The most important date of the year to control workers’comp costs

While many employers focus on Workers’ Comp close to the renewal date, this is not the opportune time to control costs. It’s the valuation date, which is the day that the insurance company sends your claim information to the workers comp rating bureau. Although many refer to the date as six months after the policy expiration, technically it is 18 months after the month of inception. A January 1, 2023 policy has its first valuation date in July 2024.

The information includes not only the money that the insurance company has spent on claims but also what it expects to spend – the reserves. In effect, your insurer takes a snapshot of your loss information. The bureau uses the information to promulgate the next year’s Experience Modifier. Since the Experience Mod has a significant impact on the workers’ compensation premium, it is critical that these numbers be correct. With few exceptions, once the bureau has the numbers, they are set in stone.

There’s a good chance that the data going to the rating bureau could be inaccurate. Most errors will relate to open claims and reserves. The reserves are the anticipated dollar amount needed to cover all obligations of the insurer arising from the Workers’ Compensation claim. As new information related to the claim emerges, the adjuster should either increase or decrease the initial reserve amount based on all available information and the probable outcome of the claim, but this isn’t always done in a timely manner.

Adjusters’ jobs have only gotten more difficult over the past several years as the industry deals with a claims talent shortage that was exacerbated by the pandemic. When adjusters are overloaded, everything that needs to be done does not get done. While errors have occurred in the past, with staffing shortages it’s even more likely adjusters will be missing critical information to make sure reserves are set correctly or know that they could close out a claim.

For example, an injured worker may have recently returned to work with a doctor’s release, but the adjuster’s records show the worker is still at home and doing physical therapy. Or the initial reserve for a shoulder injury included surgery, but the medical prognosis changed to physical therapy and the adjuster has not updated the file and adjusted the reserves. Moreover, frequent communication with all parties involved in the claim process, including the injured employee and the medical provider, is essential to maintaining the most accurate reserves and adjusters often don’t have the time to make the follow-up contact. Over-reserving a claim or leaving claims open longer than necessary will increase premium costs.

Since with few exceptions revisions to loss reserves are not allowed after the data is submitted, employers should carefully review the open claims with their agent 90 days before the valuation date. The agent and employer can then check and question reserves and proactively work with the adjuster to reduce over-reserved claims. If successful in lowering reserves, you will decrease your upcoming Experience Mod and directly reduce the cost of your renewal premiums.

We’re here to help. As WorkComp advisors, we are trained to review claims, identify errors, get them corrected, and help clients minimize their cost.