Spotlight: How Analyzing Workers’ Comp Claims Helps Both Clients and Their Brokers
Data analytics on claims (specifically workers’ compensation claims) adds clarity for the client when identifying underlying issues they need to focus their loss control efforts on. This article outlines the main areas that can add value for your clients.
Analysis of reserves as a function of total claims cost can shed light on how insureds stack up versus their peers. This analysis can determine whether a client has an exorbitant amount of open reserves on their workers’ compensation claims. Open reserves on claims lead to a higher experience modification, and thus higher workers’ comp costs. Utilizing claims consultants who speak the claims adjustors’ language is critical to negotiating reserve closures.
Evaluate Medical
It is also important to analyze how many claims fall into the first aid or medical only category. These small claims can negatively affect a clients’ experience modification. A solution for these types of claims is a medical triage program. Medical triage is a telephone injury assessment and reporting service designed to effectively deal with injuries that occur to employees on the job.
While more serious injuries can and should be treated at an appropriate medical facility, many less serious injuries can be handled onsite. This type of program can typically filter out 30 percent to 40 percent of claims, so they do not go to the insurance carrier or onto the experience modification calculation. The calls are digitally recorded so potential fraud can be dealt with accordingly. This can provide significant ROI for the client, which the buyer can understand and appreciate.
Taking the analysis a step further, it can provide insight to determine how the clients’ claims are categorized. For instance, if 30 percent of the clients’ claims are auto accidents, then this should be the area of loss control focus. Year-over-year analysis of claims categorization trending will also show how the clients’ claims are changing over time and which areas to watch for in the future. If 20 percent of their claims are strains and contusions, yet 40 percent of their total claims cost fall in this category, then there is a disconnect. It would be eye-opening to determine with the client why they have a disproportionate amount of claims costs, versus claims frequency, in order to understand and attack that trend.
Evaluate Experience Mods
It is critical to evaluate and review the clients’ experience modification, so you can determine what underlying claims activity makes it up. We have found many instances where the Workers’ Compensation Insurance Rating Bureau of California made an error in calculating clients’ experience modification, and this check will provide a backstop to determine if the calculation is accurate. It is not unusual to find instances where the experience modification is amended by 10 points or more in this investigation, which can translate into many thousands of dollars in workers’ compensation savings.
Each year of claims affects a client for three years on the experience modification calculation. Analyzing the make-up of the experience modification sheds light onto how each year in that three-year period stacks up on adjusted losses versus expected losses. If the most recent year on the experience modification calculation is much worse than average, then you can make the assumption that the experience modification will be trending upward in future years.
Analytics can determine how each particular claimant affected your experience modification in terms of total points and corresponding cost. For example, you can clearly understand if John Doe slept in this morning and did not get injured, your experience modification would be 11 points lower, which translated to $25,000 per year in workers’ compensation cost. Furthermore, each claim affects a client’s experience modification for three years, so in this case, the total cost of the claim is $75,000.
An experience modification review can determine what the losses would have to be for the client to have an average experience modification of 1.00. Then it is easy to determine the incremental cost, increase or decrease, that the client has with their experience modification versus what it would be at the unity mod.
Analysis can show what your lowest experience modification can be and what makes up that delta. Most clients are not aware of how low their experience modification can go, which is typically in the 50s or 60s. This gives the clients a target to aim for. It is also valuable to determine what makes up the difference between their current experience modification and the lowest possible figure. Is it primarily large claims or is it small, frequency issues? Analytics can determine that if a client has 80 points of controllable mod, for instance, that 57 of those points are currently due to large claims and 23 are due to small claims. Knowing this specific data gives the client information on how to adjust their loss control program accordingly.
Big data and analytics are becoming very popular in business. However, the same level of analysis and scrutiny does not seem to be occurring for mid-market insurance clients. Shedding light on these issues can provide significant insight and future cost savings for clients.