Reduce Premiums Through Proper Reserving and Timely Closure of Claims

MAY 3, 2022

Claims are the single biggest driver of a workers’ compensation program’s overall cost. Insurers often over-reserve a claim, or leave claims open longer than necessary, which leads to increased premiums. When reserves are not properly established or claims are not aggressively managed, the result can be a higher experience modification factor.

Unfortunately, this makes your risk profile less desirable to insurers. For many businesses, especially in the construction and industrial sectors, a higher-than-average experience modification factor could disqualify a company from bidding on or securing important contracts.

Fortunately, reviewing claims for proper reserving and timely closure prior to the experience modification factor being developed can have a positive impact on your premium.

Insurers are responsible for submitting updated claims data to the rating bureau, typically six months prior to the policy expiration date. This data is used to develop the insured’s experience modification factor. Most insurance brokers conduct claim reviews as part of the renewal cycle, only 30 to 60 days before renewal, which is too late to affect the experience modification calculation.

USI Insurance Services takes a proactive approach to review and update our clients’ claims two to four months prior to the bureau’s filing deadlines, and negotiates so that reserves are set according to the most probable outcomes, rather than worse-case scenarios. We emphasize the review and updating of claims data prior to the bureau’s filing deadline to maximize cost-savings opportunities. As a result, our clients’ premiums are frequently reduced by 10% to 30%.

Case Studies

Claims closure: A manufacturer and distributor of pump equipment, spending $60,000 per year on workers’ compensation coverage, was looking for ways to gain more control over its costs. USI reviewed its open claims and found one that could have already been closed, since the employee had returned to work five months earlier. We discussed this with the insurer’s claims adjuster, and they agreed to close out that claim.

This review and claim closure prevented an increase in our client’s experience modification rating from a .94 to a 1.03, resulting in $5,400 of premium savings at renewal.

Reserve reduction: An excavation contractor with some large workers’ compensation claims was getting concerned about its increasing cost of coverage over the past few policy terms. USI conducted an in-depth review of its open claims, and noticed some of them had very high reserves. After we shared that information with them, they made us their broker and we negotiated the reduction of reserves on a few notable claims with the insurer, driving total claim reserves down $65,000 and reducing renewal premium by $15,000.