Workers Comp Allocated Expenses – Who Pays For Which Bills?

February 5, 2021 By JL Risk Management Consultants

Workers Comp Allocated Expenses – The Hidden Premium Charges You May Not Owe

A long-running debate still exists today on how workers comp allocated expenses are charged to employers’ accounts. Let us cover the:

Definition of the expenses
Process of charging the allocated expenses to the employer’s Experience Mod
Sources of payment confusion
Specialized programs for large deductible policies
New important finding – reserve shifting
Which workers comp bills that mistakenly end up paid as medical charges
How to audit workers comp allocated expenses on loss runs

pic hidden lighthouse workers comp allocated expenses

Workers Comp Allocated Expenses Definition

The definition of allocated expenses is:

(also known as ALAE) are expenses charged to a Workers Comp term file that are not indemnity or medical benefits. They are associated with the adjusting of the file. Expenses for defending claims such as attorney fees, private investigators, independent medical exams, and many others are considered as Allocated.

Process of Charging Allocated Expenses To Employer’s Mod

The expenses for a file such as attorneys, private investigators, and rehabilitation nurses are usually paid by the worker’s comp carrier. The charges usually appear under the Expenses column in a loss run. The other two types of payments appear under Indemnity and Medical.

Sources of Payment Confusion

When a new or inexperienced payment processor comes across a bill, they are left to choose which one of the three payment types to add the payment to when cutting a check. Some payment systems will not allow a medical bill to be paid under the indemnity. Very few systems prevent a payment that should be under the workers comp allocated expenses from going under medical.

If payment is paid under medical, how is that caught by the system?

When the bill payment is issued becomes critical to make sure the bill is charged to the employer or the insurance carrier.

Reserve Shifting

Medical workers comp allocated expenses for healthcare

Wikimedia Commons – Farcaster

Reserve shifting occurs when a claims adjuster does not have enough funds to pay a certain benefit, Instead of increasing the reserve category (medical, indemnity, or expenses), reserves are moved from one reserve category to another.

The reserve shifting makes sense when one looks at a workers’ comp file. The one drawback is when monies are moved from the workers comp allocated expenses reserve to indemnity or medical.

The insured Experience Mod, in essence, just incurred a reserve increase without the total file reserves being increased. The indemnity or medical reserve increase from the reserve shifting will cause a file that seems to be the same reserve size to have gotten much larger.

J&L sees this occurring more often each year. I have one now on my screen that I am reviewing for an agency in California where this very situation occurred very recently. The amount of $43,500 was moved from allocated expenses to medical.

This shift may seem like a harmless adjustment of the reserves, but the employer experienced a $43,500 bump to the amounts that count into their Experience Mod.

Yes, if the adjuster just raised the file $43,500 it would have had the same effect, but this would have increased the total amount of the file which would make the increase in reserves and eventually the Mod more obvious.

Workers Comp Bill – Medical or Allocated Expense?

The bills that usually end up mistakenly input into the medical payments are Rehabilitation Nurses. This happens frequently. Rehabilitation nurse bills should routinely be paid under the Allocated Expense category, not medical.

Nursing Rehabilitation for workers comp allocated expenses billing area

Wikimedia Commons – Satish23reddy

Independent medical exams are a grey area. The bills are medical appointments but are they not essentially adjustment expenses on the file and not true medical treatment.

The debate still yet occurs on these two types of bills yet even today.

When I have attended the NCCI data conferences in West Palm Beach, the determination was made that allocated expenses were s any type of funds that were not incurred to assist the injured employee medically.

Auditing Workers Comp Allocated Expenses on Loss Runs

Reviewing workers comp payments without direct online access is next to impossible. Obtaining online access can save time and headaches when reviewing files.

The best way to review these payments is to look at each payment to see what reserve type it was paid under for each check. This can be confusing at times.

Some carriers may have a backstop in their systems that will not allow, for example, a certain law firm to have a check issued from the medical reserves. Most do not.

Following the claims monthly for reserving, payment, and handling usually results in the best outcome.

Please note that I have never seen an insurance carrier purposely pay workers comp allocated expenses under medical or indemnity reserves.

©J&L Risk Management Inc Copyright Notice

Reopened Workers Comp Claims – Watch The Reserves

December 3, 2020 By JL Risk Management Consultants

Reopened Workers Comp Claims – Big Problem

When does a reopened Workers Comp claim cost more budget for insured and self-insured employers?

picture of wise old workers comp reopened claims owl

Public Use License – Jordiferrer

I reviewed a file this morning that had one of the classics that cause agents, risk managers. underwriters, rating bureaus, and most importantly insureds to become very irritated at claims adjusters.

Adjusters have a tough enough time making everyone happy (think impossible)

As with my last article, an easy fix can be accomplished. I will give you the exact example with all the names removed for anonymity.

UNITSTAT Date vs Reopened Workers Comp Claims

All Was Not Well, as Reopening Made The Claim Not End Well

A very good Senior adjuster had handled a claim very well, in my opinion. Good job! The file was closed timely. The claim was an eye injury. Those claims can be complicated sometimes.

The injured employee, being a conscientious employee that was moved into their home from the office increased her dedication to the utmost. She worked 15 hour days for her employer – possibly too many hours. Here is an E for Effort from me to her.

A good employee that had an eye injury on the job was only out for two weeks. This is one of those claims where the employee, employer, carrier, and provider all worked together to return a good employee as soon as possible to gainful employment.

The employer provided her a desk-type job. My Six Keys For Saving On Workers Comp claims were followed. All parties in the claim did an excellent job.

Because the employee only had two weeks out of work, the reserves were set very accurately. The medical portion of the reserves was set very high due to the possibility of eye surgery, which never happened with the injured employee’s medical treatment.

Check here for articles on UNISTAT Date if you want to see more about them. In short, think 6 months after the policy expiration for timing.

Just Bad Timing?

This situation happens quite often. The file was reopened with the old reserve even though it was just to pay for a few medical bills. The bills totaled $845

The file was reopened with in excess of $20,000 in medical reserves. What happened from there was the injured employee was seen and all medical bills were paid. Even if there was a future office visit, the file reserves were left open with $20,000+.

The UNISTAT date hit and Boom! – $20,000 of extra reserves hit their Experience Modification Factor.

Moral of The Reopened Workers Comp Claims Story

Reopened files happen often. The main idea – regardless of timing – is to reclose the file or reduce the reserves quickly when the file is reopened to fit the situation.

No, $20,000 was not a tragedy in this situation.

I have seen files during the pandemic in much larger amounts for reopened workers comp claims. No, I am not being too picky.

©J&L Risk Management Inc Copyright Notice

Workers Comp Reserve Reduction Strategy – Critical Last Step

September 30, 2020 By JL Risk Management Consultants

Workers Comp Reserve Reduction Strategy – Do This Last Critical Step

Many articles in this blog center around formulating and enacting your workers comp reserve reduction strategy. We have heard from many article/blog readers -where the anticipated reserve reductions did not tabulate properly.

picture steps to workers comp reserve reduction

Public Use License – Wikimedia – DanielZanetti

We heard from an agent today with the question – what happened – there was no movement in the workers comp reserves. The time this hits the fan is when the Experience Modification Factor was published by the insureds respective rating bureau.

The insured or their agent then contacts us about what happened after the reserves were negotiated down but the Total Incurred (Paid + Reserves) did not reduce one penny.

Adjuster Relationship = Timely Workers Comp Reserve Reduction

My first out-of-the-box questions cover the article from last week on reserve reductions – click here. The one question that I always add is – did you pull your Workers Comp reserves just before the UNISTAT Date?

Workers Comp adjusters are overloaded at the end of a month. DO NOT expect them to drop everything if you request a reserve reduction two days before the UNIT STAT Date.

The working relationship with the adjuster becomes very important when you request a reserve reduction on a certain file or group of files.

Your Reduction Request is Ranked 13 out of 13 – OMG!

Blue Puzzle Workers Comp reserve reduction on the floor

Wikimedia Commons – Jared Tarbell

The reduction will not occur- trust me. If you want to know what claims adjuster is doing – check out the 13 duties of a workers comp adjuster that I originally wrote in 1994.

Most TPAs and carriers want all the 15-and-60-day reserve increases cleared out by end of the month.

Your reserve reduction or closing request is ranked 13th out of 13. It is similar to ESPN’s Bottom 10 College Football Poll.

So – if you are reading this, go back to the reserve reduction article last week, and then follow all the links from there on getting your reserve reductions through and reported to the rating bureau.

For more info, please use the Search Box at the top right of any webpage – totally worth using it.

Self-Insureds – You Are In On This Too (A Little Secret)

Yes, you are not out of the Mod system, except you have a Loss Development Factor to contend with at comparably the same time as the UNITSTAT Date.

Most of the LDF’s use the same timing as the Rating Bureaus and the UNISTAT Date. You are obtaining an independent LDF – right? (Hope so -if not Use The Contact Us page on the website).

Last Step to Your Workers Comp Reserve Reduction Strategy Is..

You must pull the Workers Comp Loss Run one more time to make sure the reductions you are anticipating are on the books before the UNIT STAT date kicks in. Yes, self-insureds are included – obtain your TPAs loss run.

The reserve increases or decreases must work their way across many desks (now virtual). If you are dealing with large reserves, the request may have hung up somewhere in the process.

As I have said repeatedly, online access to downloading your own loss runs is beyond important at this time in your Workers Comp reserve cycle. Printing our on-demand loss runs helps insureds and self-insureds avoid having to request one and waiting for a response.

The last step should be done approximately a week before the UNISTAT Date.

Red Alert if.. (Star Trek reference)

Big Red Workers Comp reserve reduction Button

Wikimedia Commons – włodi

If the reserves are still at the same levels or the files did not close, you must drop everything and take care of the situation. You have followed the reserves all year – push it over the finish line. Email the adjuster with a follow-up call to see why no anticipated reserve reductions occurred on the files.

Remember that you are dealing with #13 out of 13 adjuster duties – and if it is the end of the month, adjusters are totally overloaded.

Do not wait until the last day of the month or the last day before the UNISTAT date. You are going to be disappointed with the results. Your Workers Comp reserve reduction strategy will be all for naught.

©J&L Risk Management Inc Copyright Notice

How J&L Reduced Workers Comp Reserves $300,000 In One Month

September 24, 2020 By JL Risk Management Consultants

Animal Rescue Loss Run Analysis Reduced Workers Comp Reserves – Short Deadline

We reduced Workers Comp reserves for an Animal Rescue and Veterinary in 30 days by 300,000 was one of our most recent successes. How do we do it? Follow along – maybe you can do it for your company or client.

pic of puppy sleeping reduced workers comp reserves

Wikimedia Commons License – Eugene0126jp

Making available more funds to help save kittens and puppies felt great – using the below semi-secret method. An agent contacted me to help her with a large client where their Experience Mod was going to incur a sky-high spike. Yikes!

Self-insureds can use the same techniques – the timing can be adjusted to whenever you have an LDF calculated for you.

The Method To The Madness – 10 Steps (Two Bonus)

Obtaining the correct loss runs – the agent and I could not obtain the correct loss runs for many weeks. Three different versions of the claims loss run existed with different claims on them.
Online Access – I have been harping on having the claims reserves and notes access for over 25 years. The agent and I were able to obtain an online account with the correct info. You can print your own loss runs if you have an online account with the carrier. We received this two weeks before the UNIT STAT date.
Understand Your UNIT STAT Date. You have to know what reserves peg to the Experience Mod and on what date. Follow this link for an explanation of the UNIT STAT date. So many end-of-year or end-of-policy-year reviews can be very worthless.
Understanding What To Leave In – What To Leave Out – many claim loss run review requests from employers and agents say – “Hey, let’s review them all” – the wrong method. As a claims person for many years, reserves increases were sometimes caused after having to review a set of claims for an insured and/or agent. Let some sleeping dogs lie (no pun intended), but which ones to pick and which ones to pass over?
These &^%$& Reserves Are Too High – the bane of many adjusters – the same as #4, but on an individual claims basis. The comment will usually cause an adjuster to dig their heels in the ground and push back hard. Threatening to bring up the reserving with their claims supervisor is not recommended.
Look For The Algorithms- if you have claims notes and reserve access, many claims departments have some type of tracking algorithm (analytics) that may point out over-reserving. You are not going to find this info on just a claims loss run. J&L has its own algorithm – it is called workers comp claims experience.
Relationships, relationships, and relationships – the most important of these ten. The agent had a working relationship of sorts with the claims adjuster. Even though we were running out of time, the agent never challenged the claims adjuster. <<very important point.
Employers and agents, do you know who is working on what files – no, not the name on the loss run – have you spoken with that adjuster – best by email. See #7 – do not come out of the blue and make the request.
Explain Your Goal – adjusters are goal setters and seekers – explain to them what you are doing by having the reserves reduced and the results you are seeking.
Pick The Top Three – a huge insured may want to pick five. Workers Comp claims adjusters are short on time. Make sure that you do not ask for 10 – 15 claims to be reviewed for reserve reductions. That request will go to the bottom of the pile and then the UNISTAT Date will pass and your efforts to have reduced workers comp reserves will all be in vain.
Bonus – Show The Insured The Experience Mod Differences – calculate what the Mod would have looked like without the reduction. This can be complicated – be careful.
Bonus #2 – Try to start the process at least 90 days before the UNISTAT Date. Reserve reductions may have to go through a Claims VP, Manager, and Supervisor to approve reduced workers comp reserves. Start early.

The Results Of The Reduced Workers Comp Reserves

Sea Turtle reduced workers comp reserves under the sea

Wikimedia Commons – Brocken Inaglory

The final results will not be known until the UNIT STAT publish date. The final results of the reduced workers comp reserves should be published in December of this year.

Make sure that you convert the differences in #11 above to premium dollars if possible. Reduced workers comp reserves are great. The final effect on the premiums is even better.

©J&L Risk Management Inc Copyright Notice.

What Are Workers Compensation Claim Reserves – Confusing Term

December 20, 2018 By JL Risk Management Consultants

Workers Compensation Claim Reserves Difference Among Carriers and TPAs

Most Workers Compensation Claim Reserves begin when the data input division of a carrier sets the claim up and puts on an automatic reserve.

The automatic reserve sets at usually a nominal amount for a medical only or lost time claim.

picture workers compensation claim reserves quadratic function

Wikimedia – Aiga.Andrijanova

Medical only workers compensation claim reserves usually begin at a level of $250 – $750 depending on the insurance carrier/TPA and the claim jurisdiction.

Lost time workers compensation claims reserves usually commence at a level specific to the carrier/TPA. A claims supervisor will often input the reserves before assigning the claims to the respective claims adjuster.

The automatic or initial reserves function similarly in lost time or medical-only claims. The initial reserves allow the claims staff to pay small medical bills and possibly pay the injured employee for their time out of work past the waiting period.

This does not apply to denied claims or claims still under investigation.

The adjuster’s timetable to set reserves on lost time claims is:

14 days – initial reserves, usually altered at 60 days
60 days – reserves for the lifetime of the claim
6 months- pegs the permanent workers compensation claim reserves

Confusion Caused By Loss Runs or Online Claims Access

The above scenarios seem easy to understand. At 60 days, the adjusters adjust the reserves for the lifetime of the claim – very straightforward.

I have three loss runs in front of me that I am reviewing – not all at the exact same time. The loss runs each from different carriers has totally different representations for the term Total Incurred.

The basic formula is Total Incurred = Paid + Outstanding Reserves

Loss Run Carrier A

This loss run is more of a matrices setup:

Total Indemnity Incurred
Total Medical Incurred
Total Incurred
Total Indemnity Incurred
Paid Indemnity
Total Paid
Medical Outstanding Reserves
Indemnity Outstanding Reserves
Expenses Paid
Expenses Outstanding Reserves
Total Expenses Incurred

The confusion for an insured was finding out what the outstanding Total Reserves were for that file. In other words, what does the adjuster think the claim payout will be in the future for the claim?

Of course for the experienced worker’s compensation claim reserves reviewers, that would be:

Total Oustanding Reserves = Medical Outstanding + Indemnity Outstanding + Expenses Outstanding

However, that total number appears nowhere on the loss runs. The reserve breakdown was excellent. The Total Outstanding Reserves figure would have been nice.

Carrier B – Actually A TPA

Medical Paid
Total Claim Paid – should have been labeled indemnity paid
Total Payments – should have been labeled Total Incurred
Outstanding Claim- should have been labeled Outstanding Indemnity Reserves
Outstanding Medical
Total Expenses – not really broken down
Total Payments
Total Reserves

Streamlining Workers Compensation claim reserves – making a loss run reporting standard

A workers compensation expert would have no problems understanding the workers claim reserves and other figures on the loss runs.

However, a standard way of reporting the medical, indemnity, and expenses paid and outstanding would save a large number of phone calls and emails to the worker’s compensation adjusters who are handling a certain set of files.

Making an employer have to re-input claim figures into their own spreadsheets to figure out a loss run is counterproductive.

Many carriers and TPAs produce loss runs whether online or on paper/PDF which can be read very easily. Kudos to those carriers/TPAs that provide easily-read workers compensation claim reserves.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Reserves Reduction Alternative Mini Guide

October 25, 2018 By JL Risk Management Consultants

Workers Compensation Reserves – Lowering Them Can Be Difficult

The Workers Compensation reserves on a file naturally generate controversy. Why is there so much discussion on them? How can you have a great conversation with your claims adjusters?

numbers moving workers compensation reserves

Wikimedia Public Use License Devit Meniem

A workers compensation claims adjuster’s daily activities include 12 more important tasks than lowering reserves. It is the nature of the system, not the individual adjuster’s fault.

Establishing Business Relationship To Monitor Workers Comp Reserves

By the way, if you are the person at your company who was given the responsibility of the Workers Compensation reserves and program, do you know who the adjusters are on your files?

If you do not know your claims adjusters names, please find that out quickly. After all, these are the persons that are putting up reserves on your file. A caveat comes from the sometimes heavy turnover in the industry.

One of the most common complaints we hear from employers and the claim staffs centers on the change of adjuster multiple times on a file. Regardless, keeping up with who is the adjuster on a certain file is critical. You may actually know more about the file than the adjuster that has been on a 5 year old file for two months.

Email communications are the best way to communicate with your adjuster. That way you and the adjuster both have an easy way to track the communications on the file even if you have to copy and paste them into a file. Trust me on this one. It will make your adjuster very happy.

Do not forget the ever critical medical only claims adjuster – they are putting up workers compensation reserves on your files even though the amounts may not be large. Check out these two articles on medical only claims – they can cost your company dearly if not monitored.

Woman Doctor workers compensation reserves Doing Report

By StockUnlimited

Let All The Adjusters Know Your Injury Reporting, Dr. Network and Return to Work Programs

Many claims adjusters will use the background of the insured as one of their reserving factors. In fact, it was the most important to me when I worked a claims desk. I still today advise on reserving to employers. If you do not have programs for the three areas mentioned in the previous heading, the reserves will be higher than the company that has them in place.

The Six Keys To Saving On Workers Comp claims cover other areas to reduce workers compensation reserves.

Data Access Will Help Reduce Your Workers Compensation Reserves

Online claims access remains a critical factor. I have mentioned this subject for over 10 years.. Receiving a paper loss run report quarterly or even monthly just will not do if you want to control your workers compensation reserves. You need to know your reserves up the minute, not from a three week old report.

Zombie Reserve Phone Call

I just coined that term thanks to coffee. A zombie reserve phone call starts with the claims adjuster receiving a call from the employer, agent, etc that consist of “the #$^$& reserves are too high. You are killing me. Bring them down. The adjusters reading this are shaking their heads up and down while smiling.

Adjusters are the most independent-minded people just behind oilmen and truck drivers. Receiving a call like that can only ruin the business relationship (see the first heading) that you have established with your claims adjusters. Do not do it. Just don’t. Your workers compensation reserves will thank you later.

BE A MASSIVE INFORMATION PROVIDER

Man workers compensation reserves Speaker

By StockUnlimited

The heading is in all caps as this is so important. Send in every piece of information that you can to the adjuster. Scanning and emailing is the best way. Everything is the motto here. The more information provided the lower the reserves on files. Once again, trust me on this one.

Do you have a designated person in your company for the adjuster to speak with concerning your Workers Compensation claims? See the first heading again – establishing a business relationship.

Avoid the rumor mill on this one. Do not email the adjuster that the someone heard that someone heard the employee was mowing their lawn. Now, if they hear that the injured employee works at another employer while being out on workers compensation benefits, that needs to be reported to the adjuster ASAP.

Understanding The Workers Compensation Reserve Authority Levels

Bill Zachary recently wrote an article on how reserve levels can cause delays. He was correct in the article to say that claims adjusters may not have the proper authority level even at meditations to settle a file.

The other side of the coin is that large reserves pass through many hands/desks. The adjuster alone may not have been responsible for the reserve level on the file. Excoriating them on a very high reserve may not be the best tactic. Below are synthetic reserve levels in a claims department:

Medical Only Adjuster – $2,500
Adjuster trainee – $10,000
Adjuster – $25,000 to $40,000
Senior Adjuster – $40,000 to $ 60,000
Supervisor – $50,000 to $80,000
Manager – $75,000 to $135,000
Vice President/Examiner -Unlimited
Big meeting with all parties – Mega-claims

In those numbers exists one big key. When mega-reserves are sitting on a claim and they need to be reduced, the same people have to approve the lessening of reserves. Motivating the adjuster who has very limited time on their hands to spend hours on a reserve reduction through the levels of authority takes a special willingness to lightly push the adjuster along. Many adjusters want to close out any excess reserves at the file closing. This delay may cause an Experience Mod to stay high.

I had a claims VP tell me approximately five years ago that my client’s reserves were too high, but he was not going to reduce them. Every party up to his level agreed the reserves should be reduced – the file has $540,000 in reserves at the time. It closed within $10,000 of my recommended $145,754 reserve recommendation. The bottom line – the adjuster may not be the one responsible for the reserves. Do not ruin your relationship with them. Once again, see subheading #1.

Why Should You Care?

Department Of Insurance workers compensation Building in Texas

Public Domain License

Voluntary Market Insureds

The key for employers with a regular workers compensation insurance policy is the E-Mod (sometimes call X-Mod). The mechanics of the E-Mod calculation will not be covered here. There are many articles already written on the subject in this website.

Keeping up with your claims and paying attention to the loss adjusting will usually lower your workers compensation reserves. Some companies consider workers comp as just a tax of doing business, which can be a large mistake.

One caveat here is to think that only the last four years of claims go into the E-Mod, so the old claims do not make any difference. That thought causes many companies to not be able to find lower cost policies. Carriers examine ALL claims now as far back as a company’s loss history can be traced.

Data analytics are here to stay. All claims now count. I have examined many analytic reports. Most of them left me asking even more questions. Many data analytic software packages now look at 10 years of claim data at a minimum.

Self Insureds And Other Similar Programs

Self insureds, very large deductibles, most captives, and alternative risk programs fit into this category. As posted very often in these articles, I have heard self insureds say ” We are outside of the Workers Compensation system.”

Actually, self insureds and other similar programs are more in the workers compensation system than another group. The voluntary market insureds have a buffer of the E-Mod. If they have a $540,000 loss, there premiums are not going to increase by that amount. If you are a self insured, then it comes directly from your budget – write the check.

Self insured must work very closely with their TPA to make sure that the reserves are appropriate. Under-reserving can cause a budget shortfall. Over-reserving can cause the budget to be too inflated. Either situation can wreak havoc on an insurance budget.

Notice No Technical Advice

Men Talking workers compensation In Office

By StockUnlimited

Why was there no technical advice given in this article? Many times we are called into a situation where the insured employer has caused an increase in their reserves, not a reduction after reviewing their losses and workers compensation reserves with the claims staff.

How can this happen? Sometimes a reserve review can serve as a reminder to an adjuster to recommend a reserve increase on a certain file. Knowing which files to address is critical.

To avoid the situation – unless you have a claims background of seven to ten years, use the alternative- this mini guide to help lower your workers compensation reserves.

©J&L Risk Management Inc Copyright Notice

When Are Final Claim Reserves Set – Is There Exact Date?

October 4, 2018 By JL Risk Management Consultants

Final Claim Reserves Set Earlier Than Expected

The final claim reserves are set much earlier than one might expect in the reserving process.

Public License Auckland Public Museum

Most adjusters set the final reserves at 60 days into a claim. The exact timetable is:

14 days – initial reserve – usually made to the medical bills for first treatment and to start any indemnity benefits (if required). These reserves may not be accurate when examining a loss run
60 days- final claim reserves – regardless of claim severity the reserves are set “for the life of the claim.” The adjuster reviews the reserves every 30 days to make sure of adequacy to pay benefits, medical bills, and expenses. The 30-day reserve review can be very difficult to accomplish with the other 13 daily adjuster tasks. The claims supervisor usually has a diary at 50 days to analyze the reserves and ask the adjuster questions on the reserves. The review date for denied claims may be longer.
6 months – locked in reserves – any adjustment to the 60-day final claim reserves is analyzed at this point in the claims. At 6 months, the claims staff has sufficient knowledge of claim seriousness. The Claims Manager usually has a 6-month diary for any larger claims. For the very large claims, a diary for the Claims VP/Examiner may kick in at this point.
Repetitive diary -(Every)
- 30 days for claims adjuster
- 60 – 90 days for claims supervisor
- 6 months for Claims VP or Examiner
AdHoc – As needed – reserves are increased when:
- Reserves not sufficient to pay benefits or medical/expense bills
- Claim risk changes – usually an increase in severity
Varied Timetable – not all insurance carrier and Third Party Administrator claim reserve timetables match the above exactly. The overall idea is to have the employers participate in the process. The final claim reserves should have input from the employer before setting them.

Employer Responsibilities With Final Claim Reserves

Man final claim reserves holding a bag of Money

by StockUnlimited

The employer responsibilities to keep claim reserves in check are:

Establishing a business relationship with your adjusters – one of the quiet cost savers on claims. Adjusters who know their employer and vice-versa will always have lower reserves on those claims. Do not forget the critical medical only claims adjusters – another quiet cost saver.
Information flow – make sure the claims staff has all the information you receive on the claim ASAP. Investigate the claim occurrence onsite if possible. The more great info an employer can provide the adjuster before the 60 days Final Claim Reserves, the better the outcome. Do not make the adjuster go into protection mode on the reserves.
Avoid Twilight Zone phone calls from medical providers and the injured employee. These will result in tremendous reserves. Trust me on that one. I can remember those phone calls from the 1980’s.
Make sure the adjuster knows (overall and on the specific claim) that you have followed my Six Keys To Cut Workers Comp Costs.
Negotiate at policy renewal (if possible) a contact from the claims department is reserves are increased by X amount ($25,000 recommended). Many TPA’s have this built right into their systems.
Online claims access – you can check the progression of the claim without having to contact the claims adjuster. Do this – it will pay off in the long run. A knowledgeable employer always has lower reserves.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Reserves – Fee Schedule Hidden Benefit

June 27, 2018 By JL Risk Management Consultants

Workers Compensation Reserves More Accurate With Fee Schedules

Workers Compensation reserves (Total Incurred minus Paid) receive an accuracy boost with fee schedules. Why? – Let us go into the mind of an adjuster getting ready to set permanent file reserves at 60 days.

picture of archer workers compensation reserves target

Wikimedia License – Jethrothompson

BTW, this articles stems from an article I wrote last week. I promised in that article to mention how fee schedules help increase reserve accuracy.

Very few adjusting staffs sit down with a medical reserve and read it out of the state fee schedule. Usually, the adjuster has a list of blanks to fill in to come up with the file reserves. Areas such as surgery, hospitalization fees, physical therapy, etc. are listed on the sheet.

The Workers Compensation reserves at the 60 day mark are for the life of the file. An experienced adjuster with 7+ years into their career has a great feel for reserving in a state with fee schedules. The states with Usual & Customary (U&C) are more of a negotiated price. If you have ever received a U&C bill in a health insurance matter, you are shaking your head – yes. It is by zip code and area of specialty and on and on.

With fee schedules, the adjuster can easily say -OK- the price of treatment for a non-compound ulna fracture (after filling in the aforementioned blanks) is $23,545.00. With U&C, the adjuster creates even more of an estimate as the adjuster has to know the price of medical treatment for every specialty in every zip code. Whew! – that is not easy.

man wrapping injured workers compensation reserves woman

by StockUnlimited

I became very experienced in the U&C area after I received two boxes of paper files from a failed captive in a run-off situation. Some of the providers had not been paid for quite some time. All the injured employee bills originated in non-fee schedule states. The ever complicated negotiation was on – by each zip code, and even some of the U&C Zip Codes were split.

In a fee schedule based state, I could have sent the bills for processing through a bill review company. The charges would have been paid – possibly with an applicable late fee. The task turned out to be not that easy.

Workers Compensation reserves with a fee schedule state have one set of numbers to use in the complete state – in most cases. A few fee schedules have a synthetic add-on such as BR (By Report).

A disclaimer – I am not a U&C health insurance expert. I am more versed in Workers Compensation reserves.

©J&L Risk Management Inc Copyright Notice

$250,000 Claim Reserve Level – Why Is that Number So Important?

June 15, 2018 By JL Risk Management Consultants

$250,000 Claim Reserve Level Creates Many Critical Responsibilities

The $250,000 claim reserve level causes many necessary actions. Some of them are obvious. The other not-so-obvious actions are just as important.

Please note that the Reinsurer and Excess Insurer are the same for this article.

Picture of Turkish Money $250,000 claim reserve level

Public Use License with permission

Usually, a claim that reaches this level involves Vice President or Examiner approval to input the reserve into the system. The checklist action plan can be enormous at this level to the claims adjuster.

Some of those tasks are:

Reinsurance reporting – This area can slip by if one is not careful. The $250,000 claim reserve level will likely cause some type of flag to the reinsurer. It never looks good if the reinsurer has to ask the claims staff for the report. The reinsurer should have some prescribed report they wish to receive at the $250,000 and higher claim reserve levels. Each reinsurer may require a totally different type of report.

Employer reporting – Completion of this task needs to occur before they reserves are entered into the system. Apprising an employer of this reserve level will save many headaches in the future. Many times we receive loss runs where a large reserve exists on the file with no explanation.

Money $250,000 claim reserve level in money clip

by StockUnlimited

Assigning to Field Case Manager or Rehabilitation Nurse – When a file hits the reserve level, better late than never to assign out a rehabilitation nurse Is there any reason to not assign it out to one? Medical control is mission critical along with a strong return to work plan. The rehab nurses are one of my favorite risk management techniques.

Subrogation Liens Must Be Covered – An interesting fact from a report by Mark Walls of Safety National is 24% of all huge claims in their inventory result from automobile accidents. Obtaining a police report is an easy task. Do not be the adjuster that forgets to cover their subrogation. We see no effort to pursue subrogation in files quite often. Writing a subrogation lien letter takes such a short amount of time.

Employer Involvement – Claims that reach this level must be followed closely by the employer. Did you send the employee to your carrier or TPA’s recommended industrial-minded physician? Do you have a modified duty job available? Are you in contact with the injured employee and keeping up with their medical treatment? What restrictions does the injured employee have at this point? An active employer usually reduces the cost of the claim while providing their injured employee with the best care.

These are a few things to cover when a claim is initially set or increases to a $250,000 claims reserve level.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Reserve Increases – 10 Reasons For Huge Ones

May 24, 2018 By JL Risk Management Consultants

Workers Compensation Reserve Increases

10 Ways To Cause Huge Reserves

Most Workers Compensation reserve increases can be controlled by employers. Let us see how employers cause huge ones below. Some of these come from the Six Keys To Saving On Workers Comp insurance that I wrote in the 1980’s.

The list also applies to large deductibles, captives, self insureds and so forth.

Law of Large Numbers Workers Compensation Reserve Increases Graph

Public Use License – Dean P Foster

Top 10 Ways To Cause Jumbo Workers Compensation Reserve Increases

Filing the 1st Report of Injury late – you have introduced your company to the adjuster as a high-risk company. Large lag times make employers look irresponsible. A high-risk company receives high-risk reserves. This is an easy one to correct. Many carriers have online reporting to cut the mailing times to a minimum.
Not having an industrial-minded medical network in place – this one is even worse than late 1st reports. Your workers comp adjuster has to deal with the medical providers very often during a claim. If the medical providers seem high risk, the adjuster sees your company as high-risk. This one takes some effort to establish. Even in states where the employee has full choice of providers, they will likely go to the physician that your company recommends 80% of the time.
A shoddy or no return to work program – this one can turn a regular claim into a permanent total claim very quickly. Many industrial commissions and all adjuster take notice when an injured employee cannot be returned to modified duty. The days of firing the injured employee (in most cases) are long gone. Once again, your organization sticks out as a high-risk employer. The adjuster may set or add in reserves that equate to a high-risk employer.
Employee treated like they are no longer part of the company – this is one area that will almost always result in attorney representation. If the employee feels like everyone is against them, they will find someone that will be glad to represent their interests for a price. This one is very easy to fix. An employer’s internal controls should facilitate how the employee is treated by the company. Remember, as in #2 above, the adjuster has to deal with your choices on the claim. The wrong choices can result in large reserve increases initially.
Not taking #1 – #4 seriously – an employer may write a large manual on controlling Workers Compensation. I have dusted those off many times when consulting with employers. The manual was great but unused in those situations. #1 – #4 above is multiplicative or additive when an adjuster starts to establish the reserves. In fact, many reserve worksheets have checklists for #1 – #4 right on the reserving sheets.
Twilight Zone (c) Phone Calls – this one goes hand-in-hand with #1 above. If the first introduction to a workers compensation claim is a call from an unknown medical provider on an unknown claim, the employer just put the red flag on the file as a high-high risk employer. Check out the link for a better description of those types of those phone calls.
Not Knowing Your Adjuster’s Names – If you do not know who is working on your claims, then that should be an internal red flag that your company is not working with your claims adjusters. Establishing a working relationship (by email) reduces your company’s perceived risk factor with the adjusters. Quite a few employers have us track their claims for them. The first thing I do is send the adjuster a nice – hey let’s work together email.
Not Knowing Your E-Mod, LDF, or Total Claim Payments – this comes from my 5-minute company safety analysis article. All senior management, business owners, safety officers, risk managers, or company claims administrators should know this number cold without having to look it up. If you do not know the number, how can you tell how your company is doing with #1-#7 above? This is similar to your location finder on your smartphone. The maps function will not work if you do not know where you are presently.
Not Having Your Loss Run At Your Fingertips – this one is the same as #8, but on a larger scale. If you do not know your losses, you just shut off the location finder on your smartphone. Online claims access should be viewed as beyond critical, especially near your Unit Statistical Date. How can you talk with your adjuster when you have outdated data? Emailing (not calling) your claims adjusters with old data does not look good.
Like it or not appearances and first impressions count – For instance, I am sitting here now with a large claim on my desk that I have been asked to assess the proper reserves. What do you think I noticed in the file review – yes, these things work the same for workers compensation reserve increases as for an after-the-fact-analyses.

Many more reasons do exist to have a large workers compensation reserve increase or have the initial reserves set very high. Feel free to add more in the comments section.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Reserves – How Does Adjuster Set Them?

April 26, 2018 By JL Risk Management Consultants

Workers Compensation Reserves – The Illusive Moving Target

All Workers Compensation reserves have a common element. Very few, if any, employers, actuaries, underwriters, agents, and any other players in this hybrid insurance understand how reserves are set – other than the adjusters themselves.

einstein workers compensation reserves theory

Public Use License Wikimedia

By the way, that is a graphical representation of E=MC(2) Some workers compensation adjusters do document their reserving well. With the sterileness of algorithms, workers compensation reserves machined out by a chip are becoming more common. In fact, sometimes the adjuster CANNOT even override them without supervisory or managerial approval?

What is the basic minimum for an adjuster to have the knowledge to set proper reserves? The mark rests at 5 – 7 years of experience. Why? The adjusters by then have seen enough instances of each type of claim to have a solid background in being able to set the reserves.

Most claims staffs have a spreadsheet type reserving system which allows the adjuster to input the indemnity, medical, and allocated expense reserves that post to the file. Even if the claims staff uses advanced software, a spreadsheet still produces the workers compensation reserves .

One of the conundrums is the reserves for the lifetime of the file are usually set at a 60 day interval – with no adjustment to those for many months or years, or until the file closes.

If you are reading this article and are not the claims adjuster on a file or a certain set of files, you may want to set up a diary that enables you to analyze the reserves every 60 – 90 days. A precious commodity that allows you to access the reserves in real-time (over-used word) becomes critical to following the reserves of the file.

You do not have to email the adjuster every time your diary date comes up. Analyzing the reserves should be the key. If the claims staff does not know who you are, then you should email your adjusters just to establish communications. Many large organizations have such a manual requiring the adjusters to contact the respective insureds.

Medical Doctor Doing Report Workers Compensation Reserves From Injured Woman

Public Domain By Paul D. Honnick

Notice how I bolded establish communications. One of the keys to proper reserves is a line of communication between the insured and their adjuster(s).

If you need to pull the loss runs (without real-time access to reserves or claims then that cycle becomes a delayed system. As I noted over 10 years ago, online access may be worth 20% more on paying premiums or paying a TPA to process the claims. That number remains accurate today.

So, now we know the 60 day time for the claims staff to set reserves. Your claims diary should be clocked at 50 days to contact the adjuster or claims staff to give them any critical updates such as:

Return to work status
Medical notes you may have received
Your contact with the injured employee
Subrogation – Were there any other parties involved in the accident – police reports for auto accidents, etc.
Any complaints or concerns from the injured employee about the claim – a big claim can result from the most minute concerns

The adjuster will usually have 50 – 100 different blanks to fill in on the proverbial reserving spreadsheet. If many positive and communicated developments occur early in the claim, your workers compensation reserves may be lower than a company or organization that does not communicate with their adjusters <<by email.

Workers compensation reserves and adjusting remain a team effort for successful companies.

©J&L Risk Management Inc Copyright Notice

Work Comp Reserves And Twilight Zone Phone Call

July 14, 2016 By JL Risk Management Consultants

How To Negatively Affect The Initial Work Comp Reserves

The Work Comp reserves on a file are based on a more complicated formula than just an educated guess. One of the quickest ways to have the claims staff set very high initial reserves is by starting the file with the term I coined a few years ago. The Twilight Zone phone call always has these frustrating characteristics:

graphic of clouds work comp reserves emblem from website

Wikimedia Commons – fir0002

No first report of injury has been filed by the insured
The Twilight Zone phone call is for some type of authorization
The caller cannot figure out why the adjuster cannot provide an authorization on the spot
The adjuster has to drop everything, call the employer and ask for a first report of injury
The First Report of Injury has to be input quickly.
Then the adjuster has to call back whomever was seeking a treatment authorization
The adjuster is left with a conundrum of authorizing something without having fully investigated the file.
This type of situation is usually a trend with some employers, not an isolated occurrence

Within 60 days, the adjuster will be tasked with setting reserves on the files. After the aforementioned occurrence, the natural reaction of the adjuster is to possibly set the reserves higher than normal.

This is a different type of reputational risk. If the adjuster or claims staff recognizes that a certain employer has a trend of providing them with Twilight Zone phone calls, the natural reaction to the reputational risk will be offset by the adjuster setting the reserves at a higher level than normal.

StockUnlimited

The 60 day work comp reserves are usually the ones that are on the file at its conclusion unless the injury worsens. The claims staff setting higher work comp reserve levels will result in the employer incurring a higher E-Mod (X-Mod) or LDF. This is just one example of how having a great working relationship with the adjuster will pay off handsomely in the long run.

The timely filing of the first reports of injury is one of my Six Keys To Cutting Work Comp Costs. With the ability to now input claims directly into the claims systems, there is little excuse for an extremely last first report of injury.

©J&L Risk Management Inc Copyright Notice

Best Way To Waste Time On Workers Comp in December

December 4, 2013 By JL Risk Management Consultants

The Easiest Way To Waste Time On Workers Comp Before The New Year

I have discovered the best way to waste time on Workers Comp in December. Workers Compensation reserves do not directly apply to a policy that renews within 30 days. We receive many emails and phone calls in December with inquiries on reserve levels. Many CFO’s, owners, risk managers, agents (etc.) want to clean up the loss runs before the end of the year.

Students Waste Time On Workers Comp computer

Wikimedia Commons – Michael Surran

If the upcoming renewal on January 1st is the reason you wish to do a loss run and reserve review, you are wasting your time. The best way to spend your time if you have a 1/1/2014 renewal date is by starting a loss run review schedule for 7/1/2014. This is when your reserve reviews peg to your Experience Mod (E-Mod) for your 1/1/2015 renewal date.

The loss run dated 7/1/2013 should be used for your 1/1/2014 renewal. The best way to look at the missed opportunity is by being prepared for your 7/1/2014 Unit Statistical Date.

There are numerous articles on this blog that pertain to planning a loss run review program. Using the search box in the top right part of the blog will be the easiest way to find the articles on loss run or reserve reviews. If you wish to click directly over to the articles, they are listed below with the proper links.

The main goal is to make sure that your company starts to review your loss runs long before the date your E-Mod affects your insurance program. As always, a great safety program will keep your company from having to worry about loss runs.

If there are no accidents, the loss runs will have no claims listed on them. The lack of claims on your loss runs means your company is keeping out of the E-Mod system as much as possible.

StockUnlimited

Articles for loss run review links are below:

Unit Stat Date
Reserve Review Program

One group of companies will find it best to start analyzing their Workers Comp reserves in December. I will cover that next time.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Predictive Modeling Will Never Work

November 8, 2013 By JL Risk Management Consultants

Workers Compensation Predictive Modeling

One of the more popular buzz phrases now is Workers Compensation predictive modeling. If one looks at any of the WC groups on LinkedIn, there are many discussions on this very matter.

Wikimedia – Jaberi-Douraki M

There are many predictive models on WC. Those models usually leave the observer with an empty feeling. Yes, you can forecast the Indemnity and Expenses almost to the penny. There are many modeling programs that will suffice in this case.

The inherent problem is valuing and forecasting medical benefits on any file. A health profile and background of the injured employee may shed some light on the subject. However, we are all very genetically unique individuals.

Woman Workers Compensation Predictive Modeling Carrying Files

StockUnlimited

A ruptured spinal disc can vary in treatment from two months to two years or longer.Predictive modeling requires some sort of stability in the variables. As any adjuster will tell you, it is hellish to try to predict medical treatment at the outset of the file. There are medical outcome determining factors that are not known for many months.Workers compensation claims adjusters walk a very fine line with medical forecasting. Sixty days into the file development, the adjuster is supposed to make a medical reserve determination for the life of the file. This is not possible. Reserving files is an art, not a science. We analyze many reserves on files on a daily basis. Reviewing reserves is a complete exercise of hindsight which is usually 20-20. Discussing what reserves were placed on a file one or two years ago is an easy task. The reverse of discussing what the reserves should be on a file in one or two years is difficult at best.Communicating with the claims adjusters about the status of an employee can reap large dividends, but as they happen, not three months later. Emails work best for claims departments.

Bottom line – a well-trained experienced adjuster is the best predictive modeler in Workers Compensation.

©J&L Risk Management Inc Copyright Notice

Stairstepping Reserves – Two Edged Avoidable Poisonous Sword

March 18, 2013 By JL Risk Management Consultants

Stairstepping Reserves Never Good For Workers Comp

The two edged sword of Stairstepping reserves can be one of the most damaging developments to E-Mods or even worse for self insureds/large deductible plans.

Graphic of Stairstepping Reserves Dollar Bundle With Arrow Increase

123RF

The basic Workers Comp claims formula is Total Incurred = Paid + Outstanding Reserves. The Total Incurred figure is what is charged against an employer’s E-Mod (X-mod).

Stairstepped reserves occur when a claims staff – in particular Workers Comp – decides to increase the reserves on a file just enough to cover making certain payments. Independent file reviews will usually uncover this situation immediately.

The adjuster is usually locked out from making any payments until the reserves are adequate to at least make the payment. The adjuster will increase the file just enough to make a payment. This type of reserve-bumping is OK on a very limited basis. Why should a medical provider or an injured employee wait to receive a payment until an internal Workers Comp claims staff function is finished?

This type of reserve increases would actually seem as if the insured employer would actually benefit. This is not necessarily true. The self insured employer or self insured fund is also severely impacted by stair-stepping.

In self insured, large deductible, or regular Workers Comp coverage, each type of insured is affected as follows:

Woman Working On Bills Stairstepping Reserves On Table

StockUnlimited

Self Insured/Large Deductible

The TPA is responsible for handling the file and setting the reserves. There is a very high level of fiduciary responsibility as the TPA is spending directly out of a budgeted account.

If the self-insured employer is budgeting for the next year, they will have a serious shortfall as they believe the reserves used for budgeting are adequate. Stair-stepped reserves will always be inadequate as they are basically budgeted for tomorrow only.

The self insured employer then runs out of budgeted WC funds halfway through the year. If the budget allows for no or little wiggle room the self insured employer will have to find the funds somewhere such as layoffs, borrowing, or cutting back elsewhere.

The self insured employer will sometimes have to actually convert to a regular insurance policy if the shortfall is severe enough and then possibly use a payment plan. This happens more than realized each year.

The other two parties harmed in stair-stepping reserves go unmentioned very often.

Stairstepping = Multiple Bad Effects

Picture Of Stairstepping Reserves Insurance Form And Dollars

123RF

The two edge sword of Stairstepping reserves for self insureds and large deductible programs can have a dire effect. As defined earlier, stair-stepping is when an adjuster or member of a claims staff actually increases the reserves (Total Incurred = Paid + Reserves) just enough to make that day or week’s payments.

The other two parties harmed with stairstepping reserves are:

Regular First Dollar Insureds

If a Workers Comp adjuster of member of a claims staff increases the reserves just enough to make payments, then it would seem that this would be less harmful to an insured than setting larger reserves.

The Total Incurred is the amount reported to NCCI or the Rating Bureaus each year. When reserves are stair-stepped the insured employer thinks the reserves are adequate. Sooner or later, the adjuster’s authority level runs out, and the file reserves must be increased sharply.

The employer’s E-Mod takes a drubbing as a very large reserve increase happens out of nowhere. With the looming changes by NCCI and most rating bureaus, these post-stairstepped reserves can result in an E-Mod jumping by a large percentage.

Stairstepping the reserves could actually help the Mod in the short term. In the long term, the piper has to be paid at some time. The E-Mod (X-Mod) systems and actuarial systems are built around accurate and timely reserving.

This is a term called IBNR (Incurred But Not Reported) that all rating bureaus and actuaries build into their estimates for Workers Comp insurance payouts. The IBNR does not take into account any stair-stepping.

Mod systems are known for catching up to any type of aberrant reserves. The catch-up mechanism is a very sharp Mod increase that an insured employer may not have budgeted due to stairstepping.

TPA’s/Carriers/Self Insured Funds

The under-the-radar parties that can be heavily are ironically the claims staff’s or adjuster’s employer. There have been many instances of self insured funds closing down due to inadequate reserves. Stair-stepping will always add to and accelerate this type of problem.

123RF

TPA’s can easily lose clients if their adjusters are not adding in timely and adequate reserves. A self insured employer turns over a very important fiduciary duty to the TPA’s which spend money directly out of an account.

Inadequate reserves will cause an employer to shop around for a new TPA. The TPA’s integrity will be lost when their client realizes the reserves on quite a few claims have been stair-stepped. The employer has not budgeted for the future payouts properly.

The same can be said for insurance carriers. Their clients cannot trust them to make the proper decisions on a file when the reserve histories show than reserves have been properly input for their claims. A carrier cannot stay in business very long with inadequate reserving by their adjusting staff.

The old “pay me now or pay me later” rule would apply. Should reserves never be stair-stepped? As pointed out in the previous post, an injured worker should not have to wait on a weekly check or medical bill being paid at the sacrifice of an internal claims process.

Stair-stepped reserves can be seen very easily by the trained eye of an independent reviewer.

©J&L Risk Management Inc Copyright Notice

Workers Comp Reserve Reviews And Subrogation – Three Concerns

March 10, 2013 By JL Risk Management Consultants

Workers Comp Reserve Reviews And Subrogation

Our Workers Comp Reserve reviews uncover many concerns on claims handling. Subrogation refers to an insurance company seeking reimbursement from the person or entity legally responsible for an accident after the insurer has paid out money on behalf of its insured. In Workers Compensation, we often see three different areas of subrogation that should be of concern to employers.

Picture Of Hand Workers Comp Reserve Reviews Holding Seedling Plant

StockUnlimited

First, we sometimes find in our file reviews for employers that there was likely a third party that was or at least was partially responsible for the Workers Comp accident.

As the file adjusting for Workers Comp claims has become more specialized, insurance carriers and TPA’s have sometimes not trained their claims adjusting staff in the steps to pursuing subrogation.

We do often see that the adjusters have pursued subrogation properly if there was an auto accident involved with the claim.

The second area of concern is that when subrogation funds have been received by an insurance carrier or TPA, there is sometimes no procedure on how to handle these funds inside of the Workers Compensation file. This is an area that may not exist in most claims manuals.

The third area of concern is when subrogation funds have been received and credited to the file. We do see in premium audits for employers that the adjustment of the total incurred was never reported back to the NCCI or State Rating Bureau. This can have a great effect on an employer’s E-Mod/X-Mod if the subrogation recovery was significant. As up to 45 months of data go into the E-Mod, a subrogation recovery must be credited on the day of receipt to the file and the correction reported to the NCCI or State Rating Bureau immediately.

Money Bags And Coins Workers Comp Reserve Reviews Vector

StockUnlimited

I am not saying that this situation exists in all the files that we see. However, it is of a large enough concern that all employers should monitor if the recovered funds did make it to their E-Mod or X-Mod.

Further note – The X-Mod is the same as the E-Mod. The Experience Modification Factor is called the X-Mod in California.

©J&L Risk Management Inc Copyright Notice

Self Insureds – Do You Know If Your Excess Insurer Has Been Notified?

February 26, 2013 By JL Risk Management Consultants

Self Insureds Need To Monitor Excess or Reinsurer Notification

Do you know if your self insureds has been notified? Workers Compensation excess insurance (reinsurance) can often go unnoticed in all the inner workings as a file progresses towards its conclusion. A reinsurer denying coverage because they were never put on notice is very rare for Workers Comp.

House of fire Self Insureds insurance association

Wikimedia Commons – Laima Gūtmane

A recent article where the underlying insurer sued their excess insurer pointed out the “rock and a hard place” the excess insurer is placed in when it has no knowledge of a claim that may require payment. Most liability insurers are very careful when it comes to reporting claims that may reach above the primary insurance level.

For instance, an example of where a self insured employer may end up paying out of pocket:

Employee has serious injury
Total Incurred (Reserves + Paid) is set at $295,000.
Small paid amount = $17,400
Reserves are above the reinsurance reporting threshold of $200,000
Overloaded TPA claims adjuster and supervisor do not report claim to reinsurer
Three years later, settlement is recommended that will cause the total claims payout to exceed $300,000.
TPA decides to report to reinsurer at this late date
Reinsurer is not happy as they were not involved in negotiating the settlement
Reinsurer should have had an initial status from the TPA three years ago when the Total Incurred exceeded $200,000

Picture of Self Insureds man empty pocket and dollar sign

123RF

Which party has the ultimate responsibility? The responsibility is with the employer. Of course, the employer could pursue the TPA.

How does a self insured employer avoid this situation? The avoidance mechanism should already be in place. When the TPA contract was agreed upon, were there reserve levels that should have the employer’s approval before the increase by the TPA?

Self insured employers will often remark that the “reserves are not that important” as we do not pay premiums. That may be true, but Workers Comp reserves can also be used as an alert when they reach certain levels – one of them being the reinsurance reporting level.

There are some TPA computer systems that will automatically report a claim to the reinsurer when the reserves reach a certain level. The reinsurer will usually ask for a full report once the TPA system flags a certain claim.

Reinsurers have become more analytical and not just an insurance commodity. Denials of coverage by the excess insurers may become more commonplace.

©J&L Risk Management Inc Copyright Notice

Outstanding Reserves Are Key to Comp Cost Reduction

August 8, 2012 By JL Risk Management Consultants

The Outstanding Reserves Are The Key

Outstanding reserves can make or break any company’s Workers Comp budget. I received two questions this week on the three parts of what is considered Total Incurred. Total Incurred is reported by your insurance carrier to the respective rating bureaus.

Picture of Key hole Outstanding Reserves With Grass

The basic formula is Total Incurred = Paid + Outstanding Reserves.

There is little that you can do about what has already been paid on a claim. One of the best methods to cover what has been paid is to do a statistically sound claims performance audit. This type of audit basically puts the onus on the carrier to have handled the files properly and efficiently.

The main and negotiable part of the claim is the outstanding reserves. Outstanding reserves are the leftover forecasted funds by the claim adjuster or department. This is the amount of funds that is reserved for future expenditures.

What happens to the outstanding reserves when a claim is closed? They are zeroed out so that Total Incurred and Paid are the same. However, and this is the important point, if the date arrives for your Mod to be tabulated and there is an outstanding reserve on a file or group of files, YOU PAY FOR IT AS IF THE MONEY WAS ALREADY SPENT!!

Picture of Auditing Outstanding Reserves Concept

123RF

That is why there are three very important numbers/dates to track:

Outstanding reserves
Total Incurred
Date your E-Mod (X-Mod in CA) is calculated

If you do not know the date your E-mod will be calculated, email or call me at [email protected] and we will find it for you.

Let me give you an example of what I call reserving budget rot. Your E-Mod (X-Mod) will be pegged on August 31, 2012 at close of business. That is what the insurance carrier will report t to the rating bureaus for your E-Mod (X-Mod). You have a file that was closed on September 3rd, 2012 that had an outstanding reserve of $134,000.

You call the insurance carrier and ask them to roll back the $134,000 of over-reserving to August 31st. That will not happen. Even if the reserves are removed or reduced the next biz day after your Total Incurred is recorded, you are stuck with the $134,000 on your E-Mod. That is the way the Workers Comp biz works. Carriers will never do this on purpose. It is just another function of the Workers Comp insurance process.

Knowing the three bullet points above is going to save you a ton of heartache at your renewal. Why did I write this post? We had a new client contact us earlier this week where the above example just happened with their E-Mod.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Claim Reserves – The Skinny

December 9, 2011 By JL Risk Management Consultants

WC Claim Reserves Indemnity

From an article and a manual, I wrote many years ago. The main WC insurance variable this manual addresses is Claims Reserves (Reserves). THE MOST IMPORTANT THING TO REMEMBER IS THE CLAIMS RESERVES ARE THE UNREGULATED PART OF THE PREMIUM CALCULATION PROCESS. Insurers can set the level of reserves at whatever level they deem adequate with little input from you. A governing body regulates all the variables that go into the premium calculations except the claim reserves. Reserves are what the premiums are charged from, not the amount of money paid on a claim.

Graphic of shaking Hands One is Injured Claim Reserves Indemnity

Now we come to the engine of this whole process. Everything we have talked about just now all centers around the loss data you have incurred over the last three years. HERE IS A VERY CRITICAL POINT. The loss reserves are not only what you have paid out, but also what the insurance adjuster thinks you will pay out over the life of the claim. Everything else in the WC insurance process usually has some type of standardization, but the amount of money that is reserved on a loss is a true GUESSTIMATE. It is the most subjective part of what you pay in premiums. The amount paid out on a claim has little to do with the premiums charged.

The reserves on a Workers’ Compensation (WC) file are not based on any statistical formula or guide. A claims adjuster sets the level of reserves using their own job experience as a basis for how much the expected payouts will be over the life of a claim. If the reserves exceed a certain authority level, the adjuster must have their supervisor or manager approve the reserves. Reserving is an art of sorts that is akin to valuing a house. As with valuing a house, there is a commonality on the cost of certain injuries. However, there are at least 100 variables that are unique to each WC claim’s value.

Reserving is not an exact science, and is the adjuster’s estimate of what the claim will cost in total. The following items should be taken into consideration when estimating reserves:

Picture of Premium Concept Claim Reserves audit

§ Nature and extent of the injury

§ Anticipated medical costs

§ Anticipated permanency rating/impairment

§ Amount of weekly wage and compensation rate

§ Attorney involvement

§ Claims history of the claimant

§ Claimant’s age

§ Claimant’s occupation

§ Claimant’s education level

§ Claimant’s work history – personnel issues

§ Availability of light or modified duty

§ State laws

Picture Of Two Jar With Dollar and Coins Claim Reserves Indemnity

There are usually three types of reserves on a specific WC file. They are Indemnity, Medical, and Expense. A WC file’s reserves are based on medical expenses; period of time an employee takes to heal; their motivation to return to work; and any permanent disability.

The Reserves on a file are the “engine” of the premium calculation process. The Reserves for the last three policy years are used to calculate the Experience Modification Factor (E-Mod). Promulgating an E-Mod is not the focus of this manual. This manual will cover some of the basic concepts of calculating an E-Mod.

The E-Mod individualizes the premium to a certain employer. The current WC systems charge all employers based on a classification code multiplied by the associated classification code’s remuneration (payroll / 100). The E-Mod attempts to make sure the safe employers are rewarded and the unsafe employers are penalized. While the E-Mod system has been heavily questioned, it is the system in place and no other system has been devised that is any more effective or efficient at charging an employer the correct premiums.

©J&L Risk Management Inc Copyright Notice

Quick Workers Comp Reserving Analysis – Total Incurred Is Key

September 29, 2011 By JL Risk Management Consultants

Workers Comp Reserving Is A Guesstimate

The Workers Comp reserving on your files usually is based on no formulas. This article is from another manual that I wrote many years ago. It is timeless information that is true for all states. Claim reserves are sometimes the ignored part of a Workers Comp premium reduction program.

Picture Of Man Calculator Workers Comp Reserving Using Calculator

123RF

The main WC insurance variable this manual addresses is Claims Reserves (Reserves). THE MOST IMPORTANT THING TO REMEMBER IS THE CLAIMS RESERVES ARE THE UNREGULATED PART OF THE PREMIUM CALCULATION PROCESS. Insurers can set the level of reserves at whatever level they deem adequate with little input from you. A governing body regulates all the variables that go into the premium calculations except the claim reserves. Reserves are what the premiums are charged from, not the amount of money paid on a claim.

Now we come to the engine of this whole process. Everything we have talked about just now all centers around the loss data you have incurred over the last three years. HERE IS A VERY CRITICAL POINT. The loss reserves are not only what you have paid out, but also what the insurance adjuster thinks you will pay out over the life of the claim. Everything else in the WC insurance process usually has some type of standardization, but the amount of money that is reserved on a loss is a true GUESSTIMATE.It is the most subjective part of what you pay in premiums.The amount paid out on a claim has little to do with the premiums charged.

Graphic Of Insurance Form And Dollars Workers Comp Reserving WC claim’s

The reserves on a Workers’ Compensation (WC) file are not based on any statistical formula or guide.A claims adjuster sets the level of reserves using their own job experience as a basis for how much the expected payouts will be over the life of a claim. If the reserves exceed a certain authority level, the adjuster must have their supervisor or manager approve the reserves. Reserving is an art of sorts that is akin to valuing a house.As with valuing a house, there is a commonality on the cost of certain injuries. However, there are at least 100 variables that are unique to each WC claim’s value.

Reserving is not an exact science, and is the adjuster’s estimate of what the claim will cost in total. The following items should be taken into consideration when estimating reserves:

§ Nature and extent of injury

§ Anticipated medical costs

§ Anticipated permanency rating/impairment

§ Amount of weekly wage and compensation rate

§ Attorney involvement

§ Claims history of the claimant

§ Claimant’s age

§ Claimant’s occupation

§ Claimant’s education level

§ Claimant’s work history – personnel issues

Picture Man Calculating Workers Comp Reserving Guesstimate

123RF

§ Availability of light or modified duty

§ State laws

There are usually three types of reserves on a specific WC file. They are Indemnity, Medical, and Expense.A WC file’s reserves are based on medical expenses; period of time an employee takes to heal; their motivation to return to work; and any permanent disability.

The Reserves on a file are the “engine” of the premium calculation process. The Workers Comp reserving for the last three policy years are used to calculate the Experience Modification Factor (E-Mod).Promulgating an E-Mod is not the focus of this manual.This manual will cover some of the basic concepts of calculating an E-Mod.

©J&L Risk Management Inc Copyright Notice

Premium Audit and Reserve Question – How Often Per Policy Year?

August 4, 2011 By JL Risk Management Consultants

Reserve Question And Premium Audit = Not The Same Thing

We received this reserve question earlier this week. I thought I would address it now as there seems to be some confusion on the premium audit and reserving process for Workers Compensation. The emailed question was – How often should we do premium audit and/or reserve reviews on our Workers Compensation claims?

123RF

I thought it would be best if I separated the question in two parts. As an employer, you do not have to do a premium audit with your insurance carrier more than once per year. The premium audit is more of an audit of the mechanisms that result in your Workers Comp earned premium. Your insurance carrier will audit your company’s premium with 30 – 60 days after your policy expires.

The best answer would be immediately after the results of your premium audit are provided to your company by your Workers Comp insurance carrier. Once the premium audit bill is sent to you, the clock starts running on how long your company has to dispute or even question the premium audit.

As I have posted very often in this blog, most states allow your company to have the audits for the last three years reviewed by either you or a company that has an expertise in this area – shameless plug for J&L.

Hand Holding Calculator Reserve Question Icon

StockUnlimited

One of our areas of concern is that we are contacted by most employers just after their policy has expired. That concerns me and our auditors very heavily as that means if an error is found, your company just lost 1/3 or more of your possible premium overcharge recoveries. At the expiration of each policy, the policy from three years ago can no longer be reviewed along with the audit.

I will cover reserve reviews in the next post.

©J&L Risk Management Inc Copyright Notice

What Does Stair Step Reserving Mean?

May 11, 2011 By JL Risk Management Consultants

Term Of The Day – Stair Step Reserving

The stair step reserving of Workers Comp reserves is an age-old concern of any party to an insurance or TPA policy. If loss reserves are raised by increments in order to cover the cost of claims expense as they happen, the term stair stepping comes i to use. If the claim reserves were to be charted, the resulting graph would look like stair steps. This can also be known as reserve creep.

Picture of Woman Stair Step reserving Workers Comp Concept

The slang term amongst adjusters is reserving to pay bills or the next TTD payment. Stair stepping reserves is very harmful for many reasons:

Affect insureds E-Mod negatively
Self insureds will not have accurate Loss Development Factor (LDF)
Self insured client will not budget properly for future payments
Will cause actuarial or statistical work to have a built-in error
Use up adjuster’s time by constantly having to take time to increase reserves in system
Not giving reinsurers timely notice

Many years ago, some self insureds actually wanted this practice in place as to keep their Risk Factors low. This blew up in their face eventually as all files were reserved too low and id not reflect the risk of future payouts which is the underpinning for reserves.

Many Risk Management, insurance carrier, and TPA processing systems have a large amount of built-in redundancy to alert claim supervisors and managers to stair

©J&L Risk Management Inc Copyright Notice

Your Reserve Review Action Plan – Have You Contacted Adjuster

May 9, 2011 By JL Risk Management Consultants

Reserve Review Action Plan

I had posted often over the last few weeks concerning claimx`s review for insureds with a January 1, 2011 renewal date. I even included a schedule of sorts on how to proceed on a Workers Comp reserve review. I used the 1/1/2011 policy renewal date as an example. One of the main things to remember is that you are looking to lower your E-Mod for next year. For a 1/1/2011 policy renewal date your E-Mod is calculated at the close of business of 6/30/11 for your 2012 policy.

Vector of Hands Reserve Review in Calendar Big Pencil Noted

123RF

If your policy does not renew on January 1, then add the difference onto the dates I have given you in this and past posts. For instance, if you have a policy renewal date of 4/1/11, then just add three months onto the dates I have given you in the earlier posts. If you have a January 1st renewal date and you have not started your reserve review, then you are definitely behind schedule.

If you are on schedule, the next step is contacting the claims department and in particular your Workers Compensation adjuster to review the claims in which you had reserve questions. As I said in my last post on this subject, knowing which claims to review and which ones to leave alone can be critical. Sometimes, a full formal review of your reserves with an adjuster may result in an increase to your reserves and E-Mod.

StockUnlimited

One of the unwritten ground rules is to not call the adjuster and say lower my reserves, they are just too high. The best method of contact is by email for documentation and it will allow the adjuster to look everything over and get back with you.

If you have any questions on this info, please feel free to call me at (800) 813-1386 or email me at [email protected]

©J&L Risk Management Inc Copyright Notice

Stair Stepping Reserves Bad Effect On Workers Compensation Budget

May 4, 2011 By JL Risk Management Consultants

Stair Stepping Reserves Very Harmful

In my last post, I noted the term stair-stepping. This can ruin any Workers Comp budget for a regular or self insured in Workers Compensation. Stair stepping is the total failure of a claims department and their administration – in other words NO EXCUSES.

My definition of stair-stepping is the Workers Comp adjuster increasing the reserves just enough to make a payment. This grave adjuster mistake consists of a series of increases in the reserves to cover payments beyond just once. The pattern drawn on a graph would look like stair steps.

The workers comp claims adjuster cannot always be blamed in the instance. The adjuster may be attempting to cover a TTD payment while waiting on a supervisor or manager to approve their recommended Workers Comp increase. As I stated earlier, it is a failure of the whole Workers Compensation claims department.

The supervisor can easily detect an adjuster that is stair-stepping your reserves. Some Workers Comp claims systems have a built in module that will detect and flag this type of mistake.

I recently posted a few times on the medical only problems within some claim departments. Stair-stepping would be seen as part of the problem. We have seen stair steps in our claims review on medical only claims that inadvertently hid a much worse condition.

The Harmful Effect

Picture Of Hand Carrying Plant Stair Stepping With Gold Coins

StockUnlimited

Reserve Stair Stepping skews ar WC budget.What happens when your Workers Compensation claims department increases reserves just enough to make a payment? The results can be tragic.

The bottom line to stair stepping is that your Workers Comp reserves are being increased at the same rate as the paid figure in the formula Total Incurred = Paid + Reserves.

The basic function of the Reserve figure is at that point in time, what is the valuation of all future payouts until the claim is closed? If claim reserves are increased just enough to make payments, then the formula would be Total Incurred = Paid.

Total Incurred = Paid is exact for closed claims, not open ones. As a self insured, the Reserve figure can ruin your cost projections to your Board of Directors, especially if you are budgeting as a governmental entity. What happens if you project a budget for Workers Comp claims of $2.6 million when it should have been $4.4 million?

StockUnlimited

I always like to draw a comparison between credit cards and Workers Comp insurance reserves. Stair stepping is no more than the credit card issuer that will increase your credit limit each time you max out your credit card.

The small increases would not seem that bad until what you thought was $10,000 in credit card charges is now $25,000 without really noticing it. There were a few, now defunct, credit card issuers that would increase the credit limit slightly without the customer’s knowledge. This led to bankruptcy for more than a few individuals.

Stair stepping reserves is no different. If the credit card company would have increased the credit limit from $10,000 to $25,000 all at once that would have been noticeable. This is the same for your Workers Comp reserves.

Spotting this claims staff mistake is very easy if you have online access. If the reserves are very low over a few months on a newer large claim, that is a possible stair step. Paper loss runs are not that adequate for detection.

If you receive loss runs quarterly on paper, you may find that it is too late to do anything about the stair-stepped claim.

©J&L Risk Management Inc Copyright Notice

Lower Workers Comp Insurer Reserves Can Be Harmful

May 2, 2011 By JL Risk Management Consultants

Lower Workers Comp Reserves Not Always Best

The workers comp insurer reserves sometimes hide a reserve deficit. AM Best released a report on May 2nd that was startling to me. Of the 11 insurance companies that failed, nine were due to inadequate reserves and pricing. The carriers were not necessarily Workers Compensation insurers.

Picture Of Man Lower Workers Comp Cutting Credit Card

StockUnlimited

Reserves that are too low on your Workers Comp claims can be as harmful to your Workers Comp budget as reserves that are too excessive. I have dedicated a portion of this blog on how to lower your company’s Workers Comp reserves.

As I have said very often in presentation, the Workers Comp claims adjuster walks a tightrope between excessive and deficient reserves. When I post about reserves, I am actually referring to (Total Incurred – Paid).

How do deficient reserves harm your Workers Comp budget? I will break it into two parts – regular Workers Comp policy and self insurance.

Regular Commercial Workers Compensation Policy – Avoiding a massive reserve bump

There is nothing wrong with making every effort possible to lower your workers compensation reserves with risk management techniques such as a return to work program, etc. Having deficient reserves on certain claims can cause a huge unexpected reserve increase. This can cause a very large increase in your E-Mod that your company was not expecting.

Hand Holding Marker Pen Lower Workers Comp With Risk Management Concept

StockUnlimited

One of the main signs of this is a major claim where the outstanding reserves on your loss runs are approaching zero. For instance, if a claim has a back surgery pending and the reserves are very low, you can expect an increase in the reserves. Timely increases in reserves sometimes functions are a red flag that something major is going on in your Workers Compensation claims.

My advice is to never call or email your adjuster about having deficient reserves. I would just make sure that you have analyzed the reserves and are properly budgeted for an E-Mod increase. The timing of the reserve increases is very critical to your Workers Compensation budget.

Self Insurance – critical

One of the main ways to wreck a self insurance program is with deficient reserves. I have also seen this when handling claims from a self insurance risk pool. This is one of the major misunderstandings by clients that we have assisted in becoming self insured.

Low reserves in a self insured or a large deductible will kill the program. If the reserves are deficient, then a self insured company may be under the impression that all is fine with their Workers Compensation budget.

Picture Of Hand Carrying Plant Lower Workers Comp With Coins

Wikimedia Commons – 401(K) 2012

With self insurance, the employer may not necessarily have an E-Mod, but you should have a LDF (Loss Development Factor) calculated each year for your program to assess its health. Most self insureds budget their Workers Compensation yearly.

If you are looking at your reserve figures from last year to set your budget, how much of an impact would 20% of your claims not being reserved for upcoming surgeries? You have budgeted for payouts of for instance $2.6 million and you actually have a hidden risk of another $900,000?

Having an outside consultant company such as ours – shameless plug – perform a statistical analysis of the reserves and claims would show the true amount you need to budget for your present and future claims.

The easiest way to spot the lower workers comp insurer reserves and deficiencies is to be very involved with your claims process. As I have said at least 20 times in this blog, having online access to you claims and claim reserve figures is golden. Quite a few carriers allow you to run ad-hoc reports, which is the best way to find the files with deficient reserves.

Both self insurance and regular commercial policies suffer heavily with the term – stair-stepping.

©J&L Risk Management Inc Copyright Notice

Workers Comp Reserve Reduction Review Plan For Dates Other Than January 1st

March 25, 2011 By JL Risk Management Consultants

Reserve Reduction Plan For E-Mods

Workers Comp reserve reduction review plans need to be on schedule. I have devised a formula for calculating when your reserve or E-Mod reduction plan should begin overall.

As I posted last week, you should start three months BEFORE your Unit Stat date. Sound confusing? – Check out the formula.

Picture of Calculating Reserve Reduction E-Mod

Date that your reserve hit your NEXT YEAR’s E-Mod = Your renewal date + six months. For example, if 3/1/11 is your renewal date, your reserves tab to your E-Mod on 9/1/11.
Preferable Date to start your E-Mod reduction plan – Your renewal date + 2 months Preferably, you would want to start your reduction plan by 5/1/11. Why? You cannot just call up your claims adjuster and say reduce these reserves today. It just does not work that way.
Latest time to start your E-Mod reduction plan – Your renewal date + 3 months You would need to start your E-Mod reduction plan on 6/1/11 at the latest.

If your company is past the three month barrier, you may need to bring in outside non-agent expert help to get your E-Mods reduced. We have been able to reduce reserves with only two weeks before the Unit Stat date.

©J&L Risk Management Inc Copyright Notice

Workers Comp Reserve Reduction Plan – Is Yours In Place?

March 25, 2011 By JL Risk Management Consultants

Reserve Reduction Plan And The Unistat Date

I wrote last week on the timing and deadline for having your Workers Compensation reserve reduction plan in place. If your company has not begun with the plan, you are throwing away Workers Compensation Dollars.

If your renewal date is January 1, you should by now have obtained your company’s or agency’s Workers Compensation loss runs. If you do not have them, you are already running behind.

Remember, you have until 6/30/11 at 11:59 PM, to reduce your Workers Comp reserves which in turn will reduce your E-Mod. That is your goal – to reduce NEXT YEAR’S E-MOD.

StockUnlimited

You should have a list of claims that you wish to discuss with your adjuster on the reserve levels. A caveat – KNOWING WHICH CLAIMS to discuss is critical. Discussing the wrong claims may cost your company more $. Please do not ask an adjuster to reduce all your reserves by 15%. That will never happen and ruin the working relationship you have with your adjuster.

If you do not know who your Workers Comp adjuster is, then you are falling way behind. Your loss run should indicate the person that is handling each claim.

As I have said many times in this blog, if you have online access you are way ahead of the game. Having FULL online access to your claims will save you hours and hours of work on your reserve reduction plan as you can see the status and the reserve levels any time you wish to access them.

The last time I posted on this subject, I received a few questions concerning renewal dates other than 1/1 and the corresponding reserve reduction plan timing. Check out my next post.

If you ever feel you are in over your head or that your carrier is not responding to your request, please contact us. Reserve reductions are part of what we do as a company.

©J&L Risk Management Inc Copyright Notice

Workers Comp File Reserves – You May Be Running Late

March 17, 2011 By JL Risk Management Consultants

Workers Comp File Reserves Timing Important

I try to post information on Workers Comp file reserves this time of year. Why? The majority of Worker Compensation policies renew on January 1^st.

Wikimedia Commons – Daniel R. Blume

The Unit Stat date for those policies is 7/01/11. Your companies Unit Stat date will occur 6 months AFTER your policy expiration date.It will not count for the current or prior policy year.

The Unit Stat date pegs your E-Mod reserves for the NEXT policy period. As posted often in this blog, my advice is to start your Workers Comp reserve reduction strategies by Mid-March, at the latest. Trying to negotiate reserves at the last minute with an insurance carrier will be an exercise in frustration.

Picture Of Hand Passing Workers Comp File Reserves Secret Letter

123RF

The SECRET is knowing which claim reserves to negotiate and which to leave alone.Stirring up interest in the wrong file may cause a reserve increase instead of a decrease.If you have your loss runs handy or can obtain them online, then you have saved yourself two weeks in obtaining them.

Unfortunately, there is no structured answer on which files to examine and which to leave alone. As you look over the loss run, it is best to know the current medical status of your injured employees. There may possibly be a valid reason for an extremely high reserve figure.

If you have access to the adjuster notes, they will sometimes suffice for an actual medical status. If you have to obtain a medical or claims status from an adjuster, use email. Never call an adjuster saying that your company’s reserves are too high. You need some type of number analysis to substantiate your position.

Calling an adjuster went out of style ten years ago. I do not recommend texting an adjuster. That is too informal.

The bottom line is to get started NOW on your E-Mod for NEXT Year. You may be already running 17 days behind.

©J&L Risk Management Inc Copyright Notice

Bulk Reserves Cover Large Number Of File Concerns

January 31, 2011 By JL Risk Management Consultants

Term Of the Day – Bulk Reserves

The term bulk reserves are one of the antiquated terms in insurance. An accumulated amount determined to provide for future loss of payments for known claims. These include case reserve inadequacies, additional case reserves, and claims that may reopen or other reserves not allocated to specific claims. IBNR would be part of the bulk reserves.

Picture Of Hand Paying Bulk Reserves With Gold Cdredit Card

StockUnlimited

©J&L Risk Management Inc Copyright Notice

What Are Allocated Loss Adjustment Expenses( ALAE)?

January 20, 2011 By JL Risk Management Consultants

Term Of The Day – Allocated Loss Adjustment Expenses

The Loss Adjustment expenses (ALAE) can be allocated to the adjustment of a certain claim. Often, you will see this on Workers Compensation claims in the Expense Total Incurred figure. There has been much debate concerning what to include in the ALAE figure. Attorneys, PI’s, and expert witnesses can all be attributed to ALAE.

The one area that is so confusing is the rehabilitation nurses. Some carriers and TPA’s include their expenses as ALAE. Others include it as medical expenses.

Picture of Loss Adjustment Expenses Hands holding blackboard

StockUnlimited

©J&L Risk Management Inc Copyright Notice

ALAE Allocated Loss Adjustment Expense Definition

November 27, 2010 By JL Risk Management Consultants

Term Of The Day – ALAE

ALAE is the acronym for Allocated Loss Adjustment Expense . In Workers Compensation, there are three areas of reserves and loss payments. They are indemnity, medical, and Allocated Loss Adjustment Expenses or just expenses.

Picture Of Hand Carrying ALAE Plant With Coins

Wikimedia Commons – Cieresek

Indemnity benefits are defined very specifically. The lines between medical and expenses has been blurred over the last few decades. There is really no hard and fast standard for splitting payments between the two categories. Some insurance carriers pay certain expenses under medical while other do not.

For Experience rating purposes, the difference is very critical as Expenses are not part of the Experience Mod calculations.

There has been much discussion about some of the ALAE being added to the medical reserves by the insurance claims staff. Charges such as rehabilitation nurses, medical bill review, PPO network, etc. are not consistently charged to the right area by the carrier or TPA. Allocated expenses for Workers Comp usually includes defense attorneys, Private Investigators or any type of outside services that aids in the investigation of or reduction of losses.

At one time, insurance carriers discussed whether or not to charge rehabilitation nurses under this category.

©J&L Risk Management Inc Copyright Notice

When To Start Your Workers Comp Reserve Reduction Program

November 17, 2010 By JL Risk Management Consultants

Workers Comp Reserve Reduction Program

I was going to construct a chart on when your company’s Workers Comp reserve reduction program would need to begin overall. I think that a formula would be easier. For a quick date calculator, try this one.

Picture Of Man Holding Calculator With Reserve Reduction Program Icon

StockUnlimited

There are two assumptions that have to be made for the formula to work.

Your company pays a premium and is not self insured
You have a normal Workers Comp policy

Policy Renewal Date + 3 months = Latest time that a Workers Comp reserve reduction program should be undertaken.

Policy Renewal Date + 6 months = Unit Stat date

The Unit Stat date is the date that usually no matter what happens, your Workers Comp reserves are pegged to calculate your NEXT year’s policy. I am giving you three months to do a complete Workers Comp reserve reduction program. You may wish to start slightly earlier.

You may want to start even earlier if you do not have online and immediate access to your Workers Comp files and reserves. That is why I consider online access to be golden. It saves an enormous amount of time. I have written about it in the past.

The claims staff is just not going to lower your reserves because you call. The largest mistake made when it comes time for a reserve reduction is to just simply call up the adjuster and say my reserves are too high, take them down ASAP.

©J&L Risk Management Inc Copyright Notice

Workers Comp Claim Reserving – Follow It Closely

October 6, 2010 By JL Risk Management Consultants

Workers Comp Claim Reserving

Workers Comp Claim Reserving should be followed closely as part of your workers compensation premium reduction program.

One of the most mystifying areas of Workers Comp is in the area of reserving. I have written often on reserves, as believe it or not, they are just as mystifying to the claims adjusters and supervisors. I can guarantee that if you set down ten adjusters/supervisors in a room, give them the facts on a Workers Compensation file, you will receive a spectrum of reserve levels. Why?

Picture Of Files Claim Reserving On Table

StockUnlimited

One thing to point out early in this post is that setting reserves on any Workers Comp file is an art unto itself. I have seen software packages that will set the reserves for adjusters – SOME OF THEM WITHOUT AN OVERRIDE FUNCTION. You can add the software package to the spectrum of reserve levels in the room of claims adjusters and supervisors.

One caveat is that the expectation of accurate reserves at the start of a Workers Compensation file is not valid. The reserves that are placed on a file in the first 60 days are just not that accurate as the file has not had the time to mature and develop. Please note that in our file reviews we often see the reserves left unchanged throughout the life of the file after the 60 day initial reserve.

The other side of the coin is that if a company keeps reminding the adjuster to check the reserves on a file, the adjuster may analyze the file for an increase. Knowing which files to review with an adjuster and at what is the best time to review the reserves is crucial. As I have posted many times, your file reserves feed directly into your Experience Modification Factor (E-Mod).

I will not leave the self insureds out on this one. For budgeting purposes, your self-insured program should have Loss Development Factors (LDF’s) promulgated every year. If you do not, you are throwing away $$$. The reserves on your self insured Workers Comp files feed directly into the LDF just like the E-Mod. LDF’s can make or break a Risk Manager’s budgeting process.

Bottom Line – What is a Risk Manager or CFO or Company Owner or other person handling the Workers Comp to do about reserving? Check my post next time.

©J&L Risk Management Inc Copyright Notice

Loss Reserves – Where Do I Find Them For My Workers Comp Claims?

August 19, 2010 By JL Risk Management Consultants

Loss Reserves Are An Adjuster’s Forecast

Loss reserves are the the dollar amount set aside or reserved to completely cover the expected cost of a claim or claims under the workers comp policy issued by the insurance company.

Wikimedia commons – Harland Quarrington

This determined amount is set aside as of the annual statement date.Loss reserves become a factor in computation of premium.

These loss reserves – sometimes referred to as reserves – should be monitored to ensure no over reserving or under reserving has been done. The term causes much confusion with Total Incurred. The Total Incurred figure equals the Paid plus loss reserves The Formula is:

Reserves + Paid = Total Incurred

The figure can be negotiated with the carrier at certain points in the life of the claim. Workers Comp adjusters pay attention mainly to the reserves. They do not want to over-reserve the file or run out of reserves.

Stairstepping happens when the claims adjuster increases the loss reserves just enough to cover medical bill payments or a few weeks of indemnity benefits. Having inaccurate and artificially low reserves through staristeepping should be considered dangerous for an employer’s workers’ compensation program.

Loss runs contain all of these very critical figures. Your company should ask for the loss runs monthly at least. Online access to loss runs makes the process much easier. You can usually run your own ad hoc loss runs at will with online access.

Online access may cost more, but it is worth every penny if your company is going to track your losses and premiums more closely.

©J&L Risk Management Inc Copyright Notice

Allocated Expenses – Very Important and Confusing Definition

May 25, 2010 By JL Risk Management Consultants

Allocated Expenses-Workers Comp Term of The Day

Allocated Expenses (also known as ALAE) are expenses charged to a Workers Comp term file that are not indemnity or medical benefits. They are associated with the adjusting of the file. Expenses for defending claims such as attorney fees, private investigators, independent medical exams, and many others are considered as Allocated.

Picture of Wallet Allocated Expenses Full Of Money

StockUnlimited

There is a great deal of confusion on where to classify certain charges to the file such as rehabilitation nurses hired by the carrier and medical bill review charges. As there is no concrete standard, some allocated expenses are charged under medical expenses and vice-versa.

Allocated Expenses ARE NOT usually reported to the insurance Rating Bureaus as they are seen as the costs incurred by the carrier to adjust the claim. Experience Modification Factors are not affected by this figure.

If the loss run ALAE figure seems large when compared to the Paid or Reserved figures, this should be questioned. The individual charges should be reviewed.

2020 Update – California worker’s comp claims usually include a large amount of ALAE. Some claims total to almost 90% of the medical or indemnity payouts.

The rehabilitation nurse charges were debated for years as a medical or ALAE. The carrier’s claims manual addresses where to include the rehab nurse charges.

When I have attended the NCCI data conferences in West Palm Beach, the determination was made ALAE was any type of funds that were not incurred to assist the injured employee medically.

©J&L Risk Management Inc Copyright Notice

Over-reserving Workers Comp Claims – How To Tell

August 14, 2009 By JL Risk Management Consultants

Over-reserving on WC Claims

WC claims Over-reserving analyses are difficult.I usually try to post every two days. I have not posted for four days as this area was too complicated to fit into one post.

Graphic Of Bar Graph Over-reserving with Magnifying Glass

StockUnlimited

The bottom line is that it is very difficult if not impossible to identify reserves that are too high without at least 5 – 7 years of Workers Comp adjusting experience.

As I have said numerous times in presentations and in this blog, online claims access is the key to controlling the reserving on your files. If you are not up-to-date on your claims, questioning the reserves on any claim may end up with an unanticipated reserve increase.

Calling attention to the wrong claims may harm your claim reserve levels. Do not inquire about reserves on a set of claims without having some updated reason that would result in a claims reserve reduction. A positive medical status update may be a good reason for a reserve reduction inquiry to the adjuster.

I have 24+ years of experience in claims adjusting, underwriting, and statistical analyses, particularly in Workers Compensation. I find it difficult myself to just look at a loss run and decide whether or not the reserving is not in line with acceptable standards.

If I just have a loss run, I or someone on our staff has to email the adjuster for a status. If you have the availability of customizing your loss runs, ask for the status field to be added. At least then you will know where the claims stand that are affecting your E-Mod or Loss Development Factor if you are self-insured.

I tried to cover Workers Comp reserving over the last two weeks in detail. I hope it was helpful. If you have any questions, please drop us an email.

©J&L Risk Management Inc Copyright Notice

Workers Compensation Loss Run Most Important Information

August 10, 2009 By JL Risk Management Consultants

Workers Compensation Loss Run Information Critical

The Workers Compensation Loss Run contains very important information. I have posted almost ten times concerning online claims access. If your company is unable to have online access to your claims, at least the loss run will contain some very pertinent information. If any insurance carrier has a claim open from even 20 years ago, your company should be provided a loss run for that claim. Having loss runs is not a privilege, but a right of the policyholder.

Man hand and cellphone important information in Workers Compensation Loss Run Information

StockUnlimited

This may be a good time to pull out your company’s loss run and look at the numbers. As I write this, I am reviewing one for a transportation company. Their E-Mod increased from .9 to 1.6 in two years. One of the main pieces of advice that I can give to an employer is that the E-Mod cannot be fixed in one year. It usually takes 2 – 5 years. Why? The E-Mod is calculated from claims that have been open for less than four years. That is not an exact statement, but I want to keep this as straightforward as possible.

The main number to examine is the outstanding reserve, reserve, unpaid funds, etc. The outstanding reserves may be named with different terms. Regardless, it is the $ that has not yet been paid out on a Workers Comp claim. The outstanding reserves are the forecasted payouts by the adjuster for the lifetime of the file. As I have said often, even though the money has not been spent, it is charged off directly to your E-Mod, which in turn heavily affects your premium.

Clipart of unpaid debts in rope Workers Compensation Loss Run Graphic

The basic formula is Paid Funds + Outstanding Reserves = Total Outstanding Reserves. The total outstanding reserves are the figures that your insurance carrier reports to the NCCI or the State Rating Board. There is little that you can do about what has already been paid. There are a few specialists that we work with that can review the paid funds to see if there were very many overpayments.

The quickest way to cover the claims that may affect your company’s E-Mod is to look at claims that are five years old or less. The outstanding reserves for these claims need to be reviewed. If you look at any of these claims and the $ amount of the outstanding reserves seems too large for the injury, you may have found a way to cut your Workers’ Comp costs.

I could post well over 50 pages of what to look for in the outstanding reserves. These estimations can be complicated. I will cover outstanding reserves in your workers compensation loss run further in the next post.

©J&L Risk Management Inc Copyright Notice

Automated Workers Compensation Reserves Concerns

August 9, 2009 By JL Risk Management Consultants

Automated Workers Compensation Reserves Area Of Concern

The Automated Workers Compensation reserves by carriers and TPA’s cause me much concern. Automated reserving is an area of Workers Compensation reserving with certain insurance carriers or TPA that causes me great concern.

Icons of Insurance Automated Workers Compensation Reserves

StockUnlimited

I have actually been told more than once by a Workers Comp adjuster that the reserves (no matter how inaccurate) could not be changed as their computer system had set the reserves and they are 99% accurate. I have never seen anything involving insurance that was 99% accurate.

Automated reserving is basically fill-in-the-blanks adjusting. As everyone’s healing period varies greatly, there is no “one-size-fits-all” estimation of the files reserves. As each injured worker is very unique, so should be the reserves on the file. For instance, say that an employee fractures their arm and will be off work for quite some time. The only way that the reserves can properly be set is with the experience of the adjuster at how much it will cost during the lifetime of the file.

However, there are some reserving systems that do not even allow changes to the preset reserves unless a very important development occurs on the file. There are even some automated reserving systems that only allow for a supervisor to make changes after the adjuster has set the initial reserves – usually at 60 days into the file.

Picture Accountant and Client Automated Workers Compensation Reserves Area

StockUnlimited

Automated reserves are not the same as an online adjuster’s reserve worksheet. The adjuster can input anything needed to properly estimate the file reserves with an online worksheet. Automated reserves ask very unspecific questions and then semi-magically come up with the reserves. If your company has online access to the claims files, you may be able to see the documentation on the reserving. If you have this type of access, the adjuster worksheets may answer quite a few questions.

I am not saying that all automated reserving programs are inaccurate. Unfortunately, I have not seen one that can forecast a person’s genetics. It may be a good idea to ask your adjuster if they use automated reserving software. If so, these reserves should be followed very closely.

There are two different software packages that will automatically set the reserves. Due to legal concerns, I will not mention them here. There is one monopolistic state that still uses this type of software to set reserves.

©J&L Risk Management Inc Copyright Notice

Travel and Expense Charges to Reserves (T&E) – Area To Check On

August 4, 2009 By JL Risk Management Consultants

Travel and Expense Charges to Reserves – Controversial Subject

Travel and expense charges to reserves creates many questions on how to handle these in the files.

Graphic Of Airplane And Suit Case Travel and Expense Charges Different Country On Globe

StockUnlimited

There is one set of charges to reserves that employers should be aware of whether self-insured or not. Travel and Expense charges should always be absorbed by Workers Comp insurance carrier.

These charges should have been negotiated into the premiums paid in regular commercial policies. The same is true for self-insureds. In some of our reviews, we have seen adjusters charging off their expenses incurred into the file, usually under the Expense reserves.

Unless there is some type of hybrid agreement between the insured and the insurance company, these charges SHOULD never show up in the reserves of a file or in the adjustment costs of a TPA. The T&E expenses may not be that apparent if you are reviewing the reserves or the payments made by the insurance carrier.

These expenses are sometimes referred to as LAE (Loss Adjustment Expenses) or ULAE (Unallocated Loss Adjustment Expenses). Once again, these are calculated into the premiums or TPA costs before a policy or TPA agreement is issued. An employer should not have to pay these expenses twice.

There are a few other expenses that have concerned me when reviewing Workers Comp files that should not be covered by the reserves or TPA costs. I will cover those next time.

2019 Update – We have seen many large deductible policies where the carrier included these expenses as part of the ALAE. Review the large deductible side agreements very closely for travel and expense charges.

Workers Compensation Expense Reserves Are Often Ignored

August 2, 2009 By JL Risk Management Consultants

Expense Reserves vs. Medical Reserves

The third and final reserve figures are the Expense Reserves. These reserves have caused quite a large amount of confusion ever since I started my career in Workers Compensation. The confusion always centered on what should be included in the Expense Reserves vs. Medical Reserves.

Picture of Hand Draw Arrow Increase Expense Reserves With Dollar Signs Graphic

StockUnlimited

The definition is the funds set aside for the cost of adjusting the Workers Comp file. The following fees are sometimes coded as Expense:

Defense Attorney
Independent Medical Exam (?)
Rehabilitation Nurse (?)
Bill Review (?)
Adjuster Time and Expense (T&E) (?)
Medicare Set Aside Services (?)

I inserted the ?’s as these are the areas that confuse all the claims departments as to where these expenses are included. Quite often, even inside each claims department these expenses are included in different reserves.

The best way to think about this category of funds is what the claims staff decides to directly pay to help adjust or process the claim – not medical or indemnity such as a weekly workers comp TTD check or a medical bill for a physician office visit. The adjuster has more control over the provider than any other type of payout.

There is no need for concern if you are not self-insured. The reserves are still charged to your Workers Comp premiums as one total (Compensation + Medical + Expenses). There are some other areas of concern that I will post next.

There is one expense that SHOULD NEVER be included as any type of reserve in the above list. Which one do you think it is?

Medical Reserves and CPT Codes In Workers Comp Claims

July 29, 2009 By JL Risk Management Consultants

Medical Reserves – CPT Codes

Workers Comp medical reserves are the most complicated of the three reserves to estimate. Can you imagine trying to predict all of the medical treatment that will occur over the lifetime of a file? There are as many medical treatments as there are CPT codes. CPT codes number into the thousands.

StockUnlimited

If we look at CPT coding, there are six kinds of medical treatment

1. Evaluation and Management

2. Anesthesiology

3. Surgery

4. Radiology

5. Pathology and Laboratory

6. Medicine

There are other considerations that have to be taken into account that are not coded such as mileage.

Most of the Workers Comp injuries are orthopaedic in nature. It may be a good idea to review the orthopaedic CPT codes and their costs for each of the states where you company operates in most of the time.

Medical Personnel Medical Reserves Using Calculator

StockUnlimited

The fee schedules for each state will likely reduce the full value of most medical procedures. Another area in the medical reserves that may help reduce reserves is if the insurance carrier or TPA has their medical networks that allow for a discount for medical services. It is advisable that you ask your claims adjuster if the fee schedules and Workers Compensation treatment networks were taken into account when the reserves were set for the claim.

Medical payments on claims are approaching 60% of the claim values nationwide. In some states, medical payouts are more than 60% of a claim’s value. There are many reasons for the increase. Workers Comp indemnity payments are based on wages. Medical inflation has increased much more quickly than wages.

I wish that I could be more specific on medical reserving. There are so many medical treatments that I am only able to cover the surface of medical reserving. The next post will cover the Expense reserves and a few areas that have resulted in confusion over what is a Medical or Expense reserve.

Workers Comp Indemnity Reserves Basic Definition

July 27, 2009 By JL Risk Management Consultants

Workers Comp Indemnity Reserves Are One Of Three Reserve Categories

Graphic Of Disability Workers Comp Indemnity Reserves On Wheel Chair

StockUnlimited

The Workers Comp indemnity reserves on a claim represent the future payouts of benefits to the employee over the life of the claim.

The definitions for most of these terms can be found by clicking on the Definitions tab/button in the menu. I will not reiterate them here to keep the post at a readable length.

The indemnity part of claim reserves is basically the amount that is paid directly to an injured employee for:

Wage loss – Temporary Total, Temporary Partial, Permanent Total
Permanent reduction in function to a body part – Permanent Partial, Disfigurement
Other – Many state-specific indemnity payments

Unlike the medical reserves, the indemnity reserves are more easily forecast. This is not to say that they are easy to predict for the lifetime of a claim. They are usually easier than the medical reserves to estimate.

Crutches Workers Comp Indemnity Reserves Vector Images

StockUnlimited

One of the areas that can cause great unpredictability is if an injured employee is under consideration for a Permanent Total rating. If an adjuster has to consider the employee as being unable to return to work for the rest of his/her life the indemnity reserves can spike tremendously. If an employer can offer a return to work even with a different job function, this is very helpful to avoiding a huge reserve and may be very beneficial to the employee. Quite often, states will have “make-work” laws that prevent an employer from just making up a job for an employee to return to work. This is an area of very heavy litigation in certain states.

Using my Six Secrets/Keys to Cutting Workers Comp Costs will reduce the likelihood of extreme reserve increases and will benefit your employees. The Four Secrets tab will soon be Six Secrets. I will write a quick post after the other two are added to the list.

I may change this post as I write the ones for Medical and Expense Reserves. Check back on this post when you are reading the upcoming ones.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Workers Comp Claim Reserve Contains Three Parts

July 25, 2009 By JL Risk Management Consultants

Workers Comp Claim Reserve = Three Parts

This post could be a very long one as there are hundreds of variables that comprise a Workers Comp claim reserve. Each state is unto itself on the benefits that are provided under Workers Compensation. There is no one list that points out every reserve variable in every state.

Insurance benefits drawing concept Workers Comp Claim Reserve On Table Graphic

123RF

There are three main areas of reserving:

Indemnity
Medical
Expense

These three are defined in the Definitions page. Please check there for further clarification. The most important of the three would be the medical reserves. These are growing each year to become the largest percentage of Workers Comp payouts and reserves. Medical payments are approaching 60% of claims value nationwide.

The Expense figure the bullet points denotes Allocated Expenses or ALAE. The Allocated Expenses are rarely passed to your company’s Total Incurred figure. Total Incurred represents the exact figure one sees in their respective Experience Modification Factor Sheets.

I will cover each one of these three areas over the next few days. I will cover one of the most controversial areas which is what exactly is covered under the Expense Reserve and the Medical Reserve. There seems to be a large amount of confusion on those two reserves.

How and When Are Reserves Set For Each Claim?

July 22, 2009 By JL Risk Management Consultants

Workers Comp Claims Reserves Set At 60 Days

When are indemnity,medical expense reserves set on your claims? This subject is one of the most confusing and frustrating budget areas for insureds. Workers Comp reserves are very important to companies with a regular commercial insurance policy or self-insureds. Quite often, I hear self-insureds say that reserves are not as important as they are “out of the Workers Compensation system.” Nothing could further from the truth. I will cover this subject in a post later this week.

Insurance benefits Icons Claims Reserves Set In Blue Color

123RF

How do insurance company adjusters set reserves on a Workers Compensation file? It is actually an educated guess at best. Trying to estimate the lifetime payouts on a claim is very difficult, if not impossible. The healing period from an injury varies from person to person greatly.

The reserving is broken down into indemnity, medical, and expenses. The claims adjuster will almost always have online access to a reserving sheet. These sheets are usually not shared with the employers. In fact, in the next post I will go over what the major variables in the indemnity, medical, and expense reserves. Going over that now will make too long of a post to read.

An adjuster’s experience level will usually aid them with making accurate reserve estimates. The adjuster’s caseload will determine if they have enough time to calculate exact reserves. Always ask your adjuster for their background and caseload the first time that you talk to them. Adjusters have an authority level to reserve files as they see fit. If the file reserves exceeds the authority level, the supervisor must approve the reserves.

Picture Of Medical Reserves Set Stethoscope

StockUnlimited

The most inaccurate reserving that I have seen is when an automated reserve is set by some type of software. As I said before, each individual heals differently, so an automated reserve is never accurate unless the adjuster can override the system reserves.

I will cover the variables in each reserve in the next post.

WC Loss Run Claim Reserve Analysis – Steps to Cut Comp Costs

June 3, 2009 By JL Risk Management Consultants

Loss Run Claim Reserve Analysis

A loss run claim reserve analysis is one of the most important steps in reducing your workers compensation budget.

Are the Workers Compensation reserves correct on the file you are examining? I have posted on this subject previously. As it is a very popular question that we receive, I will cover the subject again.

The steps to finding out are:

Obtaining online access or Workers Compensation loss runs, online access is much more preferable as a major timesaver
Understanding which claims will affect your NCCI or State Rating Bureau Experience Mod (E-Mod/X-Mod)
Understanding which claims will be examined when an insurance company provides a quote
Understanding how your claims affect your insurance premiums
Examining and understanding what the three factors of a reserve are and which ones can be analyzed
Understanding the difference between a Workers Comp claim review, reserve review, and premium audit

I covered each of the six steps below.

Graphic Of Flying Money loss run claim reserve analysis Color Green

StockUnlimited

Obtaining online access or Workers Compensation loss runs.

This area has been covered very often by me in previous posts. Please use the Search box in the right margin. Searching for online access or loss runs will give you the best results.

Understanding which claims will affect your NCCI or State Rating Bureau Experience Mod (E-Mod/X-Mod).

Any very old claims (more than 5 years old) will not affect your E-Mod or X-Mod in most cases. However, if you are in a hybrid insurance arrangement or a long-tail Retro policy, the old claims can still affect your insurance premiums.

Update – claims analytics are being used very often now when assessing an employer. Analytics may go back 10+ years. This new development makes all claims count to a certain extent.

Your company’s most recent claims will likely not affect your next E-Mod/X-Mod. However, the very new claims will affect your Mod eventually, so they should be examined along with the rest of the claims on the loss run.

Understanding which claims will be examined when an insurance company provides a quote

Woman Loss Run Claim Reserve Analysis Calculating

123RF

This may be a little confusing as the insurance companies that do a good job of underwriting will examine the older claims that will not affect your E-Mod. The underwriter will still look at the old claims to make sure that your company did not have a very bad claims year that may not appear in the E-Mod calculations.

We recently consulted with a trucking company that was trying to negotiate a switch from a regular commercial policy to a large deductible program. Their E-Mod looked great. The insurance carriers that were willing to write them did not provide a great deal as was anticipated due to their low E-Mod. The underwriting departments were concerned the company had two very serious claim years 7 & 8 years ago. The bottom line is that for the E-Mod the newest claims should be examined. If your company is going to shop their Workers Comp insurance in the market or going to try to switch to an alternative insurance plan, all claims on the loss runs are then highly important.

The Workers Compensation reserves system is a delayed system.

Understanding how your claims affect your insurance premiums.

Graphic Of Umbrella Workers Compensation Reserves With Dollar Sign

StockUnlimited

The adjusters actually have an additional six months after a policy ends to adjust the reserves to their proper level . Reviewing your claim reserves with the insurance company at the end of a policy year is an exercise in futility. Approximately 90 days after your policy expires is the best time to review the loss runs and the reserve values. These Total Incurred values will show up in your company’s Workers Comp insurance policy for the next year.

Examining and understanding what the three factors of workers compensation reserves are and which ones can be analyzed.

The three factors are the Spent amounts; Amounts in Reserve, and Total Incurred. The Spent amounts can be examined to make sure that the correct amounts were paid. The Spent amounts have little to do with the reserve figures. The Spent amount analysis is best performed in a claim review, not a reserve review.
The Reserved amounts are the most important part of a reserve review. They are the unspent figures that the adjuster estimates will be paid out over the life of the Workers Comp claim. The Reserve amounts are the negotiable parts of the loss runs. Over-reserving can cost an employer dearly as the E-Mods/X-Mods are calculated directly from these figures. Over-reserving will cause an employer to pay premiums for funds that will never be used to pay the claim.
The Total Incurred amounts are the Spent amounts added to the Reserve amounts. The Total Incurred amounts will appear on the Experience Modification Worksheets that are published on your company by the NCCI or State Rating Bureau.

Understanding the difference between a Workers Comp claim review, reserve review, and premium audit.

StockUnlimited
Claims Review – analyzing how well the claims department handled the claims. This is usually accomplished with a review sheet that scores the effectiveness of the claims adjusters.
Reserve Review – a financial analysis to make sure the monies forecasted for the life of the claim is as accurate as possible. Negotiating down the reserves will result in a large amount of savings in your Workers Comp premiums.
Premium Audit – performed by the insurance company’s premium auditor to make sure that all the correct classification codes and payroll figures were used during the policy period that just expired.

Which Loss Run Claim Reserves To Analyze?

The ones that you want to target are the ones that have an Open or Reopen status. You will likely only want to examine the Lost Time files and not the Medical Benefits only file. You would want to examine any medical-only claims that have more than $2,000 in outstanding reserves.

Now that you have a list of those claims, how do you tell which ones are over-reserved or should be closed? Well, I have been able to answer hundreds of questions in this blog. This is the first time that I have no sure answer. Contrary to the belief of some people, reserving Workers Comp files is an art that is very difficult. I could write a book just on how to analyze loss runs.

Woman Workers Compensation Reserves Holding Up Cut Out Light Bulb

StockUnlimited

You can call the adjuster to see if they will reduce the Workers Compensation reserves, but on which files would that be appropriate? You can call your agent, but I have only known a very few agents that understand the process of reserving a Workers Comp file. That is no slight to agents as they are very necessary to the Workers Comp insurance process.

I want to avoid sounding like an infomercial for our services. I will not “toot our own horns.” The best thing I can say to do is have a working relationship with your adjuster. That will help somewhat.

I have posted a large number of posts on loss runs, file reserving and contacting your Workers Comp adjuster. Feel free to look through the posts on this page and on the archived pages. The Search Box may be a good shortcut.

Next Post – A Statistic That Floored Me From The American Medical Association

More on Recession proofing Your Workers Comp Policies

December 10, 2008 By JL Risk Management Consultants

Workers Comp Recession Proofing – Another Angle

The Recession proofing program centers this times on reserves. I have received quite a few emailed comments and questions about the current recession. Quite a few forward-thinking employers have asked about the quickest method or methods to reduce Workers Comp premiums in 2009.

Graphic of Feedback Comment Recession-proofing Icon

StockUnlimited

The first thing to remember is that Workers Compensation is a delayed-effect type of expenditure. Trying to reduce the Workers Comp premiums for 2010 should now be a company’s goal. The 2009 policy is already in place unless your renewal date is after 7/1/09. The Workers Comp reserves that are set on files are usually set in stone six months before the policy renewal. If you are renewing on 1/1/09, all of the variables for your Experience Modification Factor (E-Mod or XMod) were in place on 7/1/08. Please look at my recent posts on how your time is being wasted by end-of-year claim reviews.

Thumb Print Recession-proofing With Magnifying Glass

123RF

One question we are asked concerns going back in the past and arguing with the insurance carriers over past high reserve levels on certain files. We and any other consultant usually cannot audit old reserve figures.

Reserve levels apply to the present only. That is why it is so important to monitor the reserves set by the adjuster on each Workers Comp file. A question to your Workers Comp carrier on a reserve level from 2007 will do no good in most circumstances.

Quite a few of our clients have us monitor all reserve changes on their files. Why? Changes to the Workers Comp reserves have to be questioned or corrected very quickly.

The longer an excessive reserves figure exists on a file, the more difficult it is to have it changed. The one thing to remember is NOT QUESTIONING the reserves on every file. You have to pick your battles on the right files.

We will revisit the ways to cut premiums next time.

Self Insured File Reserve Reviews Important Part of Budget Process

September 9, 2008 By JL Risk Management Consultants

Self Insured File Reserves Need To Be Monitored

Reserve reviews for Self insured Files are just as important as ones for companies in the regular voluntary insurance marketplace. We often hear from Self Insureds that the reserves on a file do not matter that much, as it is paid funds that matter. Reserves are actually as much as or more important than with non-Self Insureds.

Vector Graphic of Files Self-Insured File Reserve Reviews

StockUnlimited

The basic Workers Comp equation is Paid + Reserves = Total Incurred. As I mentioned in a recent post, it is very difficult to question what has been paid on a file. The reserves are the funds that are forecasted to be spent over the rest of the lifetime of a file. They are opinions.

As I have mentioned often in this blog, the adjuster, who is considered the Workers Comp expert on file, is spending self insured money directly out of your company’s budget. Why are the reserves important? They are usually what is forecasted to be spent and your budget must accurately reflect these forecasts.

The reserves are usually based on a somewhat sound principle by the claims staff. The reserves will feed into your Loss Development factors or LDF’s. LDF’s are really what you should budget in company funds over the next 10 years to pay the Workers Comp claims. Reserves are a road map to the expenditures for your Workers Comp claims.

Color coded Self-Insured Filing System Folders

StockUnlimited

For instance, if you have a file that has $15,000 paid in medical, but there is a medical reserve of an extra $100,000 to be paid there is likely a huge medical bill that the adjuster is expecting to pay. When you are examining a loss run and looking just at the paid amounts, you may think the file is rather inexpensive…and then the adjuster pays a $95,000 bill. What looked like a smaller file now balloons into a much larger file overnight. ($15,000 vs. $110,000).

The reserves are an insight to how your Workers Comp budget is going to be spent. Look at the reserve figures and make sure to contact your claims adjuster(s) if you notice something odd about the reserves. How do you know if the reserves are odd or foretell of an important event on the file? That is very difficult to do in most cases. AS I SAID EARLIER, RESERVES ARE AN OPINION.

One Thing Not To Do With File Reserves on Loss Runs

September 3, 2008 By JL Risk Management Consultants

One Thing Not To Do On Your File Reserves

Working in a Claims Dept for many years, I had seen one thing that would totally backfire on an employer that had questions on their Workers Comp file reserves. If you have established a working relationship with your Workers Comp claims adjuster, the following may not apply.

The National Archives

The one thing to not do centers around not being prepared. Calling your Workers Comp claims adjuster without being prepared to discuss the reserving on the file will usually cost your company more in premiums. Please remember that the Workers Comp adjuster is very similar to calling your bank’s loan officer. The issue of credibility is critical. Being prepared = credibility.

The easiest way to prepare is by reviewing the Workers Comp loss runs. Usually, the loss runs do not have a status. You can email your adjuster and ask for a status on every claim or obtain online access to your claims. You should be able to see what is happening with your claims online.

How do you know what Workers Comp reserves are correct? That is a very tough call. It takes most insurance adjusters 5 – 7 years to gain enough experience to set the reserves on files. Setting reserves is a tough business. If you do not feel comfortable having this discussion, please call a Workers Comp audit expert. As I said before, negotiating your Workers Comp reserves is like talking with your bank. It will directly affect your budget.

Finally, the one thing to not do is to just call up the adjuster and confront him/her that your reserves are too high.

Picture Business Meeting One Thing File Reserves

StockUnlimited

This person is responsible for the reserves on your Workers Comp files which feed into your E-Mod that directly affects your insurance budget. This tactic can sometimes backfire.

Workers Compensation Reserves- Silent Budget Killer

April 6, 2008 By JL Risk Management Consultants

Workers Compensation Reserves – The Ever-Silent Budget Killer

Workers Compensation reserves can be critical when trying to lower your company’s premiums.

The silent budget killer for most company’s Workers comp program revolves around the claim reserves.

Picture of Man Hand Pointing workers compensation reserves On Screen with Globe

StockUnlimited

I have posted very often about the process for calculating Workers Comp premiums. The one area that I could never cover enough is Workers Comp reserving. The reserves are the engine for all calculations that have to do with calculating your Experience Modification Factor, or E-mod.

What makes the reserves on a file so unique? In all the process of how your Workers Comp premiums are charged, the Reserves are the only unregulated numbers in the equation. The reserves on a Workers Comp file are left up completely to the claims department. The adjuster can set the file reserves at any level they wish. The only regulation the file has is the supervisory staff of the claims department.

How are reserves calculated? It is usually some form of an educated guess by the claims adjuster. You have very little control over the Workers Comp reserve figures.

Questioning the loss reserves on a file should be a quarterly, if not monthly task for you or someone in your organization. A well-placed email to the claims adjuster on the file. Do not just email the adjuster and say the reserves are excessive. Why are they excessive?

How do you take control of your reserves? A Workers Comp Loss Run review is a great way to make sure you are not overpaying on your Workers Comp premiums. One of my prior posts covers the review in detail.

If you feel that this is a very complicated process, you are very correct. Do not hesitate to call in a claims expert such as our company to help you make sure you are not overpaying.

Next Up- A Workers Comp Definition

Our main website is www.cutcompcosts.com

File Premium Reserve Reviews – Differences

March 26, 2008 By JL Risk Management Consultants

Workers Comp File Premium Reserve Reviews

Yes, they are all different. Workers Comp file premium reserve reviews are three very different reviews that we perform for employers

Hand Presenting Dollar Currency File Premium Reserve Reviews On Cart Board

StockUnlimited

I have posted on this issue more than a few times. This is most of what we do for a business. I felt the need to re-post on the subject as we receive questions daily on file premium reserve reviews. Employers, agents, and others are sometimes confused by the terms.

File Reviews – also called Performance Reviews. File reviews are usually reviewing all aspects of the way that a Workers Comp Claims Adjuster handled a specific file or group of files. The performance on the set of files is scored against a group of weighted criteria. Any trends are noted. We do not and will not pick out a few things that an adjuster erred on in the handling of the Workers Compensation claims. We look for trends such as over-reserving of files, late three-point contact, etc. Most adjusters do very well in our audits.

Reserve Review – we should call this the Total Incurred Review, but most people outside the Insurance Industry refer to the Total Incurred as the reserves. We review the Workers Comp loss runs to make sure that the reserves are in line with the accident and the claims status provided by the adjuster. This can be part of the File Review.

123RF
Premium Review – this is where we actually confirm all the premium calculations and the structure of the calculations. We examine areas such as classification codes, E-mods, original Workers Comp policies, year-end audits, etc.

Quite a few of our clients are now requesting E-Mod reviews. This is where we assist in lowering the E-mod or getting a company out of the Assigned Risk Pool. There are many areas where a company’s Workers Compensation premium payments may be reduced. We see so many companies just writing a Workers Comp premium check without questioning how the payment was calculated. Questioning the $ you pay out is the best place to start a Workers Comp premium reduction program.

Now You Have Loss Run Online Access-What Do You Do Now

December 20, 2007 By JL Risk Management Consultants

Loss Run Online Access Is Just The Beginning

You have online access or you have all of the loss runs – what do you do now?

You will mainly be concerned with just the reserving part of the claim for now.

Woman Teaching Online Access in computer laboratory

Sage Ross Author Wikipedia

One of the important points to remember is that with a Workers Comp loss run review, you usually cannot really question what has happened in the past, especially on closed claims.

The Total Incurred for a closed claim is the amount paid. There is not much you can do once a bill or settlement has been paid. That is why it is important that Loss Run Reviews are performed quarterly or monthly.

Do you have an email sent to you if reserves reach a certain level or if a massive bill/settlement is being considered? If not, you are leaving an open checkbook against your E-Mod.

Most insurance carrier or Third Party Administrator computer systems will automatically send you a notice by email when a reserve reaches a certain level. However, the level has to be set for your company at the beginning of the policy or agreement.

Without a claims technical background, common sense is the rule for doing loss run reviews. Take a look at the open claims.

Does the amount for reserves (Total Incurred minus Paid) look right?
Has the claim that was once a more serious claim now resolved itself?
StockUnlimited
Is the employee back to work?
Do you have an employee on your loss run that is not one of your employees?
The list goes on and on for areas to possibly find mistakes in a Workers Comp claims reserve/loss run review.

If you feel that there is still something wrong after doing a self-review, you may want to contact a Workers Comp claims review expert.

Shameless plug – Claims reviews and especially online claims reviews are our specialty along with premium audits.

Up Next – What to Look For in a Work Comp Claims Review Expert

Worst Case Scenario Workers Compensation Definition

December 14, 2007 By JL Risk Management Consultants

Workers Comp Claims Worst Case Scenario

The worst case scenario on your Workers Comp claims. These words send chills through me like no others in anything that deals with Workers’ Comp. I did not like to say them when I was an adjuster long ago, and I do not like to hear them now.

Graphic of Worst Case Scenario On Notepad

123RF

Worst Case Scenario has to do with the reserving on your Workers Comp claims. In my last post, I pointed out that 16 East Coast hurricanes were originally forecasted for 2006 by one of the large Risk Management companies.

That was the Worst Case Scenario. Companies were charged property premiums as if the end of the world was going to occur in 2006. The premiums have been reduced some by the later forecasts of very few storms.

Worst Case Scenario is when a worker’s comp file is reserved for the worst possible outcome that may ever happen to the file.

However, in Workers Comp, this overused term seems to be the norm for every claim. How do you know if your company is being reserved at and charged for the worst-case outcome on your Workers Compensation claims? That is coming in the next posting.

Up Next – Loss Run Reviews

Workers Comp Reserve Reviews Loss Run Best Reduction Strategy

November 28, 2007 By JL Risk Management Consultants

Workers Comp Reserve Reviews Start With Current Loss Run

The start to effective Workers Comp reserve reviews begins with a current loss run – hopefully online. This is the area that seems to be the most misunderstood.

Graph ClipArt of Black Arrow Increase Reserve Reviews Loss Run In Bar Graph

StockUnlimited

We often have employers contact us about a loss run they had just received or about how their E-Mod increased so rapidly in one year. The fastest and most effective method starts with a loss run review.

We often recommend that the employer obtain a copy of their loss run. Your insurance carriers will provide a copy on request. The Work Comp carriers will usually provide a loss run quarterly.

Please remember that only the OPEN claims can be dealt with, as a closed claim or the previous reserves on a closed claim usually cannot be questioned later on. That is why it is so critical to track the claims as they develop. Discussing a reserve that was opened on a claim three years ago will not do any good. In other words, when a loss run is received, it should be reviewed on receipt.

J&L currently has many clients that ask us to review their claim reserve levels including riks managers and agencies. Some of the info we look for in listed below.

Medical Personnel Pouring Medicine Reserve Reviews On Hand

StockUnlimited

Things to look for in a Workers Comp loss run are:

Old claims still open
Resolved claims still open
A small amount of indemnity total incurred with a large amount of medical total incurred, or vice-versa.
A large increase in reserves or total incurred on a claim
A re-opening of a closed claim
The total incurred does not match the claim, such as a large amount of reserves on a minor injury
The injury listed does not match the employee’s injury
An injured employee’s name that you do not recognize
Anything that just looks out of place.
Many others

A reason or reasons may exist for the above bullet points. Remember the equation Total Incurred = Paid + Reserves in your Workers Compensation reserve reviews.

UP NEXT– Contacting your adjuster if you find something questionable.

Reduce Premiums – Fastest Way With Workers Comp Reserve Review

November 21, 2007 By JL Risk Management Consultants

Fastest Way To Reduce Premiums Reserve Review

Performing a Workers Comp reserve review is the key to reduce premiums of your reserves very quickly.

Your Workers Comp premiums can be reduced very QUICKLY in most situations.. It is the reserve review.

Graphic of Money in clock Way To Reduce Premiums Fastest

StockUnlimited

The reserves are the engine of the premium charging process by insurance carriers.

I had written a post on this very subject a few weeks ago. The loss run is the map, so to speak, to use for the reserve reviews. Look for the column that is designated “outstanding reserves.”When is the critical date to start a reserve review? The answer is 9 months before the next policy date.

Why start so many months ahead of time? Actually, you have only 3 months, not nine.

Please note – (with few exceptions) almost all policies lock in their E-Mods 6 months before the policy. No matter what policy provisions are in place if the reserves on the files are wrong, you are paying dearly for Workers Compensation coverage.

The three month lead time is needed as many claims departments may have to go through many levels of supervisory and management personnel to have any reserves changed.

If you have a very large reserve, this process can easily take 60 – 90 days to complete. Changes to reserves on large claims have to go across many desks or computer screens.

The usual route consists of:

The adjuster recommends a reserve reduction or increase up to their level of authority
If the file reserves are beyond the adjuster’s authority, the supervisor must approve them after discussing it with the adjuster. Claims supervisors rarely approve a reduction without a protracted meeting with the adjuster. If the claims supervisor agrees with a reserve reduction, then the reserves are reduced.
If the claims supervisor does not have the authority to that level of reserves, then the supervisor passes it up the line to the claims manager. The adjuster, supervisor, and claims manager have a long meeting if a request has been made to reduce the reserves by the adjuster and supervisor.
If the claims manager does not have the level of reserve authority, then the file passes onto the Claims Vice-President. Usually, VPs are consulted only if the file reserves are very large, over $350,000 for example. Then, a meeting has to be scheduled for the claims adjuster, supervisor, manager, and VP to discuss the claim reduction. Getting all four parties in an office or conference room at the same time is a very difficult task.
So if a file has over $350,00 you are looking at 90 days to get approval for a reduction. So you cannot wait to one month before your policy renews to send the adjuster an email on over-reserving with a specific file.

That is why you must start at the latest 9 months before your next policy expiry to see about lowering file reserves to reduce premiums.

Next Up – How do you effectively do a worker’s comp reserve review?

Reserve Reviews – Hidden Way to Save Workers Comp Funds

October 15, 2007 By JL Risk Management Consultants

Workers Comp Reserve Reviews Can Be Complicated

Reserve Reviews – the hidden way to save $ on your Workers Comp premiums – Reserve reviews are not something that most of our competition cares to address. However, reserve reviews are just as important as premium reviews. Once again, we try to use the word review and not an audit – see the previous blog.

Hand Putting Money In Piggy Bank Reserve Reviews Picture

StockUnlimited

Premiums reviews “look-back” three years into the past. Reserve reviews are the “here and now” part of your Workers Compensation premium. It is virtually impossible to go back in time and try to negotiate reserves. What you have on the file today is what counts.

Workers Comp file reserves are the engine of the E-Mod process. Reserves are not only what is spent out on a Workers Compensation file, but what the adjuster thinks will be spent out on the claim over its lifetime. Please remember, the funds that are paid on an open file to date have little to do with the reserves on the Work Comp file. You are charged THREE TIMES over three years for the reserve figure on the file. Not reviewing your reserves is like putting cash in the shredder.

Picture of Premium Reserve Reviews Dollars

StockUnlimited

Reserves run a totally different cycle from premium reviews and your E-Mod. For instance, to figure your E-Mod for 1/1/08, the reserves are used as they were on your Unit Stat date which should be 6/30/07. Here is a very important point. Whatever the reserves are on 6/30/07 at 5PM is usually what your E-Mod is figured from for your 1/1/08 policy date.

If you/we happen to find that a Workers’ Comp file is over-reserved on 7/11/07, that is just the way the ball bounces. What I am getting at is that you should start your reserve review program as soon as your new policy goes into effect.

For a 1/1/08 policy, the reserve review needs to start at least by 3/1/07. It takes a few weeks to begin studying, negotiating and tracking your reserves. Your reserves need to be tracked up to and including 6/30/07.

This is a different cycle than the Work Comp premium reviews – see previous note. The Bottom Line is that you must start very early to get your reserves in line. If you feel that you are in over your head, call a reserve review specialist such as our company. Do not just write checks.

Next Up – What is the secret question to ask anyone that deals with your Workers Comp to see if they understand the whole Work Comp picture?

Our main website is at www.cutcompcosts.com. If there are any terms that you need to look up, please click on the Definitions tab or use the Contact tab to email us for questions.

Premium and Reserve Reviews Are Very Different Tasks

October 12, 2007 By JL Risk Management Consultants

Work Comp Premium and Reserve Review Differences

The difference between Workers Compensation premium and reserve reviews comes up often during one of our presentations or in speaking with current or potential clients.

Picture of Calculator Premium and Reserve Reviews Time And Money

123RF

To keep from boring you to tears, we will cover Premium Reviews today and Reserve Reviews next time. We avoid the word audit when we can as the audit has such a bad connotation – IRS audit, year-end payroll audit by the insurance carrier, etc. Audits sound confrontational.

Premium Reviews – this is also called a policy review. We look at the “mechanics” of how your Workers Comp premium has been calculated. We look at various items including:

Payroll Statements
Current and previous Work Comp policies
Website advertising and brochures
Previous Work Comp year-end payroll audits from the insurance carrier
NCCI or State Rating Bureau sheets
Audit Billing Statements
Audit Workpapers
Any type of premium adjustment after initial policy issued
Job Descriptions for each employee
Description of Operations

We are often asked why we need website info, brochures, advertising, and a description of operations. We want to take the time to understand your company and what your company does in its operations. Without knowing it exactly, we would not be able to do a complete and accurate premium review.

We can usually go back three years from the date of the review. If we find errors, we can usually recover the error for three years, not just one. With a premium review, we are looking at the current Work Comp insurance situation and back in time for three years.

Next Time – Reserve Reviews – the hidden way to save $ on Workers Comp

PS – Our main site is at https://cutcompcosts.com/. Feel free to read our archived articles. They can be accessed by clicking on the months on the right side of the web page.

Automated Reserving Programs Work Better Than Claims Adjusters?

August 28, 2007 By JL Risk Management Consultants

Automated Reserving Programs For Workers Comp – Better Than An Adjuster?

I received this question on automated reserving in response to yesterday’s post.

Graphic of Ohio Automated Reserving Written In White Tiles

123RF

You had said there are no guidelines for a Workers Compensation Adjuster to set the Workers Comp reserves on a file – How about the automated reserving programs that are available? Do they work, and are they accurate?

Answer – I have seen some of them, and audited files, where automated reserves are set. They are no more accurate than the adjuster setting file reserves on their own. A great example is when we audited files for an Ohio client. Ohio is monopolistic. At the time, they were using an automated reserve system.

The reserves/Total Incurred for the files were not that accurate.One of the reasons is the adjuster needs to update what is going on in the claim just as if the carrier was non-automated on reserves. The bottom line is the employer was still paying the same premium regardless.The reason? – There are over 130 variables that go into a Workers Compensation reserve.

Software Automated Reserving Laptop And Cellphone Graphic

StockUnlimited

The software is only taking what it is given, so the reserves are only as accurate as what the adjuster inputs into them. BTW, the BWC of Ohio (Government-ran monopolistic Workers Comp Carrier) is and has been under investigation. What was one of the complaints? -inaccurate file reserves.

Update 6/24/2017 Believe it or not, I wrote this article almost 10 years ago. Today, still no automated reserving programs exist that predict the reserves of a Workers Compensation file. My take on it – the human body heals differently for each individual person. Thousands of variables must be taken into account when the human body heals. I will update this article when I observe any accurate automated reserving programs.

07/25/2018 – Reserving analytics have still not yet arrived on the workers compensation scene. I have sampled two and the reserving algorithms have improved, but still cannot outperform an adjuster at workers comp reserving.