Chris Dik – V.P. Sales Management
One key to reducing your workers’ comp costs is actively managing any open claims to make sure the requisite treatment is proceeding as it should and the reserves are fair and not excessive. Poor management of open claims can add thousands of dollars onto your workers’ comp costs, so improving this can be a substantial and immediate cost saver for your business.
The term “open claims” refers to injuries that have been set up as a claim with the insurance company but have not yet been fully settled. The insurance company sets a “reserve” aside to pay the claim and that reserve is charged against the insurance policy even though it has yet to be fully paid.
A reserve impacts your insurance policy exactly the same as a fully paid loss. The issue is that the vast majority of reserves are overstated. That means the reserve, in most cases, is costing the business owner substantial money until the reserve is reversed or reduced once the claim is settled.
That isn’t the only way a reserve impacts your claim costs. For each year a reserve is overstated, the business owner will have to pay overinflated insurance premiums. On top of that, you will not get a refund of the overpayment if the reserve is reduced. An overstated reserve is costing you money in multiple ways for the entire time the claim remains open.
The best solution we have found is to use a third party claims follow up company. The company we use makes monthly calls on all reserves that are over $10,000. By constantly following up with the insurance company, they are able to help settle claims much quicker and more correctly.
Claims impact your rating factors but there is a lot of misconception about exactly how that impact works. The first year of a claim does not impact the rating factors but years 2-4 do. This is something that most business owners are not aware of. Because of this impact on rating factors, it is critical to settle as many claims as possible within that first year. For every year in that reserves main high in years 2-4, the business incurs high costs that could be avoided.
Having a third party follow up system is critical for reducing costs but it also plays a significant role in how well the business does their part in setting up the claim, following up with the injured party, showing empathy, and staying on top of the recovery process. These are all things that are easy to neglect without a system.
A good third-party open claims company does a good job at regular follow and they ask good questions. Asking the right questions is vital to finding out when the next step is supposed to occur. They may even remind the injured party about their upcoming doctor’s appointment to make sure that things move along as planned.
In addition to the costs incurred by open claims, there are also claims that can be charged to another party. For example, if your employee was in a car for work and was hurt in an accident that was someone else’s fault, any payment from worker’s comp should be reimbursed by the auto insurance policy of the at-fault person. Much like the over-reserved claim, this claim needs to get off the books so it does not have a negative impact.
Open claims are more than just an administrative nuisance. They can cause your business to overpay thousands upon thousands of dollars and all of this can be avoided with the proper planning.