Loss Run Claim Reserve Analysis
A loss run claim reserve analysis is one of the most important steps in reducing your workers compensation budget.
Are the Workers Compensation reserves correct on the file you are examining? I have posted on this subject previously. As it is a very popular question that we receive, I will cover the subject again.
The steps to finding out are:
- Obtaining online access or Workers Compensation loss runs, online access is much more preferable as a major timesaver
- Understanding which claims will affect your NCCI or State Rating Bureau Experience Mod (E-Mod/X-Mod)
- Understanding which claims will be examined when an insurance company provides a quote
- Understanding how your claims affect your insurance premiums
- Examining and understanding what the three factors of a reserve are and which ones can be analyzed
- Understanding the difference between a Workers Comp claim review, reserve review, and premium audit
I covered each of the six steps below.
Obtaining online access or Workers Compensation loss runs.
This area has been covered very often by me in previous posts. Please use the Search box in the right margin. Searching for online access or loss runs will give you the best results.
Understanding which claims will affect your NCCI or State Rating Bureau Experience Mod (E-Mod/X-Mod).
Any very old claims (more than 5 years old) will not affect your E-Mod or X-Mod in most cases. However, if you are in a hybrid insurance arrangement or a long-tail Retro policy, the old claims can still affect your insurance premiums.
Update – claims analytics are being used very often now when assessing an employer. Analytics may go back 10+ years. This new development makes all claims count to a certain extent.
Your company’s most recent claims will likely not affect your next E-Mod/X-Mod. However, the very new claims will affect your Mod eventually, so they should be examined along with the rest of the claims on the loss run.
Understanding which claims will be examined when an insurance company provides a quote
This may be a little confusing as the insurance companies that do a good job of underwriting will examine the older claims that will not affect your E-Mod. The underwriter will still look at the old claims to make sure that your company did not have a very bad claims year that may not appear in the E-Mod calculations.
We recently consulted with a trucking company that was trying to negotiate a switch from a regular commercial policy to a large deductible program. Their E-Mod looked great. The insurance carriers that were willing to write them did not provide a great deal as was anticipated due to their low E-Mod. The underwriting departments were concerned the company had two very serious claim years 7 & 8 years ago. The bottom line is that for the E-Mod the newest claims should be examined. If your company is going to shop their Workers Comp insurance in the market or going to try to switch to an alternative insurance plan, all claims on the loss runs are then highly important.
The Workers Compensation reserves system is a delayed system.
Understanding how your claims affect your insurance premiums.
The adjusters actually have an additional six months after a policy ends to adjust the reserves to their proper level . Reviewing your claim reserves with the insurance company at the end of a policy year is an exercise in futility. Approximately 90 days after your policy expires is the best time to review the loss runs and the reserve values. These Total Incurred values will show up in your company’s Workers Comp insurance policy for the next year.
Examining and understanding what the three factors of workers compensation reserves are and which ones can be analyzed.
- The three factors are the Spent amounts; Amounts in Reserve, and Total Incurred. The Spent amounts can be examined to make sure that the correct amounts were paid. The Spent amounts have little to do with the reserve figures. The Spent amount analysis is best performed in a claim review, not a reserve review.
- The Reserved amounts are the most important part of a reserve review. They are the unspent figures that the adjuster estimates will be paid out over the life of the Workers Comp claim. The Reserve amounts are the negotiable parts of the loss runs. Over-reserving can cost an employer dearly as the E-Mods/X-Mods are calculated directly from these figures. Over-reserving will cause an employer to pay premiums for funds that will never be used to pay the claim.
- The Total Incurred amounts are the Spent amounts added to the Reserve amounts. The Total Incurred amounts will appear on the Experience Modification Worksheets that are published on your company by the NCCI or State Rating Bureau.
Understanding the difference between a Workers Comp claim review, reserve review, and premium audit.
Claims Review – analyzing how well the claims department handled the claims. This is usually accomplished with a review sheet that scores the effectiveness of the claims adjusters.
- Reserve Review – a financial analysis to make sure the monies forecasted for the life of the claim is as accurate as possible. Negotiating down the reserves will result in a large amount of savings in your Workers Comp premiums.
- Premium Audit – performed by the insurance company’s premium auditor to make sure that all the correct classification codes and payroll figures were used during the policy period that just expired.
Which Loss Run Claim Reserves To Analyze?
The ones that you want to target are the ones that have an Open or Reopen status. You will likely only want to examine the Lost Time files and not the Medical Benefits only file. You would want to examine any medical-only claims that have more than $2,000 in outstanding reserves.
Now that you have a list of those claims, how do you tell which ones are over-reserved or should be closed? Well, I have been able to answer hundreds of questions in this blog. This is the first time that I have no sure answer. Contrary to the belief of some people, reserving Workers Comp files is an art that is very difficult. I could write a book just on how to analyze loss runs.
You can call the adjuster to see if they will reduce the Workers Compensation reserves, but on which files would that be appropriate? You can call your agent, but I have only known a very few agents that understand the process of reserving a Workers Comp file. That is no slight to agents as they are very necessary to the Workers Comp insurance process.
I want to avoid sounding like an infomercial for our services. I will not “toot our own horns.” The best thing I can say to do is have a working relationship with your adjuster. That will help somewhat.
I have posted a large number of posts on loss runs, file reserving and contacting your Workers Comp adjuster. Feel free to look through the posts on this page and on the archived pages. The Search Box may be a good shortcut.
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