There is no better place to seek insights into the health of theworkers' comp industry than the NCCI's annual State of the Linereport, which was recently released. But as with all data, it mustbe taken into appropriate context, because this year's figures caneasily 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 fromthe 2001 peak of 122, it is also a seven-point improvement over theprevious year. However, the improvement represented in this datamust be considered carefully, as the second, more telling storyhighlights a systemic problem the industry has yet toreconcile.

A 101 ratio means the workers' comp industry is still facing a1% 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 profitablefor underwriters for two years in the past two decades.

What's concerning is that this loss isn't always apparent whenit is accompanied by an improvement trend, as expressed in thisyear's data. As the industry appears to improve, despite the loss,there will be another adverse impact. Confidence will be restoredamong underwriters and the market will soften, reducing the averageprice of premiums and making it even more difficult to make theworkers' comp line profitable.

The frustration is that workers' comp underwriting can be alucrative business, but it won't be premium adjustments that turnlosses into profits. The solution is to overhaul the industry'sinternal and external claim management process.

Claims management makes or breaks profit

As it exists now, the general industry-adopted claims managementstructure is consistent with reactive adjustment models,communication gaps and overworked adjusters—all of which increase aclaim's duration and litigation risk, potentially driving up thecost on every incoming workers' comp claim.

The most poignant display of the industry's flaws lies in itstiered adjuster system. In this structure, there could be multipleadjusters working on a workers' comp claim, though rarely at thesame time. Through a “pass-it-off” approach, an intake person couldsend the claim to a medical adjuster who then passes it on to alost-time adjuster and so on until the claim has been “managed” byhalf-a-dozen different people and in a worst case scenario theclaim ends up in the hands of an attorney, the highest paid personin the downline.

Besides the obvious lack of a single-point-of-contact by whichall relevant claim information can be directed, there is not asingle manager who can focus attention on a claim, be the keeper ofall relevant information, and work with doctors, employers,attorneys and claimants to ensure maximum efficiency so that theclaim is closed with minimal costs and time. Unless you are trulymanaging claims, you are losing vital control that will inevitablyincrease the underwriting cost.

For workers' comp underwriting to work, there must be a newmodel for claims management – a model that fixes the fundamentalflaws of the current system. In essence, this new model shouldinclude three initiatives:

1. Management, not adjustment.

Carriers and employers should implement a system in which everyclaim is directed by a single claims manager throughout the entirelife of the case. With this approach, every person involved knowswho to reach with information, updates and questions, from themoment the claim is reported until it is closed. A single managerhas the ability to keep attention, focus and control over the claimand is armed with all information needed to get the injuredemployee back to work, lower the risk of litigation and close thecase in a matter of weeks or months, rather than years.

2. Proactive communication.

Carriers and agents cannot leave workers' comp claim strategysolely in the hands of their clients. Rather, they must work withclients to ensure a structured plan is in place that can seamlesslyguide an injured worker through the medical and return-to-workprocess. The most essential conversations must include establishingand writing formal modified-duty job descriptions to get injuredworkers back to work sooner; scaling PPO networks down to threephysicians to ensure a mutual flow of communication; and developingformal policies for firing any employee with an open workers' compclaim in order to ensure a solid legal case for thetermination.

3. Expediency.

From the time a claim opens, minutes matter, so a culture ofexpediency must be adopted. All claims should be reported within 24hours so that mitigation can begin immediately. This may meanestablishing an on-call, live hotline for claims intake so that anonline claims report isn't sitting on a server over the weekend.Whether it is healing an injury, getting a worker back to work orgetting critical details of the case, time is an essential factorin lowering claims cost.

These policies have been proven to generate a 30% reduction inclaims cost on average, with potentially much more savings,depending on the inefficiency of the model currently in use. Forexample, one trucking company adopted these tactics and had a lossreduction of 86% one year and an 88% loss reduction the followingyear. So consider the future: Imagine how a 30% reduction in claimscost could change the overall state of the industry if implementedby all carriers and agents.

The future of workers' comp does not just look sustainable, itlooks profitable.

Corey Lile is the founder and CEO of OccuSure Workers'Compensation Specialists, a Managing General Agent specializing inlowering workers' compensation claims. Learn more at www.occusure.com.