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Outlier Claims In Your Workers Comp Loss Runs – Savings Goldmine


Workers Comp Loss Runs – Outlier Claims Skew Everything

Hunting the outlier claims s is the way to get the most “bang for your buck” in your loss runs.  Workers Comp loss runs can be a gold mine of information.   Finding gold can be tedious.

Graphic Of Cellphone Outlier Claims With Calculator And Money

Outlier claims are the ones that do not fit the norm.   Outlier claims data are usually the easiest to spot by just examining the Total Incurred or Reserves in a loss run.  The basic claim formula is Total Incurred = Paid + Reserves.

The amount paid on a claim can also be an outlier.  For instance, a knee strain with no surgery has a $14,500 medical bill paid on the claim.  The payment is an obvious outlier that deserves a quick investigation. These outliers are very easy to spot.

The reserves on a claim usually receive much more scrutiny.  How can someone know whether the reserves are out of the ordinary?   Reserving is more of an art than science.  Reserves are the toughest outliers to spot as they are basically an opinion.

Picture Of Man Hand Outlier Claims Using Calculator

Three Workers Comp adjusters can actually come up with three very different reserve levels for a specific claim.  Each adjuster can have a very unique opinion on the same Workers Comp file.  The varying opinions are why a reserving expert is best to analyze the reserves.   Attempting to negotiate reserves without having a reserving background can sometimes backfire.

In most cases, the outlier will be an amount that exceeds a certain normal value.  There are also outliers that are also lower than the norm.  The low outliers can ruin a self insured or large deductible program.  If an injured employee is preparing to have knee surgery, insufficient reserves can result in the employer not budgeting enough $$ for their claims outlays for the next few years.   Which sleeping dogs does one let lie?

Most self insured companies have a Loss Development Factor (LDF).  If your self insured company is not having one calculated, you may not be budgeting properly for your WC claims.  The LDF that is based on anemically low reserves is just that – anemic.

Man Outlier Claims On Crutches

A reserve shortage on claims has caused many self insured employer groups to fail.   Chronically low outlier reserves are a recipe for disaster.  Surprise reserve increases usually cause a self insured group to have not assessed their members enough to cover the future payments.

The easiest way to find these high or low outliers is by downloading or converting the data into a spreadsheet.  There are many statistical packages such as the Statistics Package in Excel.  If your TPA or insurance carrier does not allow downloads of the claims data, you will unfortunately have to input it claim by claim.   Having access to the reserve data online is priceless for your outlier hunt.  This is especially true if your company has a large loss run.

The one reserve analysis technique to NOT use is to call your adjuster or agent and complain that your company is paying too much in premium and you need all the reserves lowered.  This technique is never recommended at any time in claims analysis process.

Such banter with an adjuster can create a bad working relationship with your adjuster – the person with the finger on the button.

Related: What Does Stair Step Reserving Mean?

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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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