Tough Market: The Best Time To Improve Workers Compensation Programs
At no time in recent history has it been more important to rein in workers compensation costs.
With workers compensation markets hardening, medical costs rising and the threat of inflation looming, brokers, agents and buyers face growing total workers compensation costs.
Despite those ominous trends, however, it is possible for workers compensation brokers, buyers and insurers to successfully control these costs by achieving the best claims outcomes possible. This requires close partnerships, advanced claim mitigation strategies and powerful loss control services. In fact, now is the ideal time for workers compensation buyers -- collaborating with brokers, agents and insurers -- to review their programs to ensure they are doing everything possible to protect employees and bottom lines.
According to Maureen McCarthy, senior vice president and manager for workers compensation claims at Liberty Mutual, the key is to identify and implement program improvements by focusing on the two areas critical to lowering the total cost of risk: managing claims effectively and improving safety.
"Apart from hardening markets, the threat of inflation, and rising medical costs, factors such as the ongoing global recession and layoffs have employers especially concerned about total workers compensation costs," said McCarthy. "Buyers are increasingly interested in better controlling these costs by effectively managing claims to achieve the best possible outcomes, and improving safety to prevent accidents and avoid the associated costs."
The best path to achieve these dual goals, according to McCarthy, is to work with a carrier whose claims management blends technology, data analytics, predictive modeling and the best possible talent to better manage total workers compensation claim costs. With this approach, she added, claims are closed faster with better outcomes.
And this is what Liberty Mutual's VantageCompTM integrated approach to workers compensation claims management does, according to McCarthy.
Predictive modeling is a key part of Liberty Mutual's VantageComp approach because it quickly identifies those small number of workers compensation claims likely to drive the vast majority of total claim costs.
"We've found that fifty percent of workers compensation claims result in ninety percent of medical costs," notes McCarthy. "That's why it is so important to spot these claims early and bring to them the resources and focus needed to prevent their costs from escalating. Some of these claims are obvious, such as a roofer tragically falling, but most emerge slowly over time."
In mid-August, Liberty Mutual launched its next generation predictive model, which quickly and accurately identifies the small percentage of workers compensation claims at risk to drive total claim costs.
"The enhancements improved upon the predictive model we launched in 2004 -- one of the first in the industry," notes McCarthy. "Today, our predictive model works with significantly more data, enables more sophisticated multivariate analysis, and looks for the critical comorbid and psycho-social issues that can dramatically impact a claim's trajectory. The model lets us identify early in the claim lifecycle those claims with the greatest potential to have escalating costs. And this lets us apply the right strategies and resources to achieve the best possible outcome for injured workers and our policyholders."
To enhance its predictive model, Liberty Mutual analyzed its workers compensation claims and medical billing database -- the largest in the industry -- to find highly predictive variables and to understand the interplay of these in order to identify claims whose costs were likely to escalate. It evaluated more than 825,000 lost time claims and 140 million individual medical billing transactions. To validate the accuracy of the updated model, the insurer ran more than 200,000 lost time claims through it.
Liberty Mutual's next generation predictive modeling reviews each claim at five specific points in its life and alerts adjusters when a claim is going down the wrong path. This allows adjusters to develop the appropriate strategies and bring the right resources to each claim at the right time in order to deliver the best possible outcome.
While effective claims management is critical to better controlling total workers compensation costs, it is only part of the solution. Improving safety is another key.
"The best accident is one that doesn't happen," notes Connie Bayne, senior vice president and head of the area of Liberty Mutual that provides safety consulting services to commercial insurance policyholders. "Beyond direct claim costs -- such as, indemnity and medical payments -- there are indirect costs, such as overtime, hiring temporary workers and lost productivity."
It's the classic ripple effect, and it makes safety even more critical given that the indirect cost of an accident can be as high as five times the direct costs, she said.
"The best place to start improving safety is by assessing potential risks in the workplace," Bayne noted. "Some of the best solutions, and often the most sustainable ones, are when employers actively involve employees in efforts to reduce and eliminate accidents. Turn to the people who know how best to do the job safely. Not only does this produce better solutions, it also gains employee buy in and reinforces the company's commitment to safety."
Another safety best practice is setting clear metrics to track how well you implement improvement programs.
"Reducing risk requires the ability to measure and track performance against goals," she said. "That might mean engineering something out of a work process to reduce the frequency or severity of potential injuries. For example, you may add personal protective equipment to prevent a serious injury."
Measuring performance lets a company understand the impact of safety interventions ? the return on investment. Perhaps more importantly, it allows a company to continually improve its safety by setting new performance goals as it reaches current targets.
However, economic downtimes can challenge efforts to improve safety. According to Bayne, some employers might seek ways to reduce expenses by cutting their safety resources and programs during times of economic uncertainty.
"It's not good, but it can happen," Bayne said. "So that makes it even more important that brokers and insurers track safety performance. The best way to prevent cuts is to regularly show safety's return on investment and contribution to lowering the total cost of risk."
The value of data and safety in lowering total workers compensation costs is clear. It requires a unified effort, with collaboration among brokers, agents, insureds and carriers.
Now is the ideal time for employers to partner with their brokers and insurers to review their workers compensation programs from top to bottom. Working together and armed with new data-driven tools, both employees and bottom lines can be better protected.
For more information about VantageComp, visit www.libertymutualgroup.com/workerscomp.
(The above piece is part of our continuing Insights series designed to highlight key products and services to our readers. This paid-for Insights was written and edited by Risk & Insurance®
on behalf of our marketing partner. Additional Insights can be found on our Web site at www.riskandinsurance.com/.)
November 9, 2011
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