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Workers Comp Reserving Is Art – Not Science


Workers Comp Reserving Is An Art

Should Workers Comp reserving be compared to a Picasso?  One of the most difficult tasks that Workers Comp adjusters face (especially inexperienced ones) is setting the reserves on a file. A large number of people seem to think the reserves are just automatically calculated and this is the way that reserves are set on a claim.

Picture of Arts Materials Workers Comp Reserving Is An Art
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The first time I had come across this was examining a loss run from one of the state funds quite a few years ago. The adjuster had responded to an email saying they did not necessarily agree with the reserves, but they did not want to change them as the unnamed system had set the reserves.

The file, at the time, was horribly over-reserved as the medical circumstances had changed dramatically. The file was going to really affect the insureds E-Mod/X-Mod. I had to actually talk to a VP-level employee of the fund to have the reserves reduced even though the file was obviously top-heavy on reserves.  

I should take a step back. The reserves in the file are Total Incurred = Paid + Reserves. The total incurred figure is what the insurance carrier will report to the rating bureau or NCCI. That is why reserves are so important. Reserves are the outstanding funds that are charged to the employer’s E-Mod/X-Mod beyond what has been paid.

Graphic of Person On Puzzles Workers Comp Reserving Is An Art

In the previous example, the Workers Comp system sat the reserves with little input from the adjuster. This can cause great complications as each injured worker will heal differently. Each employer will have a different set of return to work values – not all employers have light duty programs.

As any experienced Workers Comp adjuster will attest, the numbers of years of experience adjusting in a certain territory, state, or with certain employers will result in the most accurate reserves. There is no substitute for experience in this area, no matter how great of a WC computer system is in place.

Adjusters have a great balancing act that is performed with reserves on a daily basis. If the reserves are too high, the employer could be overcharged for funds that were never actually used to pay benefits. If the reserves are too low, the carrier, and in turn the employer has to adjust for large unexpected reserve increases.

Hand Illustrating Dollar And Man Workers Comp Reserving Balancing

That is exactly why reserving is an art, not a science. Applying some multi-variable statistical function to a claim is never going to result in the claim having the proper reserves. The statistical generator may be good in the short term, but usually is not that accurate in the long term.

An experienced WC adjuster should be able to override any reserve that is within their authority levels. Let the artist paint on their canvas. If there is a stat package that is calculating the reserve, then an adjuster should be able to make the reserves fit the file.

Why did I write this article? We just received in a loss run from a statistical generator-type reserving system. The reserves are not even in the ballpark.

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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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