Want to be a hero? Show your commercial clients and prospects how they can control what for many of them is their second largest expense item--their workers compensation premium. And if that sounds far-fetched, how about using workers comp as the entrée to an account?
Smart-Comp workers compensation software can help agents make these seemingly unlikely events happen.
Time management gurus and efficiency experts have long touted the benefits of "working smarter, not harder." That's precisely what happens when agents use this product, according to Mary Murray, vice president and trainer for Smart-Comp. Too often agents invest substantial time and energy in getting a good package premium, she points out, and they'll have to arm-wrestle with the underwriter again next year to reduce that premium still further. This process keeps the customer focused on price, not service.
Agents who use Smart-Comp take a different approach, she continues. They're able to educate the prospect or client on what workers comp really costs--by verifying the client's experience modification factor and quantifying the client's comp claims. "If the agent comes in with Smart-Comp and tracks the losses, determines the trends and where they're happening, the customer can save on comp costs. That's different from being able to offer a cheaper premium. Lowering comp costs has long-lasting effects."
Here's how it works
Step one is to be sure the agent understands the mechanics of workers comp. "It doesn't work like other insurance," Murray observes. As part of the on-site training option, she has stood in front of a roomful of insurance novices and first taught them workers comp, then trained them on the Smart-Comp software.
One of Murray's first lessons is on the impact of claims, especially frequent small claims, on the experience mod. She offers an example of a $500 claim for a cut finger. Sure the company pays that claim on behalf of the employer, but that amount is factored into the experience mod--and retained in that mod for the next three years. So that $500 cut finger winds up costing the employer $1,500.
Charlotte, North Carolina, agency principal Skip Knauff, of Knauff Insurance, Inc., Rough Notes' marketing agency of the month for December 1998, provides his own version of "Workers Comp 101" to new clients and their employees. During his initial meetings with the employer he points out how proper safety programs can reduce losses. And when losses decrease, so does the experience mod. He illustrates his points with graphics he produces using Smart-Comp. He suggests channeling some of the freed-up dollars into an incentive program that will allow employees to enjoy the rewards associated with lower claims.
Next Knauff meets with the employees for their Workers Comp 101 session. "Basically it's an overview of what workers comp is and what it isn't. This is how you're protected, and this is what it costs your employer," he explains. "When the employees begin to understand how working safely and reducing claims can enhance their employer's bottom line--and how those savings are going to be shared with them--they're more likely to pitch in and work safer."
Being able to calculate and validate an experience mod for contractors or manufacturers is an important capability, Mary Murray observes, and Smart-Comp can do that. Many clients, particularly contractors, need to know what their mod will be in the coming year so they can build that expense into bids. If the client is a manufacturer and preparing to roll out a new product, this information will have to be built into the pricing structure for that product.
Smart-Comp also can verify that the mod supplied by NCCI is correct. Mistakes do happen, according to Steve Cockrell, claims manager for Redland & Associates, featured as Rough Notes' marketing agency of the month in April 1997. He recalls one extreme example where verifying the mod saved the client some $30,000. The account was an electrical contractor that had operations in some 32 states. When the agency began working on the workers comp portion of the account, they discovered their client was being charged for losses that belonged to another firm with the same name that was based in another part of the country.
Cockrell says he's also discovered instances where a loss is closed at one amount according to the agency's records but is still open at the higher reserved amount according to company records--again causing the mod to be higher than it should be.
To minimize these occurrences, Cockrell discusses claim status with the insurance companies well before the validation date when the NCCI calculates a firm's mod for the next policy period. Armed with the data generated by Smart-Comp, Cockrell works with the insurance companies to be sure the WC losses involving Redland & Associates' clients are in the best shape possible so they have the least impact on the clients' mods.
"When we're selling an account, we mention that we use Smart-Comp to project or verify the experience mod. We also us Smart-Comp to be sure the reserves are in order before the mod is calculated. It's a value-added service," Cockrell notes.
Skip Knauff says, on average, his agency finds errors in mods about once a quarter. When the client is informed of the errors--especially new clients--he says, "they get this interesting look on their face, as if they're wondering: 'How long has this been going on?' or 'How many other situations like this went undetected?'"
Like Redland & Associates, Knauff Insurance found a significant error, thanks to Smart-Comp. "We picked up one account--a regional operation with locations in three states--with a broker of record letter after we uncovered a $69,000 discrepancy," Knauff recalls. "They were being charged for losses that weren't theirs and there were also losses listed that had been closed for a lesser amount."
According to Knauff, the national broker that lost the account had told its now former customer how they had all sorts of technology at their disposal. "It only works if you use it," he quips.
But if a client's mod actually does jump from 1.10 to 1.50, for instance, chances are that client will want some answers to questions such as: "Why did it go up? What can I do to get it down? Why am I paying so much more in premium?"
Smart-Comp allows the agent to answer those questions by identifying trends, figuring how much those trends cost, and how many mod points each of the claims contributed. Additionally, the agent can offer recommendations to the employer on how to get those trends under control, which may include implementing safety tactics. In other words, agents can offer comp service.
With the WC market being as
soft as it is, Cockrell says many employers aren't as conscientious about their experience mods as they might be if companies were less willing to write comp.
Knauff sees a similar pattern in his part of the country, although he sees the market starting to flatten and trend up. He contends insureds aren't intentionally ignoring the importance of safety and keeping costs low. Instead, he believes they think of it as a one-time event that is now completed. But accident trends indicate that safety issues are being overlooked, so Knauff insureds are being reminded of the safety programs they already have in place and are being urged to adhere to the proper procedures.
Insurance companies use Smart-Comp, too. Murray says they also use it to verify mods, and to illustrate how an Early Return to Work program can benefit an employer. By using Smart-Comp to calculate how much it's going to save the employer if he/she takes an injured worker back in modified duty, an employer has a clearer understanding of the impact and, therefore, is more willing to do so.
Similarly, Smart-Comp can help agents illustrate the impact of deductible and first aid programs by showing the employer how he/she can benefit from these programs--how much they're going to save. Murray says that about two years ago, Smart-Comp's home state of California legalized payment of first aid claims under workers comp. However, those claims will not go into the mod. That's the good news. The bad news is that, on the surface, it appears that the employer shoulders more administrative tasks than if the injury were covered by comp rather than a first aid plan. This is apparent, she explains, because the employer has to pay for the first aid treatments out of his/her pocket and then be reimbursed. The process leaves many employers wondering out loud: "Isn't that why we have comp?"
To help employers better understand the benefits of the first aid program, Murray notes: "Smart-Comp quantifies how a $300 cut finger requiring one stitch can wind up costing close to $1,000. That's what would happen if that cost was included in the mod because that $300 stays in the mod for three years."
This information can be expressed either graphically or numerically--options which enable the agent to put together the presentation in whatever way will make it most effective, depending on his/her audience. The business owner, for instance, might prefer a quick visual--a graph or a chart--whereas the controller might prefer the hard numbers.
One of the more telling graphs that Smart-Comp can generate is the "Anatomy of Bottom Line Cost" chart (see page 18) which Murray says is unique to Smart-Comp. She uses an example of a business with a $100,000 workers comp premium. The premium cost is what the customer sees up front. Suppose an employee suffers a back injury that winds up costing $65,000. By the end of the three-year period during which that loss is figured in the experience mod, the employer has paid $60,000 back to the insurance company for that loss.
But there are other less obvious costs connected to that claim, Murray continues. For instance, the financial cost. Paying more workers comp premium because of the higher mod means the employer can't keep the money in the business as working capital that the employer could invest. Any interest or financial gain that would have come from that investment is lost as well. So these considerations are added to the cost of the loss also.
The crux of the "Anatomy of Bottom Line Cost" graph, according to Murray, are the incidental (indirect) costs. These are all the costs that aren't covered by insurance. For instance, if an employee were killed on the job, the organization would be shut down for the funeral--everyone would be paid, but no work would be done. The person hired to replace the deceased employee would have to be trained, etc. She says incidental costs typically run between 2 and 17 times the face value of the claim.
Add the financial cost and the incidental cost to the premium cost and that $65,000 claim for a back injury has exploded to close to $200,000. The "Anatomy of Bottom Line Cost" graph clearly depicts the bottom line cost of the loss. "The employer can never look at that $65,000 claim the same way again," Murray notes.
How many widgets?
To translate this information into terms that are "close to home," Smart-Comp provides productivity costs that relate the cost of the claim to the particular industry that the employer serves. "Smart-Comp takes that claim out of the insurance arena (where we merely knew it was a $65,000 back injury) and quantifies it in terms that are meaningful to the client. It would tell a contractor client, for instance, how many square feet he has to build to recover from this one loss.
"This capability can be adapted to virtually any industry and can tell the client how many bottles of wine he has to sell, how many Big Macs he has to sell, how many hotel rooms he has to rent, how many miles he has to drive. This encourages employers to take an active interest in their workers comp losses. By reducing the losses, the mod goes down as well. The employer also becomes a better safety person--a better risk manager--once he understands how many widgets he is going to have to manufacture to recover the true cost of this loss."
Murray emphasizes that it's Smart-Comp's ability to slice and dice information into as many as 250 reports and charts that differentiates it in the marketplace. And never mind comparing Smart-Comp data to a loss run that she says simply identifies what the loss costs the company.
Two flavors to choose from
Smart-Comp offers a Basic and a Silver system. The Basic system, Murray explains, is ideal for those who want to do mostly mod calculations, although it includes about 75 reports, charts (pie charts, cone charts, etc.) and "what if" models. Suppose an employer wants to know what impact a $1,000 deductible would have on the mod. The what if modeling capability provides that information. Murray points out that the Basic system does not offer one- and three-year premium costs and as such cannot build the Anatomy of a Loss chart mentioned earlier. However, losses can be tracked by year, state, employee, body part, nature, and cause. It also is able to calculate how many mod points each claim contributed to the overall mod.
The Silver system is where the product "truly shines," she continues. With over 250 charts, reports and what if models, extensive analysis of trends and claim information is possible. The Silver system also includes the productivity cost conversion capability--so losses can be quantified in terms familiar to the employer. For instance, how many square feet would a contractor have to build to cover the expense of a particular loss?
Earlier, Mary Murray mentioned how Smart-Comp switches the employer's focus away from the premium price and on to service. This results in a win-win for the client and the agent, she notes. The client controls his/her comp losses. And when the client saves money on comp, that frees up money that can be invested elsewhere--perhaps to buy more equipment or hire more staff. That translates into more that needs to be insured. The agent writes more business and keeps it.
Novelist Arthur Koestler is quoted as saying: "The more original a discovery, the more obvious it seems afterward." He could have been referring to Smart-Comp. Fourteen years ago when Michael Smart began developing Smart-Comp he did so because he wanted to find a way to educate prospects or clients on what workers comp really costs employers and in the process allow agents to set themselves apart from their competition. Based on the agents we talked to, it looks like Michael Smart met his goal. *
Smart-Comp calculates, and illustrates, the impact of comp losses. In the example at right, the actual cost of the loss is reflected as $65,000. The next cell represents the increased premium paid over three years, based on the WC premium being $100,000. The middle cell reflects potential working capital that is unavailable due to the higher mod. The "Incidental" cell can vary dramatically depending on the nature of the loss. Add cells 2, 3, and 4 together and employers are surprised to learn that workers comp claims are not "free."
To request a demo version of
Smart-Comp, contact:
Smart-Comp Products, Inc.
P.O. Box 6065
San Rafael, CA 94903
Phone: (415) 925-6750
Fax: (415) 925-6755
Web site: www.smart-comp.com
xxxxActual CostxxxxPremium xxxxFinancialxxxxIncidentalxxxxBottom Line
©COPYRIGHT: The Rough Notes Magazine, 1999