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Small Claim Value Does Not Exist in Workers Compensation – Part IV

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Part IV – Experience Mod Calculation From A Small Claim

A small claim value can end up costing your company dearly.

From the last post, the Workers Comp adjuster closed the claim out after 4 years and spending out $1,000.

drawing of pencil calculator and percentage Small Claim Calculation Concept
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The file was originally reserved at $10,000. The file was over-reserved by $9,000.

Using Variable A (Excess Loss Factor) from the 09/30/08 post of .20, let’s look at the real claim dollars with the loss.

  • Recalculated Primary Loss Over-reserved = $20,000
  • Recalculated Excess Loss Over-reserved = $5,000

What does all of this mean? With the way that the Experience Mod calculations are structured by the NCCI or State Rating Bureaus, inexpensive-looking claims are costing your company much more than you may realize.

The Workers Comp Experience Rating systems are structured to make sure that one huge claim will not ruin your E-mod. The flip side is that a few low-dollars claims can and will wreck your E-Mod and your Workers Comp insurance program for years to come.

A claim that is under $5,000 can turn out to be large. As you can see $4,000 of a Primary Loss is much more expensive than it looks.

The bottom line is to not just zero in on the big claims. All claims that are reserved as a Lost Time file should be tracked closely.   Even medical-only claims should be tracked to avoid festering.

How does one track these claims?  Use the tried-and-true method of loss run analysis.  The easiest way to perform a loss run analysis starts with having online access to your Workers Compensation claims.

If your company has online access, then make sure that any claims that are listed as lost time do not sit there open for months and months if the claim should be closed.   Always remember that ten $5,000 claims can cause as much negative effect to your insurance budget as a $300,000 claim.  The Experience Modification system penalizes employers for multiple low-value claims versus one large one.  The risk is higher than one very large claim.

 

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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