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Underwriting and Adjusting Conundrum

Tuesday, August 12, 2014 | 355 | 0 | min read

Two days ago, I analyzed a recent court case where the Nebraska Supreme Court made a ruling that can devastate a state's workers' comp system.

The conundrum is two-fold for carriers and self-insureds and their third-party administrators (TPAs):

  1. How do the insurance carriers make up the difference now that bad law that will likely be exploited is now "on the books?"
  2. Can insurance carriers properly adjust files now that there is a cloud of a bad decision on the definition of an accident?

The carriers' underwriting departments could have in no way anticipated such a momentous decision that may open up the floodgates on past, present and future denials of claims that were based on the definition of an accident.   

If you did not read the article from two days ago in this blog, it may behoove you to look at the article here. The article has links to the decision. Follow this link for the prior bad decision by the Nebraska Supreme Court.

Incurred But Not Reported (IBNR) can only offset so much of a new bucket of claims that may have to be paid or settled due to such a decision. Changing the definition of an accident can alter the underpinnings of how claims are viewed in a state.

Twenty years ago, the large carriers were going to pull out of writing in North Carolina due to an even worse Supreme Court decision. The state Legislature stepped in to quell employers' and carriers' concern with legislation that corrected the decision.

Claims adjusters in Nebraska may now have to consider or reconsider claims where the definition of an accident was expanded from a single traumatic incident into an incident that stretched for months or years.

Employers may notice that claims where the definition of an accident comes into play, especially on denials, large increases in total incurred which increases an employer's experience modification (X-Mod) or loss-development factor if self-insured. Adjusters usually react to bad case law on the books by heavily increasing the reserves on a portion of their files that involve an accident definition.

I may sometimes not agree with carriers or third-party administrators. However, in this case, when the roadmap of underwriting and claims handling change overnight, what is a carrier's underwriting and claims department going to do in such cases?

The bottom line is the employers in Nebraska could end up paying more premiums and the self-insureds could end up with a much larger WC budget when the unanticipated is now fact. Even worse, the employers may soon find fewer carriers writing workers' comp in Nebraska.

James J. Moore is owner of J&L Risk Management Associates in North Carolina. This column was reprinted with his permission from his Cut Comp Costs Now blog.

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