Moore: 10 Ways to Cause Huge Reserves

Tuesday, June 5, 2018 | 0

Most workers' compensation reserve increases can be controlled by employers. Let us see how employers cause huge ones. Some of these come from the Six Keys to Saving on Workers' Comp Insurance that I wrote in the 1980s.   

James Moore

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

1. Filing the first 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. 
2. Not having an industrial-minded medical network in place. This one is even worse than late first 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, he will likely go to the physician that your company recommends 80% of the time.  
3. 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 adjusters 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. 
4. Employee treated like he is 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 him, he will find someone who will be glad to represent his 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 No. 2 above, the adjuster has to deal with your choices on the claim. The  wrong choices can result in large reserve increases initially. 
5. Not taking Nos. 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. Nos. 1-4 above is multiplicative or additive when an adjuster starts to establish the reserves. In fact, many reserve worksheets have checklists for Nos. 1–4 right on the reserving sheets.   
6. "Twilight Zone" phone calls. This one goes hand-in-hand with No.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. Click here for a better description of those types of those phone calls. 
7. Not knowing your adjuster’s name. If you do not know who is working on your claims, 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.   
8. Not knowing your E-mod, LDF or total claim payments. This comes from my five-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 Nos. 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. 
9. Not having your loss run at your fingertips: This one is the same as No. 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. 
10. Like it or not, appearances and first impressions count. For instance, I am sitting here now with a large claim on my desk for which 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.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.