Top Four WC Success Measurements Easily Acquired
The Top Four success measurements for self-insureds are easy to find in your Workers Comp materials.
In my last two posts, I covered how to measure the success (or failure) of a Worker’s Compensation program. I want to be fair to self-insureds as I am often reminded to include the self-insurance angle on my posts. The measurements for self-insureds are:
- Loss Development Factors (LDFs)
- Current reserve levels (including all claims)
- TPA Statistics
- Bottom line – payments made over the life of the claim
The LDF, in my opinion, is one of the least understood of all variables in the Worker’s Compensation process. The LDF is analogous to the E-Mod. The LDF will usually cover a 10-year time frame. There are many software packages that will calculate LDFs.
An LDF remains one of the best success measurements – similar to your personal credit score. The LDF will let you see your company’s workers comp roadmap starting point.
One inherent risk with LDF software is knowing which variables need to be adjusted before inputting the loss data. I have seen LDFs vary greatly even though the same software was used for the calculations. Incurred But Not Reported (IBNR) is one of the main parts of the LDF statistic. IBNR is an estimation of any claims that have occurred but have not been reported.
Current Reserve Levels (For All Current Claims)
The current reserve levels for a self-insured employer is just as important for one that pays a premium for their Worker’s Compensation coverage. If the reserve levels are inadequate, the LDF will be inaccurate and the self-insured will not set aside a large enough budget to pay future Workers’ Compensation claims and payments. If the reserves are too high, there may be too large of an amount of funds appropriated for Worker’s Compensation payments that could have been used elsewhere in the organization’s budget.
Statistics Provided By The TPA
I had already mentioned this subject in my last note. I did want to again bring up the fact that the person or persons that are setting your reserves – the adjusters – have many ranking statistics for how their clients are performing in such areas as delayed first reports of injury, return to work, etc. Most TPAs will provide you with the information if you request it free of charge.
Bottom Line – payments made over the life of the claim
The huge difference between a Worker’s Compensation program with an insurance carrier and a TPA is that certain claims are not counted in the E-Mod system. Open claims are ALL counted when calculating an LDF. All payments made on any claim at any time are counted into your Workers Comp budget.
A different tact has to be used when reviewing TPA loss runs versus an insurance carrier’s loss run. One thing to watch is an old claim that is reopened for payment and then closed again. I have seen many of our clients concentrate on only the open claims or getting the claims closed. One piece of advice that we give is that payments made are just as important as the reserves.
The TPA and the self-insured have a direct fiduciary relationship. I always tell our self-insured clients the TPA is spending directly out of your budgeted account. Loss reduction strategies can make or break a self-insured program. There are hundreds of posts in this blog on loss reduction strategies.
As I have posted often, self-insureds have told me that they are out of the Workers’ Compensation system. Actually, self-insureds are more in the system than insured paying premiums to an insurance carrier. Self-insureds have no buffer for a huge claim or for a large number of claims.
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