An analysis of workers' compensation insurance for the southeastern United States logging industry

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Virginia Polytechnic Institute and State University


The objective of this research was to analyze the workers’ compensation insurance system for the logging industry in the states of Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, and Virginia.

Insurance rate components were fairly consistent among the nine states investigated. Approximately 72 percent of the workers’ compensation insurance rate is composed of loss components and components utilized to update and predict future losses of the year (time period) that the manual rate is in effect. The higher manual rates for the production based 2705 classification can be explained, in part, due to the different premium basis, i.e., production versus payroll.

Upset factors based on 1) historical wage and productivity information and 2) a logging contractor survey, indicated that statewide upset factors were too low to equate production based payroll to actual payroll. Low upset factors provide a direct disincentive for contractors to move to an actual payroll basis.

Experience modification, premium discounts and retrospective rating are used to customize premium to firm specific characteristics. The credibility test of the experience modification parameters indicated that a greater weight to firm specific characteristics is warranted for harvesting operations.

The majority of logging injuries in North Carolina and Virginia occurred during felling and topping activities. An increase in lacerations as an injury type and topping as an occupation type in the coastal plain region may indicate that feller bunching and gate delimbing reduced neither the number or type of injuries. The high number of inexpensive losses contributes substantially to the logging industry’s poor safety image.

A number of recommendations for improving the workers’ compensation system are presented. Recommendations which focused on system changes included eliminating numerical exemptions, establishing a $500 deductible clause, creating a mandatory retrospective rating plan for assigned risk policies, and designing greater credit and debit modifications based on firm characteristics. It was also suggested that a regional accident reporting system, funded from surcharged assigned risk policies, be established to provide actuarial data for rate hearings and loss control programs. Other recommendations included eliminating the 2705 "pulpwood only" classification, increasing and indexing the state’s upset factors, and determining the amount of premium slippage that occurs.