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WORKERS’ COMPENSATION IN VERMONT:

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EMBRACING A NEW ATTITUDE BY EILEEN TOWNSEND

In 2020, loggers in the Green Mountain State may encounter a new solution to an old problem: Workers compensation rates are changing for the better, making

it more possible for employers to take out policies and grow their businesses. But whether the state’s loggers will embrace a new culture of safety remains to be seen. The cost of doing business as a logger in Vermont has always been high. Historically, the expense of workers’ compensation has presented an outsized burden for Vermont’s loggers – leading many to avoid hiring employees altogether, or to find “creative” ways to get around the expense. For a state with hundreds of logging operations, an extremely low number of Vermont employers take out workers’ compensation insurance. In June of 2017 (the period for which the most recent data is available), there were 17 non-mechanized logging and 46 mechanized logging insurance policies sold in the state. That number, according to Sam Lincoln, Deputy of Forests, Parks & Recreation for the state of Vermont (and a former logger himself), is abysmal for a state with a considerable forest economy. Lincoln knows first-hand the difficulty of working with high workers’ compensation rates. In 2016, he was working as a logger “in the outer procurement ring of a lot of pulp mills” when the pulp market tanked. Said Lincoln, “I still remember sitting in my office during the 2016 mud season and tearing open envelopes and getting a notice from my workers’ comp insurance company that my rates were going up again for the fifth year in a row. I’d never had a claim or an injury on my operation. I took my employees to training and did my best to have a culture of safety on the job.”

WORKERS’ COMPENSATION IN VERMONT:

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Lincoln felt something many loggers in his position feel: He was doing everything he could to do things right – so why was his situation only getting more difficult? Lincoln’s feelings were layered with a frustration that, because he was operating by the book, he was less competitive with those loggers who skirted the rules. Lincoln felt an ethical responsibility to keep his employees safe, but he was in a business with tight margins, and he wondered if he could realistically keep his head above water. John Adler, a long time Game of Logging instructor and logger in Vermont, knows the Vermont industry well and explained the situation this way: “For as long as I’ve been involved with the industry, there’s a lot of the subcontractor mentality. It’s a handshake, a ‘don’t ask, don’t tell’ kind of a thing. There are a lot of different ways to make the cash flow around and stay away from the workers comp. So, that’s been the history of it. It has been prohibitively expensive. I’ve had workers’ comp on my guys for 15 years. And when you start paying 30-50% of payroll in a comp policy and you’re buying timber against contractors who are skirting around that, it’s a huge financial obstacle course.”

Taking ActionInstead of sitting around and bemoaning his situation, Lincoln decided to do something about it. Just before the election in 2016, he brought a white paper to then-Lieutenant Governor Phil Scott outlining various issues in the forest economy. Lincoln included a table showing the rates of workers’

compensation insurance for loggers in northeastern states, which demonstrated that Vermont was a huge outlier, with sky-high rates in comparison to neighboring New Hampshire and Maine. Within a few months, Lincoln found himself in a new job; the governor appointed him to work in the capital to help tackle the problems outlined in the white paper. First on the list was the issue that has plagued him when he was working in the woods. “We had to address the workers’ comp issue,” said Lincoln. He set about doing so, talking to others in the capital about the struggle. His efforts to communicate were successful. “The legislature became interested in it through testimony that our department provided, and the Department of Financial Regulation (DFR) did a study on high risk occupations and what was dragging up rates in the state.” Governor Scott directed the DFR to implement the recommendations of the study. In mid-February of this year, the Governor’s office put out a press release announcing that, across occupations, workers compensation premiums have decreased 30% between 2017 and 2019. For loggers, rates will decrease between 16% and 20% in 2020. Said Scott, “A major expense for Vermont businesses has been workers’ comp insurance, so I’m incredibly pleased we’ve been able to continue to reduce these costs, without reducing benefits for workers.” The change in rates for loggers is, in large part, the result of Lincoln’s and his team’s efforts to facilitate conversations between those in the logging industry, those in the insurance industry, those who work in safety, and those in government. Whereas Lincoln used to wake up and go to work in the woods every day, he now spends his weeks on the road attending across-the-aisle meetings. The goal of those meetings has been to figure out what sort of program could both reduce risk on the job and reduce rates, resulting in a win-win for insurers and loggers. David Birdsall, a Game of Logging instructor and longtime Vermont logger (and occasional Northern Logger contributor!), has been a collaborator and witness to this years-long process. Said Birdsall, “When Sam got appointed, one of his main goals was to work on this workers’ comp issue….There were a whole bunch of us – insurance folk and people from around the state – who got together to try and figure out what we could do to make loggers safer. When the state insurance folks gave the green light that they were eager to help, we started brainstorming: ‘Well, what do we need to do? What should we do to help loggers be safer?’ We basically came up with a program to do just that.”

A New Program What Lincoln and his team came up with, in collaboration with LEAP and the DFR, is a non-regulatory program that loggers can voluntarily participate in and receive a 15% workers’ compensation rate decrease. The hope is that participation in the program will help Vermont loggers build a culture of safety on the job site. Lincoln’s team had to think strategically about how to tackle the problem, since different operations had different safety considerations.

0.4%

-4.0%-5.6%

-15.9%

0.3%

-8.0%-9.6%

-16.4%

VERMONT CLASS CODE 2709 Mechanized LoggingVoluntary Loss Cost and Assigned Risk Rate Changes

-4.9% -5.5%

-18.1%-19.3%

-5.0%

-9.3%

-21.6%-19.7%

VERMONT CLASS CODE 2702 Non-Mechanized LoggingVoluntary Loss Cost and Assigned Risk Rate Changes

2017 20192018 2020

n VOLUNTARY LOSS

n ASSIGNED RISK

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Said Birdsall, “We recognized that we have hand cutting crews and mechanized crews, and that we’re seeing more and more mechanized crews working in the woods, so we needed to have two avenues. With the hand cutters, basically LEAP is adopting the policy that a hand cutter needs to have all four levels of Game of Logging.” He continued, “On the mechanized side, we’ve wanted to develop a mechanized logging safety program, and we’ve been in conversation with people in a bunch of different states, as well as Canada, to see what works best for mechanized logging. From Maine to British Columbia, we’ve had some really productive conversations about what this course should look like.” They also developed a supervisor training, which they see as critical to implementing safe practices on a job. Said Birdsall, “For the crew, for safety, it’s got to start at the top. To get someone there focusing and encouraging someone to be safer.” Finally, they came up with a system of job-site inspections. Said Birdsall, “We’ve contracted with WJ Cox to have a loss control person to visit the logging site, and we have a checklist of things that they’re going to go over. It’s not necessarily a pass or fail; it’s working with loggers to help change their culture. They’re looking at stumps, for hand cutters. For mechanized operators, looking at how people dismount the machines. Looking at the lock out, all that stuff. Once loggers have gotten the approval that they are being safe in the woods, that they are taking these workshops, then they get the reduced corporate comp rate of 15%. A lot of people say ‘Oh, that doesn’t seem like a lot,’ but it is absolutely a fantastic start for the insurance companies to do this. My hope is that we can continue.”

Building a Culture of SafetyKyle Pratt, a young business owner and logger, is one of the new participants in the non-regulatory program. Pratt started taking on employees in 2019, and the terrain is new to him. “We’re a hand cut cable skid operation, so my guys had to take all four levels of Game of Logging, and I had to take a supervisor’s course.” Pratt still needs to get his employees certified to receive the discounted rate. He hopes that enough LEAP courses will be hosted this spring to make the process a smooth one. The availability of courses depends, in large part, on how many loggers enroll in the program. Pratt has already taken the new supervisor’s course. When asked how it was to take the course, Pratt laughed, “To be honest, it was kind of touchy-feely, to put it in logger terms.” But he said it was ultimately worthwhile and had good takeaways. “It was kind of a rundown of how to treat employees, how to be attentive to their needs, and how to express yourself a little better, rather than just being a roughneck boss.” (When asked whether he considers himself a roughneck boss, Pratt laughed again and said, “I guess it depends on how much money we’re making that day.”) While Pratt said he’s never been a guy for regulation, he said that having comp is something he thinks is really important. “I sleep better at night knowing my guys have the coverage they should really have,” said Pratt. “Besides, it might give you that edge on the other guy, even if you can’t pay what the other guys pay, you can say to the landowner that there’s zero liability. I say, ‘Here’s my workers’ comp; here’s my proof that everyone is covered and it’s all happening in the right way.’” He said that

Workers’ Compensation Loss Costs and Rates

LOSS COSTS: The portion of the rate that represents projected losses  to which the insurance carrier adds an increment for expenses to develop the manual rate.

ASSIGNED RISK RATES: means the manual rate or any other rate that has been authorized by the appropriate insurance regulatory authority for use by the carrier.

RATE: the amount of premium for each $100 of payroll.

Andy Wood, of MEMIC, talks to Vermont loggers about workers’ comp and building a culture of safety on the job.

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landowners respond to knowing that the job is being done right. Jack Bell of Longview Forest Products is another Vermont business owner who participates in the program. Bell says his story is not representative of many loggers, because he has always had workers’ compensation and considered it a key component of a healthy business. One of his employees, Kyle Brennan, is responsible for making sure everyone at Longview has the correct certifications and has attended safety courses. Longview, like many operations in the northeast, logs in multiple states. Said Bell, “Our program already is that everybody who is logging full time is going to participate in it and be certified with the logger certification program in their home state. If they live in Vermont, they participate in Vermont LEAP program; if they live in New Hampshire, they participate in New Hampshire program. All our staff are already used to going to trainings and keeping those certifications up and doing them every year. Kyle facilitates that and helps schedule the trainings and remind people who needs what. It was easy, because Kyle

tells everybody, ‘Well, you’re all signed up for this class on this date,’ and that’s normal for our guys.” Bell said his understanding of workers’ compensation insurance has increased over the years, and due to his greater understanding, he’s able to use the insurance in smarter ways. “We used to be petrified of using our workers’ comp since we worried our rates would go up. But now we’ve had it for so long, and our insurance company has helped us understand that there are formulas around the size of the claims and frequency of the claims, and whether or not it’s a medical only claim or an income replacement claim. We have figured out that any time anything happens that requires medical care, submit the workers’ comp claims and forms. The main decision point for us is around the income replacement piece, because if it’s a relatively small medical-only claim and we have something someone can do instead of not being able to work, it minimizes our exposure to rate increases quite a bit.” Bell, like Lincoln and Pratt, believes that having the insurance

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is an ethical responsibility. “I’m a firm believer that everyone out there logging should have workers’ comp insurance,” said Bell. “Workers’ comp is for workers. It protects them. It provides them with an insurance policy to make sure they’re going to get the right medical care, that there’s a death benefit if someone gets killed, that there’s income replacement if they can’t work for a period of time.” He continued, “Fundamentally I don’t think people are working in sawmills without workers’ comp; I don’t think workers in a lot of industries outside logging, construction, some of these trades, are out there exposed to these risks every day the way loggers are. I know it’s deep in the culture of logging that you don’t need that, but it’s for the people doing the work, and if everybody would get into the pool and participate with big programs like Sam’s, the rates can become reasonable.”

What Comes Next in VermontLincoln said that, in recent months, 20 new logging operations

have enrolled in the program. (“That’s roughly a third of the insured workforce,” he pointed out.) He is hopeful that in 2020, many more loggers will get involved. He is currently busy setting up an oversight committee built around loggers and insurance agents, with the hope that they can steer the program in the future and build a program as responsive as possible to the day-to-day needs of people on the job. “We need to build a program where when problems are arising, we can put our finger on them quickly,” said Lincoln. “Whether it’s the regulators looking out to the employers or it’s the employers going to the regulators. That’s my real hope for the care and feeding of this program in the future.” The program is, of course, a voluntary one, but Lincoln hopes that Vermont loggers will realize that, as Kevin Gaffney of the DFR put it, “they’re all a part of the same pool, the same classification. If most of them don’t engage in the safety training and don’t engage in getting certified, it could have a detrimental effect on the pool. The hope is everyone wants to participate, but it’s not mandatory.” Gaffney and Lincoln hope that greater participation will also attract more insurance businesses to the state, eventually leading to a more competitive insurance market. Nancy Cass, an insurance agent who handles workers’ comp and has worked with Lincoln, also spoke of the importance of building a culture of safety, in order to make the rates cheaper for everyone. Said Cass, “The rates have been so astronomically high that nobody can afford to purchase it. With so few people paying into the pool, of course, the rates are higher for those very few that had it. But with this initiative that Sam and the DFR have come out with, it has absolutely improved over the past few years, and in the past 24 months is even just so much better….The more people who buy into this, the lower these rates are going to go.” Lincoln knows that he’s asking for a lot of optimism and commitment from those who have chosen to take a chance on the new program. But he doesn’t feel deterred. (Jack Bell described Lincoln as “Mr. Art-of-the-Possible.”) “It’s a huge commitment,” said Lincoln. “When I stood there in these meetings, knowing tens of thousands of dollars of production time that those guys had given up to be there, that was an important signal that they were investing in the future of this program to keep costs down to track new people who will be able to grow their businesses.” Lincoln understands the struggle, but he thinks that investing in your business means investing in the safety and health of your employees, and he wants to see that happen in the forest products industry. “So that’s where we are at today,” he said, “with the program in place, with our insurance pricing mechanisms in place to recognize this. The insurance carriers have been very involved and many loggers are engaging in it. We still have a long way to go, and we still need a lot more people to get involved, but I’m very proud that it’s a non-regulatory program and it’s based on what has been successful in other states. The care and feeding of this will be up to the loggers, the insurers and the state regulators to carry forward in the future.” NL