The declining premiums and rough economy that have forcedFlorida companies to reduce their workforces have created a perfectstorm for agents. These external forces, combined with the 2003reforms, have resulted in declining workers' compensation insurancepremiums over the past four years, with another major drop on thehorizon. The National Council on Compensation Insurance (NCCI) hasfiled for a statewide average rate decrease of 18.6 percent inworkers' compensation rates.

Lower premiums are a boon to employers, but result in reducedagency revenue and commissions. They also give employers more of anincentive to shop for price, to further commoditize workers'compensation insurance programs.

In the midst of this “perfect storm,” brokers have anopportunity to expand their value to their clients. Aggressiveagencies are developing fee-based revenue streams, offeringservices that attack the real cost drivers of claims, and becomingvalued consultants to employers.

However, in an effort to differentiate themselves from thecompetition, some agencies are giving away back-office servicessuch as human resources support and claims management facilitation,positioning these as “value-added solutions.”

Agencies are throwing out these “solutions” hoping they willcause the employer to stick with them. But these free offeringscreate a Catch 22: Agents use them to bring in and retain business,but the expense of the back-office services cuts into the agency'sprofits. In the end, the brokerage is doing more work for lessmoney.

More importantly, these “solutions” merely facilitate the statusquo. It is like patching a sinking ship. Even with the ratedecreases, the workers' compensation system is facing seriouschallenges, and agents need to focus on the real problems andproactively help employers address them. In doing so, brokers needto change their business model by adding fee-based consulting totheir declining commission income, thus reducing their dependencyon insurance market volatility.

NCCI recommended the latest rate reduction because the number ofworkers' compensation claims has decreased. This is the good news.The bad news is the severity/cost of claims are rising, alsoaccording to NCCI studies. Apparently employers are embracingsafety programs that are successfully preventing injuries, but whenan injury does happen, it is not being managed well.

Opportunities Are Out There

Claims severity presents brokers a chart for selling through theperfect storm by becoming educators and consultants to theircustomers. Most employers have no clue about the total cost of aworkers' compensation claim, much less what the cost drivers are,and, worse, what the employers themselves are doing to exacerbatetotal cost of claims. This presents agencies with an opportunity toeducate employers, change the system, and increase agency revenueat the same time.

In good times and in bad, employers mistakenly zero in onpremium price. Agents need to divert attention from the last pageof the contract and focus clients on the total cost of the claim.This means pointing out unnecessary lost-work days, fees, hiddencosts, medical cost drivers, issues surrounding cascading contractarrangements, and business practices that increase the cost of aclaim.

Employers can control many of the costs of their workers'compensation claims. Lower claims experience produce favorableexperience modification factors, and lower experience modificationfactors reduce premiums-in good markets and in bad. Even whenpremiums go up again-and they will-lower mods will cushion thoseincreases.

Because medical costs have soared to a hefty 59 percent of aworkers' compensation claim, medical is a good place to start. Forinstance, many managed care companies still apply deep discounts todoctors. Not only does this model represent a startling lack ofunderstanding of the role of a physician in recovery, it actuallyrewards the managed care company for over utilization. In otherwords, it's stupid.

Under many contracts, the managed care firm receivescompensation for the discount applied to each service. That isevery discount applied to every service, so the more services perclaim, the greater the discount rewards for the managed carecompany.

Many of these networks are built with group health doctors wholack workers' compensation expertise. A 2003 Workers CompensationResearch Institute study showed that providers who saw a largenumber of workers' compensation patients reduced the medical costsby 50 percent over providers who saw only a few claims.

If deep-discount networks worked, workers' compensation medicalcosts would have been well under control decades ago. Instead, inrecent years, medical costs in the workers' compensation system areincreasing at a rate more than double than that of the MedicalConsumer Price Index. The money companies save by using workers'compensation specialists and eschewing deep-discounts will pay forthe agent's consulting fee many times over.

Use Your Analytical Skills

Analyzing and adjusting the injury management process is anotherfee-based consulting opportunity that agents are well positioned tooffer. Assessing existing programs, then working with the employerto shore up weak spots, demonstrates real value and helps payerssave considerable money on an ongoing basis.

Injury management involves everything from hiring practices toreturn to work. Common data points are: How quickly are injuriesare reported, do patients see physicians promptly, and are theseworkers' compensation savvy providers? Is there a lag time formedical tests and visits? Delaying diagnostic tests slows recovery,treatment and return to work.

Poor pain management can result in a permanent disability,totally wrecking the experience mod factor. Giving workers'compensation patients the run-around creates irritable andlitigation-prone claimants.

There are soft issues as well. Do supervisors treat injuredworkers with compassion or disdain? The way supervisors presenttransitional duty and encourage other workers to treat theirinjured colleague is incredibly important. Studies show that aworker's satisfaction with the employer's response to an injury hasa larger impact on employment stability than satisfaction with theactual health care provided. Inured workers who are unhappy withmedical and on-the-job treatment tend to retain lawyers,exponentially increasing the cost of the claim.

These are just some of the direct costs of injury management.According to OSHA, indirect costs can be as high as $20 for everydollar of direct claim cost, yet many employers overlook them.

Indirect costs include lost time, which can mount even whenemployers are out of work for a short time. Additional supervisortime, overtime, and temporary labor add up. The temporary absenceof a skilled employee can cause the production delays and qualityproblems that ruin a customer relationship.

When employees are out of work for more than 12 weeks, there isonly a 50 percent chance of them ever returning. How much does itcost an auto dealer to replace and train a skilled BMWtechnician?

A good injury management process changes a company's response toinjuries permanently, which in turn favorably impacts itsexperience mod factor and ultimately its premium costs.

Workers' compensation is complicated, and most employers do notunderstand the basic costs, much less the hidden ones. Brokers andagents can save employers considerable sums by deciphering the fineprint of contracts and helping them select the most appropriateinsurance companies and managed care partners. They can guideclients into real, on-going savings through establishing orrefining injury management processes.

The consultant-agency differentiates itself from itsorder-taking brethren. The key is empowering employers to controlcosts of their claims. Instead of giving away or selling servicesthat do not address the root of the cost problems, insuranceprofessionals have an opportunity to become a valued vendor partnerthat any employer would be loathe to lose.