Large Deductible Workers Comp Policies – Paying 50% Of Expenses?

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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.

picture of large deductible workers comp euros
Wikimedia Commons – Public Domain

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?

Growing Bindweed Plants Large Deductible Workers Comp On the Ground
Wikimedia Commons – Mark Dixon

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?

A boy of Large Deductible Workers Comp raise hand
Wikimedia Commons – Jim Larrison

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.

 

©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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