To fully understand this question you must understand how work comp claims effect the pricing mechanism of a workers compensation policy. We’re not going to go through all that today…but let’s cut to the bottom line today and talk about claim reviews and over payment of premium.
A workers compensation claim review is an in depth review of individual claims incurred under a specific employers work comp policy. Simple right? Not so fast! It’s really much more complicated. When a claim review is conducted you’ll find that all areas of a claim are examined.
Here’s a few questions that are answered during a typical review:
- Is this a compensable claim?
- Is it a legitimate claim that should have been paid in the first place?
- Were acceptable claim processing procedures followed?
- Did the claim adjuster follow the insurance carriers rules for processing the claim?
- Did oversights occur in processing the claim?
- Was the claim handled in the most effective manner?
- Were overpayments made to the claimant?
- Were overpayments made to any service provider?
- Was the claim properly investigated?
- Were return to work and light duty reductions properly applied?
- Did payment for medical procedures receive proper discounts?
- Were all medical bills properly reviewed?
- Were deductible plans properly applied?
- Were lost time wages properly calculated?
- Was the claim properly handled?
It’s only through a proper claim review that an employer can verify that claim dollars spent on a workers compensation claim were accurate.
So where’s the damage? What happens when a claim is not handled properly and more dollars are spent on a claim than necessary?
Let’s break this down into two different insurance policy categories, guaranteed cost and loss sensitive.
Here’s a few items to consider for those guaranteed cost type policies:
- Inaccurate Experience Modification Rate – When a claim is mishandled and more dollars are spent the claim than should be the EMR or Experience Modification Rate will be higher that it should be resulting in an incorrect higher premium being paid by the employer.
- Loss of Schedule Rating Credit – Insurance carriers look at loss history like you look at your check book! They pay very close attention to claims and the amount of dollars going out. Whether it’s their company or not, loss histories paint the potential profit picture of any employer. So when claims are incorrect and extra dollars are picture is not pretty. Claims have a negative effect on the way an insurance company looks at the employer from a risk stand point. Schedule credits may be removed, reduced or not applied at all. And this will have a direct effect on the premium the employer pays.
- Loss of Acceptability into Preferred Programs – When it comes to pricing workers compensation policies insurance carriers typically have multiple pricing tiers filed with the states where they conduct business. These pricing tiers provide multiple levels of rates at an underwriters disposal. You’d be surprised at the difference in rates between some carriers preferred tier compared with their standard tier. Think 20-50%! Each tier will have certain underwriting criteria requirements in order to qualify. Poor loss experience through poor claim handling can mean that an employer will not qualify or maybe no longer qualify for preferred pricing. This can have a significant impact on the premium an employer may pay.
And that’s just a few things to consider!
What about those loss sensitive rating plans? How do improperly processed claims effect those?
I’m just going to mention one additional point in this section:
- The Employer Pays The Claim – This point is way to simple however it does drive home the idea that under any loss sensitive rating program, such as a retrospective rating plan, the employer ultimately pays the claim dollars directly out of their pocket. So with these plans the connection between improperly handled claims and over payment is directly related. Be sure to read more about loss sensitive rating plans and how they work on our website.
So whether your workers compensation insurance policy is a fixed cost or loss sensitive type, over payment of claims will have a direct impact on the premium you pay!
What’s the single best thing you can do to help keep your premium down? Have a workers compensation claim review conducted by an independent consultant.
Hope this helps you out and thanks for reading!