Split Points – A Small Claim – Part III
Split points represent the line between as the Primary and Excess Loss parts of a claim.
Well, we have covered how a small claim is not really such a tiny claim after all. The one thing that we often see in workers comp audits – both premium and reserves – is that the smaller claims are ignored and the large claims are targeted. That can be a dangerous way to examine claims.
Take the case of the $10,000 Workers Comp claim that is four years old. That may seem like an insignificant claim, but please look at the previous two posts on Small Claims and you will see that the basic way that the claim is charged to premiums is:
- The first $5,000 figures in the E-Mod at the full value – the primary part of the loss.
- The next $5,000 figures in the E-Mod at a discounted value – the excess part of the loss. Using the previous post, it would figure into the premium at $2,000.
- From #1 and #2 above, a $10,000 reserve set by the adjuster would contribute $7,000 to the E-Mod/premiums.
That is the norm for a $10,000 claim, but what if the claim closes out at $1,000 after four years? That means the employer has overpaid on the claim for three years, and that the file was over-reserved by $9,000.
It is not $9,000, but even more as it is $4,000 in Primary Losses and $5,000 in Excess Losses.
The parts that figure into the E-Mod are:
- $1,000 in Primary Losses were paid
- $4,000 in Primary Losses were over-reserved
- $5,000 in Excess Losses were over-reserved
I think we can leave it there for this post. We will pick up in the same place in the next post. It may be good to print out the posts on this subject and look at them. You will be astounded. I guarantee it.
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