Cutting Workers Comp Costs Even If You Have TPA
Cutting Workers Comp Costs can be easily misunderstood in certain areas by almost everyone. Over the past fifteen years, we have analyzed many Self Insureds with a TPA that is paid on a flat fee basis.
The Self Insureds have told us that they are out of the Workers Compensation system as they are paying fee out-of-pocket and are only paying for reinsurance and a TPA fee. Nothing could be further from the truth.
TPA’s are spending $ directly from your insurance budget. A really bad claims year cannot be reduced by the E-Mod system as with regular insureds. The claims have to actually be monitored MORE closely than with a regular Workers Comp insurance arrangement.
The term LDF (Loss Development Factor) actually becomes the replacement for the Workers Compensation E-Mod system. As I have pointed out in the last three articles, CONTROL is the most important factor in reducing Workers Comp costs. How can a Self Insured with a TPA reduce their insurance budget by keeping control of the claims? The easiest way is to bring the claims fully in-house, thereby eliminating the TPA. This is not a simple task, but it will pay off a large amount of $ in the long run. With the claims department as part of your company, controlling costs are much easier than hiring a TPA, and control of the claims will increase as there are no outside parties involved in the Workers Compensation claims process.
All overhead expenses, salaries, claims processing systems, and other costs must be compared to the TPA costs to see if this is a worthwhile venture. One of the minimum things to consider is if there are enough claims to make a claims load for at least one adjuster.
I skipped over Captives and will discuss that next time.
Next Up – Captives for Workers Comp
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