Reducing Admin Costs, TCOR & Strategic Partnership Protocol for Early Claim Resolutions
We have a problem in the workers’ compensation industry. It’s an expensive, inefficient, and time consuming problem. This problem involves an archaic process that nobody likes, but to which everyone continues to subscribe. In working toward the resolution of workers compensation claims, Insurance carriers and TPA’s majorly overspend through a process they have been utilizing for decades. This outrageously expensive process is somehow prioritized before a simple examination of the overall spend for the Total Cost of Risk (TCOR) incurred. The strategic management on new or long term existing claims of dispute have a direct impact on the administrative costs incurred per claim, as all claims are unique. But the current process utilized in the industry does not allow for this strategy.
Insurers and TPA’s take the same course of action and rarely change their position especially once litigation on a disputed claim has begun. This inefficient approach – from the over-utilization of Independent Medical Exams and physician evaluation services, to the endless legal fees contributes to a vast array of unnecessary administrative costs. When aiming to settle a case for a specific reserve mark, all carriers lose sight of the big picture with regard to the true costs incurred for the claim. The majority of these claims could have been settled prior, at a fraction of the expense.
Let’s take, for example, a case open over two years, moving to three, in which a claimant has been at MMI with a disputed claim. The carrier has set the reserve mark at $30,000. However, the claimant and his/her counsel have requested to settle for $50,000, or just medical rights, using an “MSSA“ set-aside account when required. Scenarios like this one occur all the time, and the result is often the same. The carrier’s stance on the reserve mark only continues to produce additional administrative expenses, which could be easily avoided. This is simply not a cost effective model.
Taking only the industry past national averages, an insurer may occasionally achieve the reserve mark of $30k at the end of litigation. However, by this point (hopefully the third year into the disputed claim), the insurer’s administrative costs alone easily surpass $60,000 (jurisdiction dependent). So what was truly accomplished here? The carrier hits the reserve mark years later. If they are lucky, this occurs by the 3rd year of the disputed case. Given this lucky” scenario, the carrier has overspent by tens of thousands of dollars. Each year added increases the expenses exponentially. Now that we have an idea of the problem, how could this have been avoided?
When an insurance carrier offers a low settlement and the claimant’s counsel rejects the offer, administrative costs increase. Upon the aging of a claim, the carrier may eventually decide to offer more money to obtain a release of settlement, thus eliminating further risk exposure. This is recognized as a greater immediate cash flow expense. In the long run, however, this actually reduces the carrier’s administrative costs and will be realized upon an insurer’s future (TCOR) review. Introducing this process earlier, would provide a total cost of risk (TCOR) reduction. Unfortunately, it’s not quite that simple.
Before we can solve the financial problem, we must first look beyond the finances. As claims age, we’ve established that a breakdown in strategy exists within the insurer’s company, & TPA perpetuated by their existing model. Additionally, a breakdown in trust occurs between the claimant, the adjuster, and the carrier. This again is not the adjusters fault as they are overloaded with case files with training in one archaic model, not part of the core risk management approach and begin utilizing defense counsel as a crutch for files. The longer the litigation process takes, the more this mistrust spreads. Eventually, the claimant sees the dispute as a never ending cycle, often resulting in mistrust between the claimant and even their own counsel. No winners emerge from this all-too-common scenario. The takeaway here is that the loss of trust by the TPA and Carrier is a catalyst for further inflation of vast expenses.
How do we free carriers from using such an archaic model for settlements in the 21st century? No attorney or adjuster can understand what a claimant has been through, unless they have endured the same experience within the system – the experience of navigating their own workers comp disability. So is it even possible to restore trust in order to resolve matters swiftly and affordably? Yes, the coaching and training implementation with a top down early resolutions protocol model will drastically impact the overall administrative costs while even reducing legal expenditures per claim. One analogy that comes to mind is McDonald’s. For example, if you were going to purchase a McDonald’s franchise, you must attend the hamburger university training program and successfully complete numerous hours within a McDonald’s store over a long specified period of time working. Here you will work in each position from Janitor being promoted finally to General Manager. This process helps create the environment with providing the specific training and feedback learning each protocol of every job before you take ownership. Has your Executive and Operational claims management team ever had a coaching session with training by a past claimant who understands this industry in-depth or any past claimant consults?
There is indeed a more efficient and cost effective approach to workers compensation process and settlements today. This approach creates an environment in which saving money and restoring trust are not mutually exclusive ideas. Utilizing a risk management claims advocacy approach protocol with a neutral party will benefit everyone from the Claimant, TPA, Carrier, Employer, and Adjuster. This customized approach for each client will achieve a middle ground, by allowing the claimant to feel heard by someone who can empathize with their experience while improving the overall claims process.
Early Intervention Protocol review of claims is a key successful approach for reducing administrative and legal costs head on. So many times, I have sat on claim reviews and personally seen claims fall through the cracks costing tens of thousands more then should of been spent. For Example, one disputed claim was sitting out as the claimant wouldn’t resign, defense counsel was on this claim yet 6 months past and the claimant did finally resign. No one reached out to discuss settlement and this claim then went to court almost a full year later. A year worth of additional admin costs including legal expenses for no reason, on a claim that should of been resolved by early resolution once the claimant resigned. Some claims need to be fought and sent to legal while others should be resolved and promptly. Legal needs to be utilized and defined with a clear in-depth claim performance review by an independent party who is a true strategic partner with no upfront costs incurred to be associated with this review service, more of an added value tool for the Client, TPA and Carrier. In-turn helping the claimant with an advocacy approach move out of the system promptly. Have you ever seen a client shop Brokers, or TPA’s when their administrative costs were being reduced and claim files closed? Pay for Results not promises.
Having the right outsourced strategic partner provides a second set of eyes on all of your claim files with solutions for mitigating risk while being a true independent extension of your risk management team. A true strategic partner is someone who invests within your model and business to implement change with no further risk exposure or upfront costs incurred. Risk and Claim managers can’t be everywhere at once but having a specialized unique strategic partner understanding all moving parts of our industry will help close files promptly with no additional costs of changes to your business model will be incurred. The result is a resolution of claims, thus reducing the carrier’s, TPA’s and Clients administrative costs while eliminating their risk exposure entirely. Managing the cost of claims, always begins with the approach.
Founder & CEO
PG Resolutions Group