There is no better place to seek insights into the health of the workers’ comp industry than the NCCI’s annual State of the Line report, which was recently released. But as with all data, it must be taken into appropriate context, because this year’s figures can easily represent two stories.
What’s easy to notice and applaud is the industry’s improvement. Not only is the 2013 workers’ comp combined ratio of 101 far from the 2001 peak of 122, it is also a seven-point improvement over the previous year. However, the improvement represented in this data must be considered carefully, as the second, more telling story highlights a systemic problem the industry has yet to reconcile.
A 101 ratio means the workers’ comp industry is still facing a 1% loss. In real numbers, this means that in 2013 underwriters lost $370 million on an insurance line with $37 billion in revenue. Additionally, the workers’ comp industry has only been profitable for underwriters for two years in the past two decades.
What’s concerning is that this loss isn’t always apparent when it is accompanied by an improvement trend, as expressed in this year’s data. As the industry appears to improve, despite the loss, there will be another adverse impact. Confidence will be restored among underwriters and the market will soften, reducing the average price of premiums and making it even more difficult to make the workers’ comp line profitable.
The frustration is that workers’ comp underwriting can be a lucrative business, but it won’t be premium adjustments that turn losses into profits. The solution is to overhaul the industry’s internal and external claim management process.
Claims management makes or breaks profit
As it exists now, the general industry-adopted claims management structure is consistent with reactive adjustment models, communication gaps and overworked adjusters—all of which increase a claim’s duration and litigation risk, potentially driving up the cost on every incoming workers’ comp claim.
The most poignant display of the industry’s flaws lies in its tiered adjuster system. In this structure, there could be multiple adjusters working on a workers’ comp claim, though rarely at the same time. Through a “pass-it-off” approach, an intake person could send the claim to a medical adjuster who then passes it on to a lost-time adjuster and so on until the claim has been “managed” by half-a-dozen different people and in a worst case scenario the claim ends up in the hands of an attorney, the highest paid person in the downline.
Besides the obvious lack of a single-point-of-contact by which all relevant claim information can be directed, there is not a single manager who can focus attention on a claim, be the keeper of all relevant information, and work with doctors, employers, attorneys and claimants to ensure maximum efficiency so that the claim is closed with minimal costs and time. Unless you are truly managing claims, you are losing vital control that will inevitably increase the underwriting cost.
For workers’ comp underwriting to work, there must be a new model for claims management – a model that fixes the fundamental flaws of the current system. In essence, this new model should include three initiatives:
1. Management, not adjustment.
Carriers and employers should implement a system in which every claim is directed by a single claims manager throughout the entire life of the case. With this approach, every person involved knows who to reach with information, updates and questions, from the moment the claim is reported until it is closed. A single manager has the ability to keep attention, focus and control over the claim and is armed with all information needed to get the injured employee back to work, lower the risk of litigation and close the case in a matter of weeks or months, rather than years.
2. Proactive communication.
Carriers and agents cannot leave workers’ comp claim strategy solely in the hands of their clients. Rather, they must work with clients to ensure a structured plan is in place that can seamlessly guide an injured worker through the medical and return-to-work process. The most essential conversations must include establishing and writing formal modified-duty job descriptions to get injured workers back to work sooner; scaling PPO networks down to three physicians to ensure a mutual flow of communication; and developing formal policies for firing any employee with an open workers’ comp claim in order to ensure a solid legal case for the termination.
From the time a claim opens, minutes matter, so a culture of expediency must be adopted. All claims should be reported within 24 hours so that mitigation can begin immediately. This may mean establishing an on-call, live hotline for claims intake so that an online claims report isn’t sitting on a server over the weekend. Whether it is healing an injury, getting a worker back to work or getting critical details of the case, time is an essential factor in lowering claims cost.
These policies have been proven to generate a 30% reduction in claims cost on average, with potentially much more savings, depending on the inefficiency of the model currently in use. For example, one trucking company adopted these tactics and had a loss reduction of 86% one year and an 88% loss reduction the following year. So consider the future: Imagine how a 30% reduction in claims cost could change the overall state of the industry if implemented by all carriers and agents.
The future of workers’ comp does not just look sustainable, it looks profitable.
Corey Lile is the founder and CEO of OccuSure Workers’ Compensation Specialists, a Managing General Agent specializing in lowering workers’ compensation claims. Learn more at www.occusure.com.