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From The AIM Case
Files
We recently received the following letter from a client that
provided a glowing review of our work on their behalf. Take a
look.
speaking of letters...
A
Simple Letter...
...from A.I.M. recently helped a
Chicago-area small manufacturer lower an audit premium demand
from their insurer by about $2,300.00. The insurer had insisted
the additional premium was owed, and cited chapter and verse
from the NCCI manual to support their position. If unchallenged,
this would have cost this company $2,300 every year in
additional Workers Comp premiums.
But our letter pointed out that the insurance company's auditor
had overlooked one very important fact--there was an Illinois
State Special rule that applied to the classification codes in
question, so that the chapter and verse cited by the insurer
earlier didn't apply in this particular instance. And once we
pointed out their error (and dropped a veiled hint that we would
refer the matter to the Department of Insurance if things
weren't corrected) the insurer very nicely said, in effect,
"Oops, our bad."
Helping Particles Accelerate
We recently helped a company that provides technical workers
to a major particle accelerator. They had a major problem--their
experience modifier had risen above 1.00, and that would preclude their
continuing to work on the federal project. Fortunately, AIM was able to
identify and correct problems in the modifier calculation, resulting in reduced
mod calculations and our client being able to continue to help keep those
sub-atomic particles accelerating. You can take a look at the nice letter
they sent us
here.
Keep Those Banners Flying
We just finished helping a small Chicago area manufacturer
of large printed banners and pop-up displays recover $14,000 in Workers Comp
premium overcharges. Their insurance company had made a change in classification
code (to a more expensive class) for their sewing employees. We discovered that
the insurer had failed to give proper notice of this change, and by working with
the Illinois Department of Insurance we were able to get three years worth of
policies corrected, with the resulting premium reduction.
$15,000 Refund for Waste Hauler
Not long ago, we obtained a
$15,000 refund for a waste hauler in Lexington, South
Carolina. The experience modifiers for this client had
been higher than they should have been for several years,
due to the failure of the insurer to properly report Second
Injury Fund reimbursements to NCCI.
A.I.M. got the insurer to file corrected reports, then we
made sure NCCI recalculated those experience modifiers.
Finally, we followed up with the subsequent insurers to get
them to revise audit charges by incorporating those
now-lower experience modifiers.
All in a days work.
The South Carolina Situation
We were commissioned to do a
study a few years ago about how
employers in South Carolina
benefitted (or sometimes didn't) from the operation of that
state's Second Injury Fund. Our study
found that in over 50% of cases where an
employer's insurance company had gotten a
reimbursement from the Fund, the insurance
company hadn't reported the reimbursement
to NCCI, so that the employer's
experience modifier could be lowered.
Now, we're working with individual employers
affected by this problem, to help them recover
those premium overcharges. And so far, we're finding
an even higher percentage of overcharged
employers than we found in the original study.
Even though South Carolina enacted new
legislation to try to address the problem after our
original study was released, it appears that the insurance
industry never bothered to actually
fix the experience mod errors for
all these employers. So now we're making them
fix these overcharges, one employer at a time.
If you're a South Carolina employer that
had a Workers Comp injury reimbursed by the
Second Injury Fund in recent years, you may
well want to have AIM check to see if your
company ever got the experience mod
adjustments you were entitled to. The odds
are that you didn't, and we can do something about
that. Click here
for more information.
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The Case We Can't Talk About
Sometimes, the results of
our consulting work can't be discussed in any
specifics or detail. That's the case recently,
where AIM consulted with the San
Francisco 49ers football organization
on a Workers Compensation premium matter. The
case was covered by a Confidentiality Agreement,
so we can't disclose anything more than that we
provided consulting services to the 49ers
regarding Workers Compensation premiums, and
that it appears the 49ers were satisfied with
our efforts.
Still, it illustrates that AIM can be of
assistance to a wide variety of employers
regarding Workers Compensation insurance
premiums, even organizations you don't normally
think about in the context of Workers
Compensation insurance.
Helping a
Recycling Company Stay "Green"
Well, we're at
least helping them keep a little more of their
green, as in dollars spent on Workers' Compensation
insurance. Their insurance company, on the
most recent audit, reallocated payroll completely
out of an inexpensive classification, and moved it
all into a much more expensive class. In most
states, there wouldn't be anything that could be
done about such a practice. But in the
particular state where this recycling company is
based, it turns out that the rules are a little
different. Reallocating payroll so completely
that payroll is totally removed from one class and
placed into another is considered the same as a
change in classification, and is prohibited when
it's done late in the term of the policy.
The bottom line is
that A.I.M. reduced the cost of the premium charges
on the audit billing by about $220,000.
An
Exhausting Classification Case
This
Nevada client had recently been inspected by NCCI
and assigned to the Painters code, on the basis that
they used pressure washing equipment to clean
kitchen exhaust vents. NCCI took the position that
the use of pressure washing equipment meant this
company should be assigned the code used for
painting and paperhanging. This change in
classification caused a large increase in manual
rate and premiums for this client. Even worse,
their insurer used this as a basis to change the
prior year's premium charges as well.
Our review found
significant basis for disputing this NCCI decision,
and we assisted the client in preparing a
presentation to the Nevada Workers' Comp appeal
board, which held in the client's favor and returned
them to their original class code. This
enabled the client to avoid the premium increases
for both of the years that their insurance company
was billing them for, as well as avoiding the large
future premium increases that would have resulted
from NCCI's classification change.
The Case of the California
Classification Code
This client was a
printer with operations in both Illinois and
California. And although the Illinois
operations had no recoverable overcharges, it turned
out there was a significant problem with the way
premiums had been computed for the California part
of the company. California's Workers' Comp
premiums are subject to the rules and regulations of
an entirely separate rating bureau. While NCCI
handles such work for most states, California has
the WCIRB. And under WCIRB classification
rules, a different class (and manual rate) applied
for this client's California work, because their
work was to print advertising fliers for grocery
stores--which under California rules, was eligible
for a lower classification than the one used for
other kinds of printing.
We were able to
produce an $85,000 premium reduction for this client
by correcting this problem, and lower all future
premiums for their California operations in the
process.
Unique North Carolina Rule
For a North
Carolina plumber, we found that their experience mod
was higher than it should have been, because of a
unique North Carolina regulation pertaining to
over-reserving of claims. Correcting this
mistake saved this client a fast $5,000 (not all of
our clients are large employers, and not all of our
refunds are huge, but we work just as hard for
smaller clients and smaller refunds as we do for any
other case.)
And Another North Carolina
Case...
For another North
Carolina client, we recently found that they were in
the wrong classification code. The insurance
company had them classed in a paper coating class,
when the client actually mixed chemicals to make
adhesives that third parties then would use to,
among other things, coat paper. Fixing this
mistake saved the client $35,000, and lowered future
premiums as well.
No matter what
state your company operates in, or what kind of work
you do, you might well benefit from a review of your
Workers' Comp charges. You never know what
kinds of overcharges might be hidden in the fine
details.
A Double Whammy
This case
found AIM producing a refund for a plumbing
contractor that totaled over $100,000. The cause of
the overcharges? A combination of miscalculated
experience modifiers and resulting lack of
contractors credit on several policies. You see, if
your company's experience modifier is above a
certain point it disqualifies you from getting a
contractor's credit (which is calculated based on
hourly wages). Correcting the modifiers brought them
low enough for the contractor's credit to come into
play. It took a while to get NCCI to make all the
corrections necessary, and then for the insurance
companies involved to correct their billings and
refund the overcharges, but it was worth the wait
for this employer.
Bad
Vibrations
This client came to us with a serious problem--a
recent NCCI inspection had assigned a much more
expensive classification to their operations. In
fact, this new classification was so expensive
that they didn't see how they could stay in
business. The client did field testing and
corrections of rotating mechanical equipment,
performing sensitive acoustic analysis of
unwanted vibrations in the equipment, and then
making adjustments to correct the unwanted
vibrations.
We helped this client make their case to the
NCCI appeals board, and the end result was that
most of their field workers were removed from
the expensive millwright classification. The
huge increases in Workers Compensation insurance
premium were thus averted, and the company could
happily continue helping their clients.
SOME
OLDER CASES FROM
OUR FILES
Inherit The Mod
AIM was called in because the insurance company had
turned over Workers' Comp audits to a collection
agency, looking to collect approximately $30,000
from a small masonry contractor. Turns out the
company had been formed when two sons merged the
separate companies that had been owned by their
respective fathers. The fathers' companies had
earned credit mods--experience modification factors
lower than 1.00--because of their good loss history.
But the insurance company had treated the sons'
company as if it were a completely new business.
This was a mistake. When AIM got the NCCI to
correctly calculate an experience modifier for the
sons' company based on the loss history of the
fathers' companies, the resulting experience
modification factor (and the contractor's credit
which they then became eligible to receive)
completely offset the $30,000 additional premium the
insurer had been seeking.
AIM to the Rescue
We recently helped two separate manufacturers who
both had the same classification mistake, even
though they were in different businesses. The first
manufactured a filtration system used by machine
shops and other manufacturers to recycle cutting
oils. The second manufactured lifesaving rescue
equipment used to free motorists trapped in
vehicles. Both of these employers had been in Class
Code 3632, the Machine Shop classification that is
also assigned to a variety of other manufacturers
who do not fit into a more specific classification.
The thing is, both of these employers really did fit
into a more specific classification, because the
products they made were both hydraulically driven.
The proper classification code for such
manufacturers carries a rate approximately one third
lower than the machine shop class. Yet both of these
companies had been in the wrong (and more expensive
class) for years.
Fortunately, AIM was able to correct this mistake by
working with their respective insurance companies,
and these clients ended up receiving significant
lump-sum refunds, along with cutting their current
and future Workers' Comp premiums substantially.
A Classic Example
Often, potential clients of AIM will tell me that
they believe their agent already provides the kind
of scrutiny and review of Workers' Comp premiums
that we do, and so they feel that our services
really aren't needed. This actually isn't so (after
all, every company we've ever produced a refund or
reduction for had an agent) but some employers still
can't be persuaded. But one recent case of ours
illustrates the kind of deeply-embedded mistake that
we often find causing Workers Comp overcharges, and
it also illustrates why agents often can't be
effective at catching and correcting these kinds of
problems.
The trouble for this insured employer started when
the NCCI inspected their operations. The result of
the inspection was to change this employer to a more
expensive classification. Under the rules, the
insurance company was obligated to follow what NCCI
told them was the correct classification. Thus, this
company's annual premiums for Workers' Compensation
insurance were increased by more than a third, all
in one fell swoop.
They asked their agent to help them, as they felt
the NCCI decision was wrong. And the agent did
indeed try to help them, assisting them in
requesting a review by NCCI of this classification
decision. But all the insured's letters (and those
of the agent) were of to avail. NCCI insisted their
classification change was correct, and thus it would
stand, and the insurance company therefore insisted
that it had no choice but to use this more expensive
class to compute premiums.
At this point, the insured employer turned to A.I.M.
After all, since we work on a contingent-fee, they
felt they had nothing to lose.
Our review quickly turned up disturbing questions.
For one thing, when we examined the actual NCCI
inspection report, we found that the inspector's
description of the employer's operations appeared
inaccurate in some key aspects. We tried to point
this out to NCCI (as had the insured earlier) but
NCCI insisted that its inspector had made no
mistake. NCCI further said that, if the insured
wanted the matter resolved, they should use the
Workers' Compensation Appeals Board mechanism that
had been set up in Illinois in recent years (similar
to boards set up in many other states).
We helped this employer prepare their presentation
to the Appeals Board here in Illinois, and we
explained to the board what we felt were the errors
made by NCCI in its inspection. But the Appeals
Board said that the employer had failed to
sufficiently prove that NCCI had erred, and thus the
board did not overturn the NCCI decision.
We here at AIM are experienced with working with the
Appeals Board, and we knew that the board is not the
final word in such disputes. So we encouraged the
employer to appeal the decision of the Appeals Board
to the Illinois Department of Insurance. We also
helped them prepare their presentation to hearing
officers at the Department of Insurance.
The result? The hearing officers reviewed the
material we presented, and the testimony of the
owner of the company, and my own testimony about the
flaws in the NCCI inspection. They also heard from
NCCI. And in the end, the hearing officers
determined that NCCI had indeed erred in its
classification decision. They overturned both NCCI
and the Workers Compensation Appeals Board. In their
ruling, the hearing officers criticized NCCI for its
failings in their inspection of this insured, and
even ordered NCCI to pay for the cost of the
hearing.
This particular case took several years to finally
resolve, but it did indeed have a happy ending (from
the point of view of the insured employer, at
least). And our point is not to criticize the agent,
who did everything a good agent should. Rather, we
just want to explain how some of these mistakes are
just beyond the control and authority of insurance
agents. A.I.M. isn't in business to replace agents,
but rather to supplement their efforts and to
provide a level of specialization and expertise that
typically isn't available to an agent.
By the way, this particular client was a job-shop
precision machining company. For technical reasons,
it appears that it is very common for precision
machining shops in Illinois to be overcharged. For
more information on this subject, check out our
section on Precision Machining & Workers
Compensation in Illinois.
Credit Where Credit
Is Due
When we reviewed the Workers' Comp premium charges
for a good-sized sewer contactor in the Chicago
suburbs, we found the contractor was pretty
knowledgeable about Workers' Comp. They also had a
close relationship with their agent. Yet our review
discovered that they had not gotten the Contractor's
Premium Adjustment Credit they should have on a
policy from a year or two back. They had gotten the
credit on the policy before this one, and on the
policy after this one. And they were very surprised
when I pointed out that they had not gotten the
credit on this particular policy. For this year, the
credit amounted to a substantial reduction in
premium (in the neighborhood of $20,000) and yet
somehow it had not been applied to this particular
past policy.
Needless to say, we're now in the process of
straightening this out, but this illustrates how
things can fall between the cracks sometimes,
particularly with something like the Illinois
Contractors Premium Adjustment Credit. For a related
story on this, by the way, take a look at our
News&Views section.
A Space Case
This case involved AIM producing twin refunds for a
specialized manufacturer in the western suburbs (of
Chicago). Our review resulted in their receiving a
refund of slightly over $22,000 from the insurance
company that wrote their Workers' Comp for the years
1991 through 1996, as well as an additional refund
of $15,000 from the insurance company that wrote
their 1986-1990 policies. (The two insurance
companies involved, by the way, are both large,
well-known direct writers who specialize in writing
Workers' Comp.)
This client specialized in ultra-close tolerance
manufacturing of metal and glass mirrors used in
weather and surveillance satellites (as well as
other optical systems). But in spite having dealt
with insurers who tout their Workers' Comp
expertise, this manufacturer had been overcharged
significantly. And even though NCCI had inspected a
few years ago, the problem wasn't caught because
NCCI misunderstood some aspects of the
manufacturer's business.
We worked to correct the NCCI inspection, and then
worked with the two insurance companies to get the
overcharges returned. The results: a lower
classification approved for future policies, and
significant refunds back from past policies.
The Misapplied
Mod
In another case, we helped a small electrical
contractor get his current Workers' Comp insurer to
rescind a recent large increase in the client's
Experience Modification Factor. On the 1996-97
policy, the Mod had gone from 1.00 (last year) to
1.41 this year, causing a large and unexpected
increase in premium.
When we reviewed the situation, we found that the
insurer had not actually applied that Mod properly.
We worked with the Department of Insurance, and got
the insurer to remove the increased Experience Mod
entirely.
Even though the insured had protested vigorously to
the insurance company when he learned of this Mod
increase, he had been unable to get any relief until
AIM got involved. Even though the Mod was correctly
calculated, the insurance company had not followed
proper procedure in endorsing it onto the policy,
and thus we were ultimately able to get it removed
from the policy.
Appealing the Appeals
Board
Another client of ours received a refund of just
over $36,000 due to our efforts. These refunds
were for the policies running from 1987 through
1995.
This precision-machining shop had been denied
the use of the proper precision machining
classification by NCCI, and assigned instead to
the regular machine shop classification. In
fact, NCCI had inspected not once, but twice,
both times assigning the general machine shop
class rather than the precision class.
Our review uncovered serious problems with both
inspections, and we appealed NCCI's decision to
the Appeals Board here in Illinois. But in spite
of what we felt was a strong case, the Appeals
Board declined to reverse NCCI's decision.
We then appealed the Appeals Board's decision,
taking it to a hearing at the Illinois
Department of Insurance. There we detailed the
problems with the NCCI inspections, and
presented the same evidence as had been
presented to the Appeals Board about the nature
of the client's manufacturing operations.
The result was that the hearing officer ruled
that this client did in fact belong in the
precision machining class (a much less expensive
class than the general machine shop class) and
that the client had properly belonged in that
lower class for a number of years.
Results: a lower classification for all future
policies, and a significant refund from past
policies.
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Consultants on Workers Comp Classification Codes,
Experience Modifiers, Payroll Audits, & More
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