In a recent article in Business Insurance “Workers comp cycle poised to tighten for insurers, buyers”, a number of sources are quoted supporting the proposition that Workers’ Compensation (WC) rates will rise in the coming renewal cycle. With the line boasting a 95% combined ratio in 2015, the market expects that ratio to leap to as high as 105% when 2016 results are assessed. What is going on here?
There are several very vivid answers that anyone watching WC claim expense can identify; the most obvious is medical expense. In NCCI’s “State of the Line – Workers’ Compensation” report last year, they highlight that WC medical benefits have increased in each of the last 20 years, and is now TRIPLE the amount (on average) from 1995. That’s just sick! NCCI reports that the indemnity/medical split in 2015 was 57% indemnity and 43% medical. For 2015, that comparison is nearly reversed, at 42% indemnity and 58% medical. While we know that indemnity rates increase each year as a function pf average weekly wage in each state, the NCCI data demonstrates just how much faster the medical side of the equation is inflating.
Just a few years ago, cost control in workers’ compensation concentrated on early return to work and transitional duty programs to reduce claim expense. Transitional duty programs were something that the employer could have direct control over. Not so with the medical portion. The medical community now controls nearly 2/3 of the cost of WC claims across this country, and that number is growing rapidly every year. What other part of a business has that kind of expense, over which third parties have control?
So, what to do?
First, get reliable, detailed data on your book of claims. Emphasis on “reliable” and “detailed” and “your” in the data. To act on your expense exposure, you really need to have solid data that includes as much detail as you can get from your claim service providers, including pharmacy services, rehabilitation, nurse case management and others. The volume of that data will be helpful in the next step, data analysis.
Second, do some solid and deep analytics on your data. This likely means using tools beyond the traditional two-dimensional spreadsheets. It will also require some thought on how to “visualize” the data so that it can be meaningful to an audience (yes, senior management) who are not well refined in the intricacies of WC expense. This is no small undertaking. If you have a really good RMIS system, you have tools already available to you, or can get them enabled.
What to look for in your analysis? Each employer will have a different portfolio of claims and different cost drivers, so here, like they suggest in TV crime dramas, “Follow The Money”. Start at the top and parse all of the expense components and follow those that are the most significant cost-drivers as well as the expense items over which you, as the employer, may have control.
As you work through your analysis, pick out a few specifics to take as action items. Generally, you don’t want to start acting on too many, because that makes follow-up analysis to validate your actions, harder to do. Let’s say that you choose 3 items each year; that is enough. Getting started is really the hardest part. Talk to your workers comp claims management software provider, your RMIS system provider, your TPA or insurer claim unit leadership, or your broker. Pull together internal resources that regularly do business cost analysis.
Do not delay in taking action. The problem that is WC claim expense will not get better by itself, and it is getting worse in this country every day.
Jeff Gehrke is Ventiv's Chief Risk Technology Evangelist. Contact Jeff at Jeff.Gehrke@ventivtech.com or +1.720.445.9531. Connect with Jeff on LinkedIn: https://www.linkedin.com/in/jeffjgehrke
