Reducing WC Admin Costs, TCOR, & One Day Settlements

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 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 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 is hitting MMI with a disputed claim of permanency. 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 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. So what was truly accomplished here? The carrier hits the reserve mark years later. If they are lucky, this occurs in 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, perpetuated by their existing model. Additionally, a breakdown in trust occurs between the claimant, the adjuster, and the carrier. 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 is a catalyst for further inflation of 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?

There is indeed a more efficient and cost effective approach to workers compensation settlements today. This approach creates an environment in which saving money and restoring trust are not mutually exclusive ideas. When a common bond can be established between the claimant and a private mediator, settlements can be reached within one meeting. The goal of this meeting is to achieve a middle ground, by allowing the claimant to feel heard by someone who can empathize with their experience. The result is a single day resolution of their claim, thus reducing the carrier’s administrative costs and eliminating their risk exposure entirely.