Managing Workers' Comp Claims Reserves
You’re not alone. There is a method to the Madness!
Claim Reserve:
A claims reserve is the amount of funds an insurer allocates towards an open claim for future payments. Consider it an escrow account for expenses until a claim is completely closed out.
When it comes to managing reserves, two things are working against your favor: 1) insurance adjusters determine the reserves conservatively and typically without any input from the insured, and 2) DSP Operators are too busy with the day-to-day facets of running their business to pay any attention to what reserves are being applied or how much they're increased over time.
The good news? With a base level of understanding and the right resources at your disposal, some element of control is viable.
Why do Reserves Matter?
In the rating process, insurers and workers comp rating bureaus factor incurred costs (not paid dollars) into their loss-ratio formula to calculate your MOD score, which determines premiums. In addition, reserves carry forward year-to-year and can be detrimental to the rating process for as many years as they factor into your MOD/Premium calculation.
Where The Opportunity Lies
The reserves that deserve attention are tied to larger, more complex claims. They're the ones that grow and linger, but for this same reason, minimizing their impact can equate to tens or even hundreds of thousands of premium dollars saved. When this effect is compounded, we've seen it mean the difference between profitability and forced closure.
Taking Action to Keep Reserves Down
Each of these deserves a deep dive of their own but, we've compiled a list of the most effective strategies to manage claims reserves on a high level:
Return to Work: Implement return-to-work programs (i.e desk work) to get employees back working as quickly as possible.
Timely Reporting: Encourage immediate reporting of workplace injuries. Quick reporting can prevent claim escalation and allow for timely intervention.
Thorough Documentation: Maintain detailed records of all incidents, including witness statements, medical reports, and rehabilitation progress. This information is essential for evaluating the validity and potential cost of claims should it escalate to a litigation process.
Get Involved: Actively stay involved with employees when they are out due to an injury (work-related or not!). Ask about how they're doing, if there is anything you can do, and tell them they're missed. It could be the difference between them contacting a lawyer or not, and of course, its the right thing to do! Don't forget to politely remind them of the return to work program.
Direct to care: Use of the nurse triage line offered through the Gryphon Safety + Risk and establishing relationships with occupational health clinics (often nearby urgent care facilities) ensures employees are properly diagnosed and treated.
Regular Claims Reviews: Conducting regular reviews of open claims helps identify trends and assess reserve adequacy. Remember, reserves are negotiable if there's a case to be made. Additionally, you should always know the status of every claim impacting your MOD/Premium calculation.
Settlement: When all else fails and claims enter the litigation process with legal counsel representing your injured employee, settling a suit sometimes is the best option to close a claim (and remove a reserve). This can be especially hard when you suspect fraud or misrepresentation of events but depending on the situation, can represent the most financially prudent outcome.
Ultimately, a claims reserve management strategy leads to better outcomes for both DSP employers and employees.
Want to take a deeper dive? Contact Us to learn more about our turn-key solutions to help prevent losses, manage claims reserves, and assert more control over the claims reporting and management process.
