Have you ever looked at your company’s workers’ compensation loss runs? I mean, have you really looked at them? As in, line by line and category by category?
Most business owners that we speak with are focused on one number and one number only. It’s usually on the right side and somewhere near the bottom of the page. The other info is nice, but, let’s be frank… the total is the real number that matters.
And you can’t really blame them. If you own a business, chances are you’re a very busy person and ultimately you want to get to the bottom line. Generally, you don’t have time to read through a loss run line by line and learn what each number means and how it will impact you.
With that said, there’s another number attached to your claims that you need to be aware of. It’s called the Reserve, and it can have an enormous impact on how your business is impacted by your claims.
A claim’s reserve number is essentially an amount of money that your insurance company is setting aside for a claim. The theory behind this is that similar types of claims will pay out similar amounts of money, so instead of reinventing the wheel with each new claim, they project how much it will probably pay out and set that money aside.
It seems harmless enough, right? I mean, the insurance company is just planning ahead to make sure it’s ready for anything that happens within a claim.
Unfortunately, it’s not as simple and harmless as that.
What most people don’t know is the effect that your claim reserves have on your experience modification, which, in turn, is one of the largest factors in calculating your premiums.
The way that your company ends up with an experience modification is fairly simple. Once a year, on your Unit Statistics Filing Date, your insurance carrier sends your information to the WCIRB (Workers’ Compensation Insurance Rating Bureau). The bureau then plugs that data into an equation and your Ex-Mod comes out.
But here’s the kicker: there’s no place in that equation for reserves. Whatever dollar amount the insurance company has set aside to pay for your claims gets counted against you as if it had already paid out. This means that if it’s unit stat time, and you have a claim that’s incurred $5,000 so far but has a reserve of $100,000, you’re going to be treated as if you had a $105,000 claim. That then makes your ex-mod jump, and you end up paying the insurance company for money they never paid out.
To make matters worse, the total amount of reserves on all claims will contribute to the insurance carrier’s financial ratings. This means that your insurance carrier is potentially incentivized to inflate claim reserves because it makes them appear to be strong financially and they could end up making more money by way of the experience modification.
So, how do you do something about it?
In short: you find an expert who can help. The good news is that your claim reserve numbers are negotiable. The bad news is that the insurance adjuster who is managing the claim (and those reserves) is backed by claim precedent as well as a wealth of knowledge on the subject. The average business owner (or even broker) is simply not equipped to do anything more than ask really nicely for their reserves to be lowered and hope for the best. If you want to see actual results, you’ll need someone with an equal level of expertise. That’s why at Whiteboard we work with a team of insurance adjusters who are able to keep up with the people managing claims and leverage their position to get results, and ultimately are adjusting the claims in your company’s best interest.
In any case, get help with this. This one thing will move you leaps and bounds toward controlling your workers’ comp costs and ultimately keeping your bottom line safe. If you’re unsure of anything, make sure you call us, and we can walk you through everything.