Large Deductible Workers Comp Policies May Require 50% Allocated Expense Payment
We often perform workers comp policy reviews as part of our premium reduction consultant services. Large deductible workers comp policies usually have a deductible amount ranging from $100,000 (the minimum) to $5million.
The most popular retention level (think car insurance deductible) is $250,000. J&L has reviewed many insureds with a $250,000 deductible.
One would have to ask if an insured has over a $1,000,000 deductible – why not just pursue self-insurance?
Large Deductible Policies = Hyrbid Agreements
Large deductible workers comp policies consist of hybrid agreements. Some policies include side agreements. The side agreements may cover many specifics of the large deductible policy.
These agreements can be complicated at times. One area that stands out on a large deductible policy is the handling of allocated adjustment expenses.
The insured clients often discover they are paying for 50% or more of the expenses than an insured with a regular no-deductible policy that pays only premiums.
ALAE does not count in the Experience Modification Factors (E-Mods or X-Mods).
The insureds sometimes do not realize they are paying for something that can be extremely costly.
What Are Allocated Adjustment Expenses?
Allocated adjustment expenses are defined as any expense the insurance carrier incurs when paying for the adjustment of the claim. ALAE can be an expensive part of the claim.
In California, the true allocated adjustment expenses cost as much as the indemnity and medical benefits combined.
Allocated adjustment expenses are usually:
- Private Investigators
- Defense Attorneys
- Rehabilitation nurses – a debated item
- Bill Review
- Medical Network Fees
- By Agreement<<<Watch these expenses
The exact ALAE expenses may not be spelled out in the large deductible policy or contract.
The expenses are usually listed on a loss run in the third column. They are denoted as Expenses on most loss runs. Check out any loss run, and you will see them. Large deductible workers comp loss runs usually show the same three columns – Indemnity, Medical, And Expenses.
Where Are Allocated Expenses in Large Deductible Workers Comp Policies?
The reason this article appears before you came from one of our clients who renewed on July 1st. The client is a governmental agency. Their policy runs from 7/1 to 7/1 of each year.
The large deductible agreement was forwarded to J&L on June 29th at 4 PM. (Ouch!). We found the 50% agreement in a side agreement. How did we find it so fast? We used the best workers comp policy review tool in existence.
We then asked for 10 years of loss run data. When we reviewed the allocated expenses, they were not that high, so the impact of the workers comp large deductible allocated expense was not that significant. We had to use a few homegrown actuarial tools to forecast their next three years of expenses adjusting for inflation – especially medical.
Large Deductible Workers Comp Programs – Worth It?
Many of our clients have benefitted from using these programs. No one says that insurance carriers are trying to pull a fast one with the 50% ALAE reimbursement. Just remember, before you sign up with these programs that you read everything very carefully and ask a ton of questions.
You must live with your large deductible workers comp program. Make it work for your company.
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