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Workers Comp Data Carveouts Move Data To Dangerous Ground

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Workers Comp Data Carveouts – Are You Guilty of  Sampling Errors?

The concept of Workers Comp data carveouts surfaces more now that employers look to enhance their workers’ compensation saving programs.

picture of sampling workers comp data slicing
Wikimedia-DSCF1348

Workers comp data carveouts start when a company, organization, consultant, etc. decide to use oversampling of a small set of data to justify a larger set.   The reverse will work under certain circumstances.

For example, and I have seen this happen often – using California data results on any kind of workers comp statistics to think that the same result will occur in another state.

I often do phone consulting for investment companies that are looking to place the work in the workers’ compensation space.    The investors will want to look at two or three different states and then use the results derived from those states to try to expand their investing across the US.

I do not use Wikipedia that often as a source.   Two sentences were taken from their page on oversampling/undersampling. 

Both oversampling and undersampling involve introducing a bias to select more samples from one class than from another, to compensate for an imbalance that is either already present in the data, or likely to develop if a purely random sample were taken.

Many articles appear on this website concerning statistical madness.  Sampling errors can be a form of statistical madness.

The Whole Picture 

Many software packages do allow companies to isolate one state when examining a Mod calculation.  Isolating one state can be Ok to look at just that one state.   The mistake is made when a single state company wishes to expand to other states using the data from their HQ state.

Workers’ Compensation rating contains too many variables to think that how your company is rated in one state will allow your company to know what would happen data-wise in another state.   Most E-Mod formulas have 33 calculations to arrive at the final number.

An employer would need to operate in the additional states for a few years before the actual results are known – remember that Workers Comp is a delayed lookback system.

If an employer is operating in multiple states but looks at one or two of their main operational states as the bellwether for other states, they would be oversampling and undersampling at the same time.    The main operational states would be oversampled and the remaining states would be undersampled to the point of not being sampled at all.  

I left the link above in the Wikipedia statement on bias.   Bias in statistics leads to unnatural and inaccurate results.   I have actually sliced out sections of data as the employer wanted that section to be analyzed.   I did not guarantee the results as being a good forecast.

Workers Comp data carveouts usually occur when analyzing one state, a year or other data out of any analysis – mainly the Experience Modification Factor or Loss Development Factor (LDF).   One needs to look at the whole picture.

Bottom line – be very careful when using workers comp data carveouts for decisions.

 

©J&L Risk Management Inc Copyright Notice

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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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