Christopher E. Schaffer, EsquireChristopher E. Schaffer, EsquireVice President of National SalesVice President of National Sales

National Claim Trends National Claim Trends

Insight. In Touch.

Spiraling Costs, Resource Drain & Loss of Production

• Governments and

businesses in NC are

experiencing an increase in

WC costs that outpaces

other operating expenses

• Loss Costs expected to

increase by 18%

• What is the cause?

• What can be done?

National Claim Trends

• Total Cost is dependent on 2 factors:Total Cost is dependent on 2 factors:– Claim FrequencyClaim Frequency

– Claim SeverityClaim Severity

Claim Frequency is Down

0.0

0.5

1.0

1.5

2.019

97

1998

1999

2000

2001

2002

2003

2004

2005

2006

p

Freq per 100 workers

Source: NCCI (based on states where NCCI provides ratemaking services).

Frequency down 35%1.7

1.1

Claim FrequencyImpact on Claim Severity

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Perm Partial

Temp Total

Med-Only

2001

2002

2003

2004

2005

Source: NCCI (based on states where NCCI provides ratemaking services).

Cla

im F

requ

ency

per

$1M

Of

Wag

e-A

djus

ted

Pay

roll

-12%-22%

-24%

If Frequency in NC is Down, Why are Costs Up?

• Claim severity has increased

• Medical costs have skyrocketed

• Claim management practices have not

been modified for current condition

• Fraud

What Can Be Done?

Claims Management

• Controlling the costs of workers’ compensation

coverage begins and ends with claims management

• You should not rely on your TPA or insurance company

to control costs

• You need to commit to an active and sustained role in

the management of your workers’ compensation claims

• The Employer, Insurer and Administrator all have

important roles in claims management

Evaluate Your TPA’s Ability to Contain Medical Costs

• Double Digit Growth in Medical in 3 of 4 years

• WC medical growth well beyond medical CPI

• Causes are:– Defensive Medicine– Increased Volume &

Intensity of Treatment– Cost of Prescriptions now

13% of medical– Repeat Diagnostics

Indemnity55%

Medical45%

Source: NCCI (based on states where NCCI provides ratemaking services).

Indemnity48%

Medical52%

Medical59%

Indemnity41%

1986

1996

2006p

Medical Payments asPercentage of Claim Cost

4.5%3.6%

2.8% 3.2% 3.5%4.1%

4.6% 4.7%4.0% 4.4% 4.2%

5.1%

7.4%

10.1%

8.3%

9.5%

8.1%

12.3%

8.7% 9.1%

10.3%

8.5%

0%

2%

4%

6%

8%

10%

12%

14%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Change in Medical CPIChange Med Cost per Lost Time Claim

WC Medical Severity Rising Far Faster than Medical CPI

Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.

4.3

pts

WC medical severity is rising twice as fast as the

medical CPI

Medical Containment Programs That Should Be In Place

• Bill Auditing Software and PPO Networks

• WC Prescription Drug Programs

– Daily EDI

– First Fill

– Brand to Generic

– Home Delivery

• Diagnostic Programs

• Durable Medical Equipment

NCCI’s List of Factors thatChange Medical Severity

1.1. Changes in prices by service category Changes in prices by service category

2.2. Changes in the number of treatments Changes in the number of treatments within a service category within a service category

3.3. Changes in the mix of service categories Changes in the mix of service categories

4.4. Changes in the mix of diagnosesChanges in the mix of diagnoses

5.5. Changes in the mix of treatments within Changes in the mix of treatments within service categoriesservice categories

616673

717 750

358 352 337 336

0

100

200

300

400

500

600

700

800

2004 2005 2006 2007

Provider Chrg per Bill RecPmt Per Bill

Up 22%

Down -6%

Quality Bill Review Data

42%48%

53% 55% 56.5%

0%

10%

20%

30%

40%

50%

60%

2004 2005 2006 2007 QTR Sept.07

Savings Percentage

Quality Bill Review DataSavings Percentage

Evaluating Your Reporting Process

• Do your employees know what to do when they are

injured on the job?

• Does your management know what to do?

• Evaluate lag times between Accident, Employee

Notice and Employer’s First Report.

• How quickly does your adjuster respond and begin

investigation?

Evaluating Your Investigative Process

• Separate witnesses and claimant

• Obtain statements

• Photos of Accident Scene

• Confirm Facts

• Subrogation - Preserve

Evidence

• Drug/Alcohol Testing

• Occupational Health Clinic

• Documentation

Evaluate Your Modified Duty Program

• Helps to contain temporary disability

• Lessens disability period

– Keeps employee from watching lawyer

commercials while on couch with narcotics

– Doctors are more inclined to release to full duty if

modified duty was productive

• Helps retain employee in work force and active

• Can reduce workers’ compensation costs by 35%

Evaluate Your Claims Administrator

• Are they local?

• Do they provide on-line access to claims information?

• What are the average LT and MO caseloads?

• Have they ever visited and do they understand your operations?

• Do they investigate accidents, pursue subrogation and obtain recorded statements?

• Are they responsive?

• Are they proactive or reactive?

Evaluate Your Communication Process

With Injured Employee• Inquire how employee is

doing

• Show empathy and concern

• Express desire to see full recovery

• Require employees to communicate restrictions and provide disability slips after each appointment

With Claims Adjuster

• Require responsiveness

from your adjuster

• Conduct regular claim

reviews of WC claims

• Request status reports and

a plan of action on claims

• Request electronic access

to claim files

Claim Shift Economics

78

4

18

MedOnly

LT (MO at 90 days)

LT

Current Mix

80

2

18

MedOnly

LT (MO at 90 days)

LT

Keep 2% of LT Claims as MO

Percent

of Total

Claims

Incurred Per

Claim

Med Only 78% $500

Lost Time 22% $21,100

Weighted Average: $5,032

Percent

of Total

Claims

Incurred Per

Claim

Med Only 80% $500

Lost Time 20% $21,100

Weighted Average: $4,620

$412 Savings On Every Claim

Comments

Questions?