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California Claims Adjustment Costs Are Massive – WCAN

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California Claims Adjustment Costs Very Expensive

The California claims adjustment costs are massive when compared to other states.  The Workers Compensation Action Network (WCAN) published the above chart last week.

Picture of California Claims Adjustment Costs Files and Documents in Cabinet in Office
123RF

A similar study was published in an article on this blog last week which covered the newest WCIRB Study (rating bureau for CA).

Most of the claims and premium data that I have analyzed pegs the ALAE (Allocated Adjustment Expense) at 15% – 17% for most claims.  Even the national median in this chart seems high.

Having 28.2 cents of each dollar paid out for non-benefits shorts the injured employee and especially the employers that are paying the premiums.

Why does California have such high claims management expenses?  According to WCAN:

The reasons for these high costs include:

  • Greater-than-average proportion of permanent disability claims (which are more complex to manage)
  • High litigation rates (particularly in the Los Angeles area)
  • Large number of active liens and
  • High frequency of independent medical reviews

According to Willis ALAE usually consists of:

  • Preferred Provider Organization
  • State Specific Networks
  • Physical Therapy Specialty Networks
  • Diagnostic Testing Specialty Network
  • Pharmacy Benefit Management
  • Prescription First Fill
  • Independent/Defense Medical Exam
  • Utilization Review
  • Telephonic Case Management
  • Field Case Management
  • Peer Review
  • Drug Testing
  • Vocational Rehabilitation
  • Medicare Set Aside Agreements (MSAs)
  • Mandatory Insurer Reporting (MIR)
  • 24/7 Triage
  • Attorney Fees
  • Translation Services
  • Surveillance Fees
  • Transportation Services

How can these fees be reduced?   This is one of the more difficult answers in WC today.   The California claims adjustment costs may possibly only be reduced as a result of an overhaul (not Senate Bill 863) of the system.

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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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