Self Insured File Reserves Need To Be Monitored
Reserve reviews for Self-insured Files are just as important as ones for companies in the regular voluntary insurance marketplace. We often hear from Self Insureds that the reserves on a file do not matter that much, as it is paid funds that matter. Reserves are as much as or more important than with non-Self Insureds.
The basic Workers Comp equation is Paid + Reserves = Total Incurred. As I mentioned in a recent post, it is very difficult to question what has been paid on a file. The reserves are the funds that are forecasted to be spent over the rest of the lifetime of a file. They are opinions.
As I have mentioned often in this blog, the adjuster, who is considered the Workers Comp expert on file, is spending self-insured money directly out of your company’s budget. Why are the reserves important? They are usually what is forecasted to be spent and your budget must accurately reflect these forecasts.
The reserves are usually based on a somewhat sound principle by the claims staff. The reserves will feed into your Loss Development factors or LDFs. LDFs are really what you should budget in company funds over the next 10 years to pay the Workers Comp claims. Reserves are a road map to the expenditures for your Workers Comp claims.
For instance, if you have a file that has $15,000 paid in medical, but there is a medical reserve of an extra $100,000 to be paid there is likely a huge medical bill that the adjuster is expecting to pay. When you are examining a loss run and looking just at the paid amounts, you may think the file is rather inexpensive…and then the adjuster pays a $95,000 bill. What looked like a smaller file now balloons into a much larger file overnight. ($15,000 vs. $110,000).
The reserves are an insight into how your Workers Comp budget is going to be spent. Look at the reserve figures and make sure to contact your claims adjuster(s) if you notice something odd about the reserves. How do you know if the reserves are odd or foretell of an important event on the file? That is very difficult to do in most cases. AS I SAID EARLIER, RESERVES ARE AN OPINION.
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