It’s the same in workers’ compensation. Employers get excited about lower premiums while completely missing the big money that’s right in front of them in their loss run reports, which are prepared by insurance providers and show the costs associated with reported claims as of a certain time period.
By paying careful attention to loss run reports, employers provide themselves with a road map for finding and recapturing workers’ comp dollars.
While it’s true that a single field in a loss run report cannot provide meaningful overall information, an employer can spot a trend if that same field is reported multiple times. With this information, the picture takes clearer shape and can be examined, understood and used to make corrections.
Here are 10 types of information found in loss run reports that can help an employer improve performance and reduce workers’ comp costs:
1. The length of time between a loss and when it’s reported. Data fields such as date of loss and date reported tell a story about the importance of accidents to the employer. A long time between the two dates can be seen as a clear message to injured employees (as well as co-workers): Job-related accidents are not a priority or important to their employer. Employers who care make sure reports are submitted within 24 hours of an injury. This lets employees know that the company takes injuries seriously.
2. New-hire injuries. Injuries within the first 90 days of employment may point to a need for the review of training procedures. If injuries involve machinery, it could indicate improper technique or the need for additional training in the performance of the job.
3. The percentage of lost-time claims. When reviewing a loss run report, the number of lost-time claims should be scrutinized against the total number of claims. The national average for lost-time claims is in the range of 20 to 25 percent of total claims. A percentage higher than that may indicate that a review of the entire return-to-work process and policy is warranted.
4. Percentage of litigated claims. Good loss run reports indicate whether or not a claim is litigated. A high percentage of litigated claims can be a red flag, and may indicate an overall lack of trust that employment might not continue, fear relating to other employment issues, or an overall misunderstanding of the workers’ compensation process.
When distrust, fear and lack of understanding exist, injured workers may feel they need to retain the services of an attorney to receive the benefits they deserve. If the litigation rate is in the double-digit range, then an employer definitely needs to address the trust issue.
It’s worth noting that the workers’ compensation process is based on the “exclusive remedy” premise; so, if litigation is involved in the claim process, it would seem to indicate some other part of the process is not performing as it should be.
5. Repetitious claims. There should be a discussion with any employee who has more than one accident a year. You need to try to determine the cause of these accidents. Statistically speaking, more injuries are caused by unsafe acts than by unsafe conditions.
Try to identify what might be driving the unsafe act. Was it a true random accident, or when looking at accidents in total, was it a clear call for attention to a deeper issue? If employees are not paying attention to their jobs to the extent that they are sustaining injuries, the employer should find out why.
6. Claims with small amounts of indemnity paid. If a claim shows less than $1,000 paid for lost wages, it could be pointing to a missed opportunity for a modified return-to-work arrangement, since the amount probably represents lost time of one to two weeks or less. It might not always turn out that a modified return-to-work solution was possible, but it’s worth checking out.
7. Percentage of open claims. For a specific policy year, what percentage of the total claims remains open? The goal should be to close out all claims as quickly as possible. The longer a claim remains open, the more it costs.
Once a policy year expires and a new policy year begins, special attention should focus on the claims that remain behind. The number and costs of these claims should be monitored monthly, with an eye toward what actions are needed to resolve them. Constant monitoring results in lower costs.
8. Total costs incurred for each claim. This represents the combined total of what was paid and the estimate for what will be paid by the time the claim is closed.
The major issue is this: What can be done to reduce the “expected to be paid” expenses? Understand what the insurance company expects to occur and then analyze what might be done to change that expectation or result. You can monitor this by simply watching the average cost per claim (obtained by dividing “total incurred” by total number of claims.
Small incremental increases in this number are to be expected, but large spikes should draw attention to the claim detail for that policy year. Locate the claims involved to determine the specific claim that’s driving up the expenses. Ideally, you would already be aware of this claim and understand why it is a cost driver. If not, it’s time for more regular conversations with your insurance company’s adjuster about your losses.
Try to operate on the “no surprises” principle. The first time you find out about a serious claim should not be when you receive your loss run reports. It’s probably far too late to have much of an impact on the results.
9. Departmental comparisons. You should of course look at the frequency and severity of accidents by department to identify problem areas. But it’s actually more important to look at the departments that perform similar functions while maintaining low frequency and severity of accidents. They are doing a whole lot right! This is an opportune time to find out why one department may be functioning at a higher level than the others and then apply the best practices to other departments.
10. Policy-year totals. The number of claims and “total incurred” (that is, funds already spent plus funds expected to be spent in the future for each policy year) can help determine whether your program is following the same track, be it positive or negative.
The average cost per claim (“total incurred” divided by the total number of claims) may not be the same from year to year. The older policy years may have higher numbers, since they have been open longer. However, the movement of the average costs from policy year to policy year can be a good indicator.
In the same way, major changes from policy year to policy year may also reflect changes in a company’s structure or restructuring. For example, I recently reviewed a loss run report for an employer who ran a second shift for three years with an average cost per claim in excess of $15,000 each year. The fourth year the average cost per claim dropped to about $5,000. Such a change should have prompted questions—what happened in that fourth year?
These 10 tips for searching loss run reports will help you identify problem areas and resolve them. That’s like finding diamonds in your own back yard.