Bob Wagner
Mr. Wagner is Director of Agricultural Safety, Zenith Insurance Company, Pleasanton, California, and Chair of the Innovative Practices Committee of the AgSafe Coalition.
While the reduced regulation of premium rates beginning next year may prove to be the most significant provision of the 1993 reform package, the increased regulation of loss control services is a major feature with more immediate implications. Effective April 1, 1994, insurance carriers are required to provide every customer they insure with services designed to reduce exposure to workers' compensation losses and control significant health and safety hazards.
Insurers have previously tended to focus their assistance on larger customers whose premiums could support such attention. Now, as mandated by AB 110, all insured employers are entitled to loss control service (LCS), at no fee in addition to the insurance premium. Not all employers are to get the same level and types of assistance, and the services offered will vary from carrier to carrier. Every insurer is required to file with the Department of Industrial Relations an annual plan detailing its goals, methods, and budgets for LCS.
Regulations proposed by DIR contain some guidelines for these services but leave carriers with a lot to decide in designing their service plans. The latest text issued by DIR has enough vagueness to challenge the most creative insurer. It contains, for example, a major exception to the LCS requirement: that insurers need not provide services to "any insured whose place of employment does not pose significant preventable health and safety hazards to workers. Criteria for determining that a place of employment does not pose significant preventable health and safety hazards must be clearly identified in the annual plan."
The minimum level of LCS for non-excepted employers must include: (1) a workplace survey including discussions with management and, where appropriate, non-management personnel; (2) review of injury records; and (3) development of a plan to improve the employer's health and safety loss control experience, including modifications to the employer's injury and illness prevention program.
Considerably more must be provided to "targeted employers": (1) effective evaluation of the employer's operations, including comprehensive on-site consultation, discussions with management and non-management personnel, and review of relevant records; (2) identification of the factors most related to the losses experienced, including first aid and other post-injury response procedures, workplace health and safety standards, management policy and practices, communication of the company's loss control policy, training, worker participation in health and safety efforts, record keeping, and the overall injury and illness prevention program; (3) formulation of recommended loss control measures; (4) a written report of the consultation provided, its findings, and the loss control measures formulated; and (5) on-going evaluation of the targeted employer to determine impact of the consultation.
Who is a "targeted employer"? One the insurer identifies as being among those with the greatest workers' compensation losses and most significant preventable health and safety hazards. The DIR regulations say that an insurer's method for targeting shall use an effective combination of such factors as type and rate of occupational injuries and illnesses, number of claims per payroll or premium dollar, severity of claims, experience modification rating or similar comparison to other employers, the insurer's previous evaluations of the employer, and Cal-OSHA citation history.
An insurer must have its loss control services certified by DIR, and certification depends on submittal and acceptance of an annual health and safety loss control plan. This annual plan is to include a budget, the method for selecting targeted employers, one- and three-year loss reduction goals for targeted employers, identity and basic characteristics of each targeted employer covered, and a detailed description and evaluation of LCS provided to targeted employers during the previous year.
An application for certification (or annual recertification) must also delineate size, experience, and qualifications of insurer staff or consultants who will perform the loss control consultations. And, for the privilege of having an application evaluated, the insurer is assessed a fee of .0125 percent of its total direct premiums written in the previous year. That may look like a small number, but it turns into a huge amount of revenue for Cal-OSHA to use in its Targeted Inspection and Consultation program. For every million dollars of premium written, the fee at this rate comes to $125.
The difficulty of developing a loss control plan is especially great this year, because DIR has not set specific parameters for its contents and there is not yet any certification experience to go on. We carriers will not have a good idea of what is acceptable until we get the response to our first applications and plans. Like other carriers, however, Zenith has put together a plan based on the guidelines available. DIR will be granting provisional certification for four months this year upon receipt of applications.
It appears that insurers will have to shift some loss control expenditures from larger accounts to those that have high claims experience. Though LCS will be more evenly distributed across customers, service plans will probably still weight it toward larger employers, other things equal. Smaller employers who negotiate in groups with insurance carriers should be able to obtain more services and lower premium rates than they could individually. Insurers may form employer alliances from within their clientele to facilitate education and loss management. There will be an emphasis on education and prevention. Farm employers can expect insurers to offer mass mailings, hazard alerts, and regional seminars, as well as individual consultations.
The new loss control requirement, especially with its differential standards and costs for serving targeted employers, adds to carriers' reasons for being careful in selecting the business they want to write. Some carriers have decided to be so selective that they have already left California. More will leave, but enterprising newcomers will arrive. Most will be trying hard to avoid adverse experience accounts.
The primary function of a loss control consultant is, of course, to help policyholders eliminate hazards and unsafe behaviors that lead to adverse experience. Information that consultants pick up while working with employers, however, has been used by underwriters in assessing policyholder risk. Under the new open rating system, there may be a greater call for consultants to inform underwriters about unsystematic management, unusually risky conditions, or negative attitudes about safety. The insurance industry argued successfully against a proposed provision in the workers' compensation reform package that would have required loss control consultants to report findings about the workplace back to Cal-OSHA.
In the post-reform era it will be even more important than it has been for employers to have good loss records if they want to maintain their insurance options and keep their premiums as low as possible. Farmers who represent high risks will pay more initially, but if their carriers provide effective loss control service and they take advantage of it, they should be able look forward to more favorable rates in later years.