How Can I Tell If The Workers Compensation Reserves On A File Are Correct? (Part 2)

Understanding how your claims affect your insurance premiums.

The Workers Compensation insurance reserve system is a delayed system. The adjusters actually have an additional six months after a policy ends to adjust the reserves to their proper level . Reviewing your claim reserves with the insurance company at the end of a policy year is an exercise in futility. Approximately 90 days after your policy expires is the best time to review the loss runs and the reserve values. These Total Incurred values will show up in your company's Workers Comp insurance policy for the next year.

Examining and understanding what the three factors of a reserve are and which ones can be analyzed.

• The three factors are the Spent amounts; Amounts in Reserve, and Total Incurred. The Spent amounts can be examined to make sure that the correct amounts were paid. The Spent amounts have little to do with the reserve figures. The Spent amount analysis is best performed in a claim review, not a reserve review.
• The Reserved amounts are the most important part of a reserve review. They are the unspent figures that the adjuster estimates will be paid out over the life of the Workers Comp claim. The Reserve amounts are the negotiable parts of the loss runs. Over-reserving can cost an employer dearly as the E-Mods/X-Mods are calculated directly from these figures. Over-reserving will cause an employer to pay premiums for funds that will never be used to pay the claim.
• The Total Incurred amounts are the Spent amounts added to the Reserve amounts. The Total Incurred amounts will appear on the Experience Modification Worksheets that are published on your company by the NCCI or State Rating Bureau.

Understanding the difference between a Workers Comp claim review, reserve review, and premium audit.

• Claims Review - analyzing how well the claims department handled the claims. This is usually accomplished with a review sheet that scores the effectiveness of the claims adjusters.
  
• Reserve Review - a financial analysis to make sure the monies forecasted for the life of the claim is as accurate as possible. Negotiating down the reserves will result in a large amount of savings in your Workers Comp premiums.
• Premium Audit - performed by the insurance company's premium auditor to make sure that all the correct classification codes and payroll figures were used during the policy period that just expired.

I have provided the background of what you need to know to do a reserve review. The rest of the Reserve Review will be covered in the next post.