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Small Workers Compensation Claim Does Not Exist – Risk Is Risk


A Small Workers Compensation Claim Is A Misnomer

A small Workers Compensation claim can grow to a large one in the blink of an eye.

The following was taken from a manual that I first wrote in 2000. It is timeless Workers Comp policy and claims info. Yes, this may not be accurate in all situations in all states. I am including it as a concept that “NO CLAIM IS SMALL“.

Picture Of Money small Workers Compensation Claim Small Bill
Wikimedia Commons – epSos.de

The next example shows a more severe example of how over-reserving can affect WC premiums. The claim was a severe left arm strain with a possible bone fracture. The adjuster originally reserved the file at $15,000, which was an easily justifiable amount at the start of the claim. However, the employee had just a few medical bills and only missed two weeks of work. The arm incurred no permanent damage and the employee had no problems returning to work.

The first $5,000 reserves of a claim are the primary loss part of the claim. A claim that is over-reserved in excess of $5,000 but has payouts less than $5,000 can cost your company more than it appears on paper.

You are not only paying premiums for the ratable excess part of the claim, but even a larger percentage on the amount of reserves that were under $5,000. A claim that was reserved for $15,000 will have an actual excess loss on the premiums of $10,000, however, the over-reserved primary $3,873 reserves (primary loss), will have a larger effect than the $10,000 of excess loss. In the example, the claim was initially reserved for $15,000 and was kept open for three years. The payouts were only $1,127.

Cash Dollars Bundled Small Workers Compensation Claim Picture

The claim was over reserved $3,873 of primary reserves and $5,000 of excess reserves. The $3,873 of primary reserves resulted in an increase in premiums of 60% and the ratable excess resulted in an increase in premiums of only 23%. The .15 is a factor that is set by each state as the stabilizing value in case an employer has one large claim and no or few other claims.

(Please forgive the lack of clear columns. Our service seems to be having problems.)

Primary Loss $ 5,000
Excess Loss $10,000
Payments $ 1,127
Over Reserved Primary Loss
(Primary Loss-Total Payments) $ 3,873
Ratable Excess
(Actual Excess Loss *.15) $ 1,500
Total Loss for Premium Calculation $ 6,500
Payments ($ 1,127 / $ 6,500) 17%
Ratable Excess ($ 1,500 / $ 6,500) 23%
Over-Reserved Primary Loss ($ 3,873 / $ 6,500) 60%

Woman Calculating Small Workers Compensation Claim Using Calculator

Amazingly, $3,873 of the first $5,000 (primary loss) of a claim will cost more in premiums than the next $10,000! There is NO SUCH THING AS A SMALL CLAIM. We have worked on files with many employers that were not concerned about having one or few claims with low reserves. As you can see from this example, a few claims with lower reserves may raise premiums more than one very large claim. All claims affect your E-Mod from medical only to very large claims. I recommend that you review claims upon receipt of your loss runs.

Therefore, there is no such thing as a small workers compensation claim.

Taken from https://cutcompcosts.com/manuals.html “Keys To Cutting Workers Comp Costs – A View From A Claims Standpoint” by James J. Moore.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management 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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