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Four Workers Compensation Success Measurements

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Four Workers Compensation Measurements Of Success

My last post had covered the four Workers Compensation measurements of success or failure. Instead of combining both voluntary market and self insureds into one post I thought it best to separate them into two posts. The four measurements of success for the voluntary market where an insured pays a premium are:

Arrow signage Four Workers Compensation Success
Wikimedia Commons – Keith Ramsey
  1. E-Mods/X-Mods
  2. Current reserve levels for claims included in the Experience Period
  3. Employer measurements provided by insurance carriers such as lag time, etc.
  4. Bottom line – premium

E-Mods/X-Mods

 

Unfortunately (of possibly, fortunately), the Experience Mod system is like a credit score but much worse. When you apply for a loan, you are usually judged on just one number from the three credit bureaus. The same can be said when a company applies for Workers Comp insurance.

Hand Emphasizing Four Workers Compensation Risk Management
StockUnlimited

I have seen so many safety professionals and Risk Managers that are judged by this one number. There are so many other variables that indicate how an employer’s Workers Comp program is functioning. A complicating factor is that many employers bidding on contracts are required to have an E-Mod of 1.0 or less.

I realize there has to be a cutoff point. Is an employer with a .99 E-Mod that much safer than one with an E-Mod of 1.1? That is almost statistically insignificant. The company with the 1.1 E-Mod would not even be allowed to bid. The safety manager, risk manager, and CFO of the 1.1 E-Mod company would be under tremendous pressure to reduce their E-Mod. Most E-Mods are based on a three-year set of data. One good year or even two may not reduce the E-Mod enough if the employer had one extremely bad claims year up to four years ago.

Current Reserve Levels

 

The E-Mod system can be a good measurement of how a company performed on safety and loss reduction in the past. How would a company judge how they are doing presently? I would think it is the current reserve levels of all claims. Reserves = Total Incurred – Paid. I would be remiss if I did not count in what is paid on the closed claims as part of this figure. Calculating the effectiveness of a Workers Compensation program using the paid amounts on closed claims can be complex.

Graphic of Gavel And Carrier Liability Document Four Workers Compensation Concept
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A Workers Comp adjuster setting reserves will usually consider the reputation of the employer. Please check out the Six Quick Methods To Reduce Your E-Mod Part I and II as some of the variables that establish an employer’s reputation with an adjuster. If your company does not have a working relationship with your adjuster, it can be a very expensive missed opportunity. Does your company have a written plan of action on how to handle Workers Comp claims – more importantly, have you shared those with the carrier’s claims staff?

One variable that will throw off this measurement is the claims that are less than 90 days old. An adjuster may set a very large reserve upfront and then reduce it 60 – 90 days into the claim. There would need to be a cutoff point for new claims.

Insurance Carrier’s Employer Data

Most insurance carriers’ claims departments track the performance of an employer on such goals as lag time, which is the number of days an employer takes to file the first report. There are many other employer variables tracked over time. Your claims adjuster is fed those figures constantly. What does your company’s performance variables say about your Workers Comp reputation? Most carriers will provide you with the data if you request it.

Bottom Line – Premium

 

Woman Counting Four Workers Compensation Money Bundled
stockunlimited

This is the tell-all figure. Premiums paid should always be the focus of the performance. There are inherent dangers in using this figure only. If your company grows by 300% (congrats), then your premiums are going to grow significantly. We receive calls/emails from employers very often when their premium audit increased the premium by a large amount just due to a payroll shift or change in the classification of employees.

In the case of downsizing or payroll growth, a factor needs to be built that would lessen the effect of a payroll change. We have now come full circle as that would be your E-Mod. As I have posted previously, if you want to win the E-Mod game, you must play by the rating bureaus’ rules.

This post was more of a summary of a much larger post. I will post on the four measurements of success if you are self insured next time.

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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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