Don’t let your Workers’ Compensation Loss Runs become a Lost Opportunity: What Insurance Carriers Should Focus on to Understand their Program

Anyone who works in the workers’ compensation (WC) field clearly knows that there is not a shortage of claim information. When evaluated effectively, carriers can understand their policyholders through use of benchmarking standards and measurement of key performance indicators.

4 years ago   •   4 min read

By The ReFocus Team

Anyone who works in the workers’ compensation (WC) field clearly knows that there is not a shortage of claim information. When evaluated effectively, carriers can understand their policyholders through use of benchmarking standards and measurement of key performance indicators. This information is key to identifying problematic policyholders and helps carriers focus on reducing the frequency and severity of claims.

Each state is required to collect vital information at the inception of a claim. For example, in the state of California, the Department of Industrial Relations requires employers to collect facts regarding the employee’s incident on the Employer’s Report of Occupational Injury or Illness (form 5020). The following are a few pieces of data needed to open a claim:

  • Date of Injury
  • Date [employee] last worked
  • Date [employee] returned to work
  • Injury description
  • Body parts injured
  • Equipment that the employee was using that contributed to the injury
  • Specific activity that the employee was performing when the injury/illness occurred
  • How the injury/illness occurred
  • Employee date of birth
  • Employee occupation
  • Employee date of hire

These data points make up part of loss run reports which can give insurers a snapshot of their policyholders. This helps identify which clients are considered to be high-risk based on their loss frequency and severity. Overtime, other figures will mature on a claim, and more information can be garnered, such as loss days, and fiscal information including paid monies, reserves, and incurred amounts.

Insurance carriers who write for many different types of employers have the advantage of grouping their data sets in different ways to really understand who or what holds the most amount of risk: a specific line of business or a specific classification.

It is recommended for carriers who write for many different lines of business should group these business types together and analyze the most common injury types by frequency and severity. In looking over a 5-year span, carriers can obtain an average of incurred amounts by the most common injury types. In doing so, carriers can clearly see what most common injury types are the most costly. Conversely, they should do the same by grouping these business segments’ and finding out what injury types are the most costly on average. With this dual-type of analysis carriers can then find the injury types by business segment that are both the most severe and frequent. This same type of analysis should also be done across all lines of business by classification.

By having a clear picture of what business segments and classifications are the biggest threat, carriers can work with Risk Managers, and Underwriters to proactively determine how to help their clients reduce their losses. Many carriers have risk management programs where policyholders can participate in programs to help them correct their behavior to prevent similar injuries from occurring in the future.

By understanding their client’s losses, and opportunity for improvement, carriers can also refuse to underwrite for lines of business, or classification types if the losses become too large and profits are no longer being earned. It is a carrier’s goal to have a competitive edge against other carriers by offering lower premium rates through various discounts. If lower premium rates or discounts cannot be offered, employers will simply place coverage elsewhere.

Covid and Workers Compensation

So how do COVID-related claims fit into workers’ compensation loss run? It is still too early to tell. The cost of a COVID claim is so variable, and the data still needs to mature so insurance professionals and the industry can understand how costly these claims actually are.

The National Council on Compensation Insurance (NCCI) has created a FAQ page to help guide carriers on many important aspects dealing with compliance, re-classification of workers, how to handle premiums, and loss/rate filings. Even the NCCI states that

At present, the uncertainty surrounding the course of the COVID-19 pandemic and unavailability of quantitative COVID-19-related ratemaking data prevents determining a credible estimate of anticipated future losses and makes forecasting COVID-19 claims in the effective period uncertain.

Interestingly, the NCCI recommends:

During this time of uncertainty, carriers may consider performing their own evaluations of the individual risks they write and the impact that COVID-19 may have on those risks. Carriers may also consider using their own pricing programs to make applicable adjustments to determine final rates.

While the impact of the Coronavirus to the workers’ compensation industry is still unknown, the NCCI’s recommendations speak to the flexibility that carriers still have in creating and adjusting premium rates. With so many requirements issued by the Center for Disease Control and Prevention (CDC), as well as state and local regulatory agencies, now is a good time for underwriters to evaluate existing customers and potential customers to ensure they are following all required protocols set forth so their employees can work in a safe environment.

COVID-19 claims can be looked at on a case-by-case basis. Employers who have a high rate of transmission or outbreaks should be looked at individually. Risk managers should analyze the root cause of how COVID-19 got passed from employee to employee. If it is determined that employers are non-compliant in following federal and state-mandated guidelines, underwriters may refuse to non-renew these individual clients.

While the severity of COVID-19 claims are difficult to ignore, it may not make sense for carriers to non-renew employers who have costly COVID-19 cases. Unlike other loss types, such as cumulative trauma injuries, the treatment for patients who get COVID-19 at work is so variable and medical standards have yet to be created for the treatment of this disease. The American College of Occupational and Environmental Medicine (ACOEM) has created a forum for like-minded industry professionals to have a place to ask medical experts for advice.

A special thank you to Crystal Potch, an advisor for ReFocus AI who specializes in workers compensation for authoring this article.

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