Increased Use of Medical Services Contributes to Higher Workers’ Compensation Costs

In December 2003, the American College of Occupational and Environmental Medicine (ACOEM) developed a set of medical protocols, backed by scientific findings, for the treatment of injured workers. Occupational medicine physicians and other specialists involved in the medical care of workers developed these guidelines to provide practitioners with:

  • A step-by-step outline to assess the patient’s condition, and to educate the patient about that condition.
  • Specific guidelines about what physical findings and/or test results are required to establish a diagnosis.
  • A methodology for identifying the role psycho/social factors plays in a worker’s response to treatment.

The effectiveness of these guidelines was documented in a study titled Acceptance and Self-Reported Use of National Occupational Medicine Practice Guidelines, published in the April 2000 issue of Journal of Occupational & Environmental Medicine.

Ninety-five percent of those polled reported that the guidelines improved their practice in some manner. Fifty-two percent of physicians thought that guideline use decreased medical costs. Seventy-one percent reported that their care complied with the guidelines in 70 percent or more of their cases. The researchers concluded from their study that physicians’ attitudes toward the guidelines were positive and that reported compliance was high.

However, a 2006 study conducted by the National Commission of Compensation Insurance (NCCI) titled Workers’ Compensation vs. Group Health: A Comparison of Utilization, showed that compliance with ACOEM protocols had dropped considerably since 2000. In fact, the researchers uncovered significant growth in the number and mix of medical treatments practitioners provided compensation patients. The study, which compared 2001-2002 to 1996-1997, found that the number of treatments for all diagnoses increased 45 percent, except for injuries such as knee and leg sprains, which had increased as much as 80 percent.

But increased levels of treatment and unnecessary testing are just the tip of the iceberg. There are some other serious outcomes resulting from over utilization:

  • The barrage of doctor’s visits, tests, prescriptions, therapy sessions, etc., convinces the employee that they are getting all of this treatment because they are seriously injured. The employee begins making emotional decisions, and overlooks their economic well being. This kind of response often results in lawsuits and the loss of a valuable employee.
  • More narcotics are being prescribed as part of the treatment program, resulting in addiction among some employees.

Given these outcomes, it is incumbent upon employers to select a doctor who will follow evidence-based treatment protocols. The doctor should be in agreement with the ACOEM philosophy that it is important to return the injured employee to the workplace in the appropriate time, whether to their own job, or to a modified position.

The best way to find the right doctor is to talk to other local companies, asking if they use physicians who are specifically trained in occupational medicine. After you have found the right doctor, establish a line of communication. Be sure your doctor knows that their recommendations and restrictions will be respected. They should also be fully aware of the return-to-work possibilities that exist within your company so that they can make the appropriate decision for their patients.

Taking Another Look At Flood Insurance

According to an August 2006 article published on, the Federal Emergency Management Agency reported that only 40 percent of all residents in the flooded areas hit by Hurricane Katrina were covered by flood insurance. The majority of those insured were required to have the coverage in order to obtain a mortgage.

The other 60 percent who didn’t have flood insurance fall into two main categories: renters and homeowners without a mortgage.

The uninsured group faced a serious problem. Standard homeowner and renter’s policies cover damage from wind or rain. These policies, however, don’t cover damage as a result of flooding. These individuals’ only recourse was to rely on federal disaster aid.

Flood insurance is available through the National Flood Insurance Program to any property owner living in an area with an established flood plan. This is used to gauge the community’s vulnerability by creating an area flood map. Flood plans also help lessen some of the risk by establishing certain zoning and building policies, which include types of allowed construction, elevation at which building is allowed, permissible building materials, and construction reinforcement techniques.

The National Flood Insurance Program offers three different types of policies:

·   The Dwelling Form – this insures one to four family residential structures and/or contents. This form can also be used to insure residential condominium units.

·   The General Property Form – this insures residential buildings housing more than four families as well as non-residential and commercial buildings.

·   The Residential Condominium Building Association Policy Form – this insures associations operating under the condominium form of ownership.

There is also a Preferred Risk Policy designed for residential and non-residential properties in low-to-moderate risk areas. The policy can be written with one of several combinations of building and contents protections:

·   Renters pay $39 per year for $8,000 of contents coverage.

·   Business owners can buy $50,000 of building and contents coverage for $550 per year per building.

·   Business owners who lease their space can purchase $50,000 of contents coverage for $145 per year.

Finally, keep in mind that flood insurance is easy to obtain. While the federal government may administer the program, it is sold through regular insurance companies. To find out more about flood insurance, call us today or log on to

Data Theft Is Big Business – Are You Protected?

According to the U.S. Federal Trade Commission Internet fraud complaints soared from $206 million in 2003 to $336 million in 2005. The worst news, according to a survey performed by the Enterprise Strategy Group in 2006, is that your data is more likely to be stolen from inside your company by employees or on-site contractors than by outside hackers.

Protecting your most valuable and sensitive data must be a three-fold approach:

Assess Your Data Risk

Begin the process by asking yourself three basic questions.

  • Who would want steal from my company? Consider the possibilities from different perspectives such as hackers, competitors, thieves, disgruntled current or former employees.
  • What data would they want to steal? Sensitive data is any information which compromises the security of your company. Client information, product and technology information, social security numbers, bank account and financial information, credit card numbers are just a few examples of the data which could be at risk.
  • What do I need to do to plug the leaks and protect this data? Security measures you can implement range from the very economical, such as purchasing commercial security software, to having an IT security consultant develop a custom security system appropriate to your company’s needs.

Formulate Internal Security Procedures

Creating in-house security procedures is the only sure way to prevent data leaks from occurring inside your company. Security measures should include technical features, physical safeguards and the human element. Proactive steps to remedy potential weak points include:

  • Ensuring terminated employees lose access to not just the physical locale, but to the computer network, e-mail, and voice-mail systems as well.
  • Implementing access controls through the creation of internal firewalls to restrict the availability of sensitive data to only those employees who need it.
  • Creating stringent password policies to ensure employees do not share passwords. Alter passwords when employees leave or use additional passwords for sensitive data. Passwords should be strengthened by using a mixture of letters and symbols.
  • Updating your operating system regularly. Newer systems upgrade their security software and the options relating to access control giving you better security.
  • Scrutinizing how employees use your computer system. Prevent employees from being able to download material to CD’s or Ipods. Install security alarms to alert you when large blocks of data are deleted. Include a system to allow designated IT staff to be guard against unauthorized remote access to internal data.

Develop Systems/Internet Security

Data threats from within your physical locale can be solved by:

  • Employing encryption algorithms to protect vital data by making it unreadable to outside eyes. This includes your order forms where sensitive information such as credit card numbers or bank account information is involved and e-mail between employees who are transmitting crucial or sensitive information should also be encrypted.
  • Basic or custom designed security software packages which guard against viruses and worms are essential. Many companies fail to regularly update their security protection. Hackers or crackers evolve their methods and strategy of attack frequently and can be incredibly diabolical and creative.
  • Ensure you have a firewall suitable to the needs of your company. Commercial software packages may be adequate for smaller companies, but larger companies may require custom designed systems to safeguard sensitive data.
  • Back up all of your systems on a regular basis. Larger companies should do so daily while smaller companies could get by with weekly backups. Regardless, backups should be stored off-site! Should you keep backups on-site when your business experiences a natural disaster your backup system could also be destroyed. Companies need to be able to set up their system from another location with minimal delay.
  • Consider adding a virtual private network (VPN). Vested partners must be able to access the necessary data from your company in a secure manner. A VPN will allow safe access from remote locations. Extend your security system to any hardware employees are using such as cell phones, laptops etc.

Motorists Still Driving While Talking on Cell Phones

The Cellular Telecommunications & Internet Association reports that more than 231 million people are currently subscribed to wireless communication devices, namely cell phones, compared to roughly 4.3 million in 1990. This increase in cell phone usage has resulted in a rise in the number of people using the devices while driving.

Since 2001, when the first law banning hand-held cell-phone use while driving was passed in New York State, the subject has been a hotly contested issue. There has been sharp disagreement as to  exactly how much of a hazard talking on a cell phone while driving actually creates. The results of several recent studies indicate that cell phone use while driving isn’t the most dangerous distraction. However, because it is so widespread, it is the most common cause of crashes and near crashes resulting from the driver being distracted.

An August 2006 survey conducted by the Liberty Mutual Research Institute for Safety studied teenagers use of text messaging while driving. The research showed that teens considered sending text messages to be their biggest distraction. Of those polled, 37 percent said that text messaging was extremely or very distracting.

An April 2006 study conducted by the Virginia Tech Transportation Institute and the National Highway Traffic Safety Administration discovered that approximately 80 percent of crashes and 65 percent of near crashes resulted from some kind of driver distraction within three seconds of the event. The study also found that the most common distraction is the use of cell phones. However, the researchers went on to note that cell phone use is far less likely to be the cause of a crash or near crash than other distractions. They found that reaching for a moving object such as a falling cup increased the risk of a crash or near crash by 9 times, while talking on a hand-held cell phone only increased the risk by 1.3 times.

The results of the Virginia Tech study confirm an August 2003 report from the AAA Foundation for Traffic Safety which concluded that drivers are decidedly less distracted by their cell phones than by other activities, such as reaching for items on the seat or in the glove compartment or talking to passengers. The AAA study was based on an analysis of videotapes from cameras installed in the cars of 70 drivers in North Carolina and Pennsylvania.

Research conducted in July 2005 by the Insurance Institute for Highway Safety discovered that motorists who use cell phones while driving are four times more likely to get into crashes serious enough to cause injury to themselves. The results also showed that banning hand-held phone use and mandating that drivers switch to hand-free phones doesn’t improve safety. The study found that injury crash risk didn’t vary with the type of phone, because the driver was still distracted by the conversation.

Additional Insureds: What Coverage Do They Really Have?

Most construction contracts require one party to name the other party as an additional insured under the first party’s general liability insurance policy. For example, a contract between a project owner and the general contractor will require the GC to cover the owner as additional insured. A contract between a GC and a subcontractor will have a similar requirement in favor of the GC. By making this requirement, the owner or GC is attempting to transfer the liability insurance responsibility from itself to the other party. However, what the GC is trying to achieve and what it actually gets may not be the same.

Many owners and subcontractors, when they require additional insured coverage, are seeking coverage that an obsolete insurance form used to provide. This form covered the person or organization listed on it for liability arising out of the policyholder’s work for the person or organization. The industry has revised this form several times over the years. The current version covers the named person or organization for liability arising at least partly out of the policyholder’s acts or omissions or those of subcontractors working for the policyholder. It covers liability for the policyholder’s ongoing operations for the additional insured. Coverage ends when all work on the project is completed or the part the policyholder was working on is put to its intended use.

The modern version has some significant differences from the old one. Courts interpreted the old version as covering the additional insured even when the accident was 100 percent its own fault. The new version requires the policyholder to be at least partly responsible. The old version covered liability arising out of the policyholder’s work, whenever it occurred. The new version covers liability arising out of the policyholder’s work only while it is in progress. It does not provide any coverage for liability arising out of the work once it is complete.

Contractors who need or want coverage for additional insureds arising out of their completed operations must request a separate coverage form from the insurance company. Willingness to provide this coverage varies from one insurance company to another.

Another option is to cover all additional insureds automatically. Many insurance companies offer this, but the form ordinarily applies only when a written contract requires the policyholder to add the additional insured. Also, it usually does not provide completed operations coverage for the additional insureds, and it may provide only the amount of coverage the contract requires even if the policy actually provides more. The contractor must request to add completed operations coverage separately for each additional insured.

It is important to note that none of these forms promise to provide the additional insured with advance notice if the company decides to cancel the policy. Owners and GCs often require advance notice in the contract. If this is the case, the contractor should discuss it with his insurance agent and ask to have this provision added to the policy separately. Insurance companies’ willingness to do this varies.

An owner or GC that requires its contractor to add it as an additional insured may expect or demand coverage for all operations, both ongoing and completed. They may also require advance notice of cancellation. It is crucial for contractors to be aware of what their policies do and do not provide. The contractor should discuss any coverage deficiencies with his agent as soon as he discovers them. If the insurance company is unwilling to remedy them, he may have to negotiate with the other party. The worst possible outcome is for the other party to be surprised by lack of coverage when an accident happens.

Age and Gender May Be Factors in the Severity of Car Accidents

A new study conducted at Purdue University demonstrates there are statistical differences in traffic-accident injuries depending on the gender and age of drivers. The Purdue researchers found significant differences in the severity of injuries suffered in accidents involving men and women drivers and drivers within three age groups: young drivers, 16-24; middle-aged drivers, 25-64; and older drivers, 65 and above. The researchers’ findings corroborated national statistics, which indicated that fatalities rose by 7 percent for drivers 75 and older from 1981 to 2000, remained steady for drivers from 65-74, but dropped for younger drivers.

The study also included the following findings:

·   Accidents involving an overturned vehicle increased the likelihood of a fatality by 220 percent for older men, but only 154 percent for young men. Rollover accidents increased the likelihood of fatality by 523 percent for older women, but only 116 percent for young women.

·   Vehicles carrying one or more passengers increased the likelihood of driver fatality by 114 percent for young men and 70 percent for middle-aged men, but had no significant effect on the injury levels of older male drivers.

·   Vehicles less than five years old increased the likelihood of fatality for older men by 216 percent and for young men by 71 percent, but did not have a significant effect on the likelihood of a fatality for middle-aged men.

·   Not using safety belts increased the likelihood of injury by 119 percent for young women, 164 percent for middle-aged women and 187 percent for older women.

·   Accidents occurring in rural areas increased the likelihood of fatalities by 208 percent for young women but had no significant effect on the injury levels of other female age categories.

·   Vehicles six years old and older increased the likelihood of injury for middle-aged female drivers by more than 200 percent but had no significant impact on the injury levels of other female age categories.

·   Fatalities were more likely for middle-aged men who fell asleep at the wheel, exceeded the speed limit, got into an accident at an intersection or had an accident after midnight on Friday or Saturday, while the same factors had no significant effect on the injury levels of middle-aged female drivers.

·   Injuries were shown to be more likely for middle-aged women who drive during daytime hours, drive while under the influence of alcohol or drive while ill, while the same factors did not significantly influence the injury levels of middle-aged male drivers.

·   Driving on curvy roads and driving vehicles six years old and older increased the likelihood of injury for middle-aged female drivers but were found to have no significant effect on the injury levels of middle-aged male drivers.

The researchers went on to note that in many cases, alcohol consumption might have had an indirect effect on the outcomes because it increased the probability of not wearing a safety belt and speeding. However, once you take this into account, the effect of alcohol on injury severity isn’t significant because the level of injury is a function of the type of accident not of sobriety. Whether or not the accident occurred because the driver was drunk was beyond the scope of the study. The researchers developed their statistical models based on the accident having occurred regardless of the reason.

OCP Policy: Better Than Additional Insured Coverage?

When a contractor wins a bid for a job, the contract with the owner or general contractor will often require the contractor to provide liability insurance coverage for both the contractor and the owner or GC. The contractor usually accomplishes this by having his insurance company add the other party to his policy as an additional insured. An additional insured has certain rights under the policy, the most important of which are the right to insurance company provided defense and payment of losses. However, this approach may not satisfy all of the other party’s requirements. In this situation, the contractor may want to consider an alternative coverage approach.

An owners and contractors protective liability insurance policy covers an owner or contractor for liability arising out of the actions of a subcontractor. It is unique in that, while the subcontractor arranges for and purchases it, the sub has no underlying coverage. Rather, the insurance company issues the policy in the name of the owner or GC (the policy information page identifies the contractor doing the work). For example, assume Owner A hires Contractor B to build a small office building. Contractor B purchases an OCP policy insuring Owner A for liability it incurs from Contractor B’s work. If Contractor B erroneously cuts down trees on a neighboring property and the neighbor sues Owner A, the OCP policy pays for A’s defense and the cost of any settlement.

This is a much different arrangement than additional insured coverage. In that arrangement, Owner A has coverage under a policy issued in Contractor B’s name. Owner A may be one of many parties that B’s policy covers.

Beyond that difference, there are advantages and disadvantages to each approach. Assume that B’s policy covers losses up to a total of $2,000,000 during the policy term. If Owner A is an additional insured, he is sharing that $2,000,000 with B and any other parties with coverage under that policy. However, an OCP policy in A’s name will provide a separate amount of insurance just for A. Also, Owner A may want the insurance company to notify him in advance if it decides to cancel B’s insurance. An additional insured under B’s policy usually does not have any rights to advance notification. As the party named on the OCP policy, however, A is entitled to advance notice. This can be important, as the advance notice requirement may be included in the construction contract.

One disadvantage of an OCP policy is that it does not provide completed operations coverage. Coverage ceases when the contractor finishes the job. If the contract requires completed operations coverage, the subcontractor may have to ask his insurance company to add the GC as an additional insured for this coverage on his own liability policy. Also, because the OCP is a separate policy, the insurance company will charge an additional premium for it, something they might not do for adding an additional insured. The OCP policy covers losses only if the GC is held liable for the subcontractor’s actions. It will not cover the GC’s sole liability for its own actions. However, recent changes to additional insured coverage have had this effect as well. Finally, OCP policies may be more difficult to obtain than additional insured coverage.

Which coverage arrangement to choose is a matter of negotiation between the subcontractor and the GC. Both contractors should discuss the options with their insurance agents and become informed about what each form does and does not cover. Most importantly, whichever coverage is selected should meet the insurance requirements and other provisions of the construction contract.

Government Survey Shows Parents Confused About How to Use Child Safety Seats

The National Highway Traffic Safety Administration (NHTSA) reported in a December 2006 survey that many parents are confused about the correct way to install child safety seats in their cars.

In 2002, NHTSA mandated that all new cars and child seats be built with locking attachments. The system, called Lower Anchors and Tethers for Children (LATCH), was designed to make safety seats fit snugly and provide a method of attaching the seats without having to use a seat belt. LATCH was intended to simplify child safety seat installation, but the survey results prove otherwise.

According to the study results, approximately 40 percent of parents still use seat belts when installing a car seat. Safety advocates say that using seat belts to attach a car seat can lead to a loose fit. Furthermore, the researchers discovered that just 55 percent of parents use the top tether built into the vehicle’s back seat to help secure their children. Using upper tethers for child safety seats reduces the tilting or rotation of the seat during a frontal crash.

Although the 55 percent usage rate of the top tether represents a significant improvement compared with earlier surveys, many parents still are not properly protecting their children. The researchers also found that over half of the parents not using the upper or lower tethers said they did not know how.

Other key findings of the survey include:

·   Thirteen percent of respondents said their vehicle was not equipped with lower tethers so a seat belt had to be used to anchor the safety seat.

·   Among the 87 percent that use a child safety seat on a car seat with lower tethers, only 60 percent use them to secure the safety seat.

·   Eighty-one percent of upper tether users and 74 percent of lower tether users said the tethers weren’t easy to use.

·   Seventy-five percent of the respondents who have used both seat belts and lower tethers to secure a safety seat preferred the lower tethers.

The government recommends car safety seats be used for children up to 40 pounds. Children over 40 pounds should use booster seats until they are 8 years old or 4 feet 9 inches tall. All children should ride in the back seat until age 13.

Workers’ Compensation Experience Modifications: What Happens When a Loss Reserve Changes?

For many businesses, workers’ compensation insurance is one of the largest expenses. A firm’s experience modification, which is a numeric factor that applies to the workers’ compensation premium, is a major influence on that cost. It is designed to reward firms that have below average loss activity and penalize those with above average activity. Firms with losses below average will have a mod of less than 1.0, while others with above average losses would have mods greater than 1.0. The insurance company multiplies this number by the calculated premium, producing either a reduced or increased premium. Firms with frequent, small losses fare worse under experience rating than those with infrequent, large losses. However, large losses and changes to the amounts reserved for them can still have a great impact.

In each state, a bureau independent of the insurance company calculates an eligible firm’s experience mod. The bureau uses a formula that considers the type of operation, the payroll over the previous three policy periods (not including the current one), the losses with values of less than $5,000 each, and the losses valued at more than $5,000. Through the application of mathematical factors, the formula determines the firm’s actual losses for the three-year period. The bureau divides this number by the expected losses for a firm in that classification with that amount of payroll. If actual losses exceed expected losses, the mod is greater than 1.0; the mod is less than 1.0 if the converse is true.

The formula values losses of less than $5,000 at full value. For example, a firm that had five losses totaling $10,400 would be charged that amount in the experience rating formula. However, a firm with one $10,400 loss would not be charged the full amount. The formula breaks this loss into two amounts — $5,000 plus some fraction of the amount in excess of that. The experience rating manual contains the factors that apply to the amount over $5,000, and they will vary by the firm’s expected losses. Factors are greater for firms with greater expected losses. Each state has a maximum amount for which any one loss can be valued, no matter what its actual size. For example, if a firm suffers a loss reserved at $900,000 and the state’s maximum single loss is $200,000, the formula will apply the factor only to $195,000 (the amount between $5,000 and $200,000).

A significant change in the amount reserved for a loss can have a dramatic effect on a firm’s experience mod. In the example above, if the reserve dropped from $900,000 to $100,000, the factor would now apply to $95,000 instead of $195,000. This would produce a major decrease in the formula’s calculation of actual losses, resulting in a big drop in the experience mod. Conversely, a loss reserve that jumped from $50,000 to $250,000 would produce a sizable increase in the calculated actual losses, as the factor is now applied to $195,000 rather than $45,000. This shows the importance of proper claims management. Lingering problems such as back injuries can result in large reserve increases if the injured worker does not receive effective medical treatment early on.

A good insurance agent will work with the firm to analyze the experience modification worksheet and verify its accuracy. The firm and its agent should inform the insurance company of any errors in reported losses or payroll. Also, the firm should question an usually large decrease in a reserve and appeal to have its mod reduced. A properly calculated experience mod should neither over-reward nor under-penalize a firm for its loss experience.