Worker’s compensation insurance rates up a notch

A statewide increase in worker’s compensation insurance rates averaging about 4% is hitting some businesses harder than others.
The insurance rates are set by the Wisconsin Compensation and Rating Bureau (WCRB) in response to claims data supplied by insurers. They are part of what is the second-lowest overall business tax burden in the nation, according to a study by the Federal Reserve Bank of Boston.
According to Donna Knepper of the WCRB, the increase is not significant when taken in historical context.
“One thing to keep in mind is that, in order to get back to 1992 premium levels, we would need a 33% rate increase,” she said.
Rates hit a high in 1992 and have been declining ever since, according to figures supplied by WCRB. Knepper said rates are set based on expenses in two areas – indemnity (lost time) and medical expenses.
“The indemnity trends had been decreasing,” Knepper said. “Now both the indemnity and the medical losses have bottom-lined, so there is going to be an upswing. We haven’t had an increase in rates since 1993.”
The current increase has been driven primarily by medical costs, according to Knepper.
“The main thing is increased medical costs,” Knepper said. “Right now, 61% of every premium dollar goes to medical expenses and 39% goes for indemnity, which is lost wages and lost time. Claim frequency has bottomed out – but the medical cost per case has increased all along.”
But according to claims consultant Frank Wagner, of Waukesha-based R&R Insurance Services, worker’s compensation insurance expenses are increasing more than the rates alone would indicate.
“What has changed in the insurance industry is that in the last 10 to 12 years it has been very competitive between carriers,” Wagner said. “Prices on overall insurance have been coming down. In worker’s compensation, the dividends have been going up.”
And dividends are one important way businesses in hard-hit industries can deal with increased costs.
“Each year, a business can get a dividend”, Wagner said. “This is not guaranteed, but carriers can indicate a willingness to pay a dividend — as part of a proposal made up front. At the end of the policy term, they return a percentage of the premium. The more comfortable an underwriter is with the business and the amount and number of losses, the more likely it is to offer a dividend. But if the insured is unpredictable or has frequent claims, it will get little or no dividend proposed.”
Problem is, according to Wagner, in recent years insurers are becoming more tight-fisted with dividends.
“Carriers are more selective in dividends than in the past,” Wagner said. “Years ago, dividends were 30% to 40% on average. This year they are closer to 15% to 20%.”
That serves to increase the actual rate employers are paying.
Another way businesses can save on worker’s compensation insurance is to cultivate a low-experience modification rate, according to Wagner.
“Any employer paying an average of $5,000 a year gets an experience modifier calculated — which compares loss history to the industry average,” Wagner said. “The state has average loss rates it uses to tell you what the expected loss rate is. For every employer, it takes the payroll and multiplies it times the loss rate — and then looks at actual losses for the same time period. If those two numbers are the same, your experience modifier is 1. If it is higher, your experience modifier could be 1.5. So if your rate is $.30 and your experience modifier is 1.5, you would pay $.45 per $100 of payroll. But if your claims are less than expected, you could have an experience modifier of .5. So if you multiply that times a rate of $.30, you wind up paying $.15 per $100 of payroll.”
Taxis clobbered, limousines dodge increase
Fueled by medical costs resulting from accidents and crime-related claims, companies engaged in providing taxicab services have seen steep increases. In order to dodge those higher costs, limousine companies recently won an exception to their existing classification with taxicab services.
As of July 1, limousine company employees were reclassified generically as drivers — in a category which would typically include employees operating vehicles for companies not involved in transit as a primary activity.
“One of the limousine companies appealed its classification with taxicab companies,” Knepper said. “They wanted their own classification. They really don’t have the same exposure cab drivers do. They are typically scheduled and there is no meter. It is less likely that a limo driver will be shot in the head over a fare. The nature of the job fits the driver classification better.”
Barb Miles, office manager with Yellow Cab Co-op in Milwaukee, said that there are real differences between limousine and taxi drivers in their degree of exposure to risk.
“You have to consider that cabs go all over for everybody,” Miles said. “Most of our fares involve going from an address in the city to another address in the city. You run into more traffic when you do that. We frequently go from place to place in one area.”
But while statistics reflect the high risk taxi drivers present — particularly for claims resulting when the cabbie is the victim of a crime – Miles said national data may reflect a higher degree of risk than is present in Wisconsin.
“I don’t think we are as highly likely to be victim of a robbery or murder as cab drivers in Los Angeles or New York,” Miles said. “They are way above us in that regard. Most of the crimes our drivers encounter involve people doing what I call run-outs – just not paying the driver.”
Some measures are already being taken to reduce risk and coverage costs, according to Miles.
“Most of our owners already get a percentage deducted from their worker’s compensation insurance,” Miles said. “Insurers offer a discount for use of a Plexiglass shield between the driver and passenger compartment. But most cab owners work exclusively in the downtown area, and they would rather pay whatever the discount is not to have the shield.”
Miles said she had her doubts about the shield’s effectiveness, anyway.
“They don’t really do too much,” she said. “We had a driver last year at 10th and Locust. As one group of people got out of the cab and another group got in, he was shot through the driver’s window.”
Research confirms that taxi drivers face a high risk of harm on the job. A National Institute of Occupational Safety and Health (NIOSH) study of North Carolina workplaces in the years 1994-98 indicated that businesses at the highest risk for homicide were taxi services and grocery and convenience stores. NIOSH data reveals that nationally, cab drivers between 1996 and 1997 were far and away more likely to be the victim of homicide on the job than any other profession – 30.6 out of 100,000 cabbies will die violently on the job, according to the NIOSH data. That compounds expenses resulting from claims surrounding traffic accidents.
As a result, the taxicab industry was hit with one of the largest increases – 33.7%, bringing the rate from $8.93 to $11.94. Limousine companies, in their new category, have seen a 12.4% increase from $4.60 to $5.17. The reclassification still results in a significant decrease in rate and premium, however.
Increased worker’s compensation insurance costs would be passed down from cab owners to leasing drivers, according to Miles.
Marcia Rowinski of Diversified Insurance Services in Waukesha says taxicab companies have little recourse in the matter. Rowinski works extensively in the Wisconsin taxicab industry – and writes cab policies in Milwaukee, Green Bay, Wausau, Rhinelander and Appleton.
“There are very few markets that will write taxicab business,” Rowinski said. “And there are no dividends available, either.”
According to Rowinski, high-risk policies including worker’s compensation for taxicabs are assigned to a state-wide assigned risk pool. Companies can wind up in the pool either because they are in a high-risk business – such as roofing – or because their organizations have an extensive claims history.
While Miles admits there are differences in risk, she is not a fan of the new division between cab and limo drivers.
“I don’t think it is fair,” Miles said. “They get all the breaks. They get breaks in the fares and the people involved — and now they get breaks in insurance rates, too.”
Rowinski feels for the taxicab industry, but supports the move of limousine services to a separate category.
“Looking at the claims, it is rare, if ever, to get a claim called in on a limousine driver,” Rowinski said. “A limo driver does not have the pressure of chasing orders. They are working prearranged rides. They do not have meters in their vehicles. The risk factor is not there. The way that taxicabs operate is a whole other ballgame. If you get into a limo and you get into a taxicab, who do you think would be more likely to speed? The limo driver is not bent on being somewhere at a certain time – or to get his next order because there are 50 cabs out there that day.”
Rowinski said that an added problem for cabbies is insurance fraud. Perpetrators pull in front of the cab and brake hard, forcing a collision in order to collect insurance money. Rowinski said that because criminals know cabs are insured, they are an easy target. Because cabbies can be injured in the process, worker’s compensation rates – as well as auto insurance rates – are impacted, Rowinski said.
Limos not immune
But limousine services are not immune from safety concerns. A manager at Limousines Inc., of West Allis, declined to comment about risks involved in the limousine industry. The company lost a driver in October of 2000 to an accident on I-94 in Kenosha County. A month later, a second Limousines, Inc., vehicle was rear-ended by a sport utility vehicle on the same stretch of highway, causing injury to both drivers.
More than a year before the two accidents, a perceived laxity in granting licenses to limousine and taxi drivers by the Administrative Review Appeals Board spurred board resignations — and eventually a tightening of standards.
But traumatic accidents like the ones experienced by Limousines Inc., do not impact a business as much as one would think, according to Wagner.
“A company will be hurt more in terms of the cost of its insurance for a lot of small claims than for one big one,” Wagner said. “The experience-modification formula softens the blow of one big loss. If you have 10 drivers a year that get hurt in minor accidents — that might be 10 accidents at $5,000 each for a total of $50,000 — that is more significant than one accident for $50,000. The system is saying ‘We will not punish you for one big accident.’ But when someone has a lot of accidents, it is an indication of a poor safety record. A lot of small accidents is an indicator that one day you will have a big one.”
The fact that even an experienced limo driver can find himself in one of the little accidents Wagner refers to was illustrated in September of 1997. Former Secretary of State Henry Kissinger, en route to an address in Marshfield, was sidelined when his limo plowed into a deer outside of Mosinee. But regardless of unavoidable incidents like that, some limousine firms do better than others with worker’s compensation insurance, according to Bryant Chaffee, proprietor of Chaffee Executive Limousine in Milwaukee.
“We usually get a refund because it’s not something that we have a problem with,” Chafee said. “On occasion you will have a claim.”
Chaffee’s firm has a fleet of 15 vehicles and 17 employees, about half of whom work full-time.
“Our experience modification rate is low — and we get dividends because of lack of claims,” Chaffee said.
Chaffee said the fact that his firm is involved in funeral work — which provides lower risk than some other venues – helps him control his workman’s compensation insurance costs. On the whole, Chaffee said, he is a fan of the insurance program.
“Wisconsin was a pioneer on workman’s compensation,” Chaffee said. “I can’t imagine being in business without it. They set limits for how liable a business is. We try to educate people on safety, but in this litigious world, you cannot be too careful.”
Oct. 12, 2001 Small Business Times, Milwaukee