Total Incurred Means Two Different Things In Two Different Places
The Total Incurred part of claims reserves consists of the indemnity reserve added to medical reserves for reporting to the rate bureaus. The figure does not include ALAE better known as an allocated expense.
Distinguishing expenses from medical incurred is very critical. The employer should not have ALAE included in their E-Mods.
Therefore, one cannot match the total incurred on the worker’s comp loss runs and on the UNISTAT reports for the rating bureaus.
I have posted on this term previously. It is the sum of the amount paid and the Workers Comp claim reserves. The figures are included in employers’ rating bureau reports. Total Incurred is the most critical part of an employer’s E-Mod.
The insurance carrier or TPA denotes the figure with somewhat differing terms. I have seen it called Total Reserves and a few other terms.
The official definition – which is really the formula Reserves + Paid = Total Incurred. The sum of incurred medical and indemnity benefits and others for lost-time claims is also a definition.
Reserves consist of what the adjuster or claims staff considers the predicted amount that will be paid out over the life of the claim. An efficient adjuster reviews their reserves at least every 60 days and when there is a major file development such as a surgery recommendation by the treating physician; a return to work; or final settlements all as examples.
The paid part of the above equation results in much more difficult reviews known as leakage audits. Leakage audits require a consultant or employee with a heavy financial and adjusting background and usually seven years adjusting experience in their backgrounds.
Next time that you receive a loss run for your company, highlight the column that reads Total Incurred.
Related: FREE Workers Compensation Insurance Definitions with Glossary
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