involvement rose steadily from 2005 to 2009, at one to two percentage points per year. This was likely related to the steady growth in the frequency of claims with lump-sum settlements after 2005, says WCRI. The average defense attorney payment per claim in Florida grew 12 percent in 2009.

Companies with higher loss histories receive higher mods and thus pay more in premium. And since the cost of a specific accident is statistically less predictable than the frequency, NCCI has long given greater weight (and penalty) to accident frequency than to accident severity through a split-point rating approach for costs. However, a change to this process is on the horizon.

Historically, NCCI divides losses into primary and excess portions, with a longtime split point with a $5,000 cap. (The primary costs are weighted at 100 percent in the mod formula for lost-time claims; any amount over that is allocated to excess and weighted at a lower percentage.) A company with several small losses creates a higher mod than a company with a single, larger loss even if the total loss dollars are the same.

NCCI has proposed changing that primary loss cap beginning in 2013, the first such change in 25 years. The anticipated change (if approved) is expected to more than triple the current cap by 2015.

This gradual increase over 3 years is intended to compensate for the increased claims amounts over the past years. While the optimum goal for employers will still be zero accidents and a mod of 1.00 or lower, the change is expected to bring an immediate and significant mind-shift about the impact of losses. By 2015, when the phase-in is complete, approximately $17,000 in claims costs will be factored into mods at 100 percent. This amount will be indexed for inflation for years after 2015. The result is premiums for companies with higher-than-average losses will increase, while companies with better-than-average losses will be reduced.

These changes emphasize the value of loss control return-to-work programs. If employers improve their loss experience, then they can improve their mods, which will reduce their premiums in the long run. For employers who are not mod-eligible, improving loss experience can still save money by lowering claims costs. And given today’s soft market, better loss experience can also help with insurability.

On October 26, 2011, NCCI submitted an amended filing to OIR addressing each of the miscellaneous issues as instructed by the order and OIR is currently reviewing the amended filing. NCCI will release the updated rate pages when the amended filing is approved.

Once it is approved, the cumulative impact to Florida’s workers’ compensation rates since the 2003 reform will be -58.6%. Florida will continue to rank among the 20 states with the lowest workers’ compensation rates nationally.

More assortments of changes to the law were seen during the 1960s. This time can be best described as a period of development of the idea of the law, which had begun in the preceding decades to cover injuries that had never before been covered. The Governmental Reorganization Act of 1969 was established to consider appeals of workers’ compensation cases. These cases would be seen by the Industrial Relations Commission, full-time deputy commissioners, were hired to give a ruling on disagreements between employers and employee

An 18 member commission, the National Commission on State Workmen’s Compensation Laws was put together by the Federal Occupational Safety & Health Act (OSHA) in 1970. This Commission consisted of three cabinet level appointees (appointed by President Richard Nixon) along with representatives of various groups. Its purpose was to determine the fairness and adequacy of state workers’ compensation laws.

While this commission was deliberating, workers’ compensation became mandatory in Florida and multiple changes in the law were made. The governor of the state of Florida in 1974 appointed a task force to update planned changes in the law, a crucial development in the workers’ compensation laws in Florida.

The “Papy Package” was created for legislative reform. This was ultimately passed by the Legislature and singed into law by the governor. The changes seen as a result of these amendments can be best described as liberal, expensive, and unquestionably pro-labor. Even with attempts to reform, premiums increased by 200% between 1974 and 1978. Between the months of June and October, 1974 19,430 claims were filed.

A maximum fee schedule for reimbursing medical care providers was put into action by the Legislature during the 1940s. Back in 1935, the average weekly wage for benefits due an injured worker was calculated by dividing annual earnings by 52; 1941 saw the calculation changed to a procedure of averaging earnings for the 13 weeks preceding a date of accident. That same year “reasonable” attorney’s fees were deemed payable to the injured worker’s attorney in addition to the compensation otherwise due and payable to the injured worker.

The Florida Industrial Commission, in a preface to the act said:

The Florida Workmen’s Compensation Law is a plan or system for compensating workmen accidentally injured and disable as a direct result of their employment, regardless of the question of fault or negligence. It is based, in the main, on the English Compensation Act. The principles of the Florida law are basically the same.

Strangely enough, the English deserted their workers’ compensation law in 1964, while Florida and many other states based their law on the English law. The English then replaced it with a more complete health insurance law and it was in line with the compensation law developed in Germany.

The English compensation law failed primarily because it was unable to maintain the self-executing design of the system. Litigation was widespread and the costs of such added enormously to the total cost of the system.

Click here to read more about Workers Comp History.

• Failure to obtain workers’ compensation insurance
• Materially understating or concealing payroll
• Materially misrepresenting or concealing employee duties to avoid paying the proper premium
• Materially concealing information pertinent to the calculation of an experience modification factor
• Failure to produce business records in a timely manner

The assessed penalty is 1.5 times what the employer would have paid in workers’ compensation insurance premiums for all periods of non-compliance during the preceding three-year period with the minimum penalty being a $1,000 fine.

During their 2010-2011 fiscal year, the Bureau conducted 34,252 investigations, of which 2,044 investigations were conducted in response to referrals alleging employer noncompliance. Investigations are physical, on-site inspections of an employer’s job-site or business location to determine compliance with workers’ compensation coverage requirements. Some investigations originate from referrals and consist of on-site inspections of residential and commercial construction sites.

Taken from the Florida Workers Compensation 2011 Annual Report, the graphics below demonstrate the impact of these investigations on the workers comp marketplace:

If your business has received a stop-work order, please contact me or one of our insurance agents as soon as possible, because there are other ramifications for not having workers compensation coverage. If you know of a business operating in Florida without workers’ compensation insurance, click here for more information about reporting them.