Managing Insurance Costs in Today's Marketplace, Part 2

Editor's Note: This is the second part in a two part article. To read part one, click here.

Direct claims costs are usually identified from details presented in clients' loss runs.

Costs such as medical expenses, indemnity costs, attorney fees, expert witnesses and adjusting fees can be separated and are included in the rating plan documents for retrospective, deductible and self-insurance plans.

Indirect claims costs can impact a contractor as much as the direct costs and in some cases more. These costs can add significant dollars to the cost of risk and need to be identified and recognized for risk management treatment when accidents occur.

Typical indirect costs include:

• Time lost from work by injured party
• Loss of full earning power
• Lost time of fellow workers filling in for injured worker
• Loss of efficiency due to disruption of schedule
• Damage to tools, machinery, property, etc.
• Cost of temporary or new employee
• Spoiled work
• Overhead cost while work was disrupted
• Failure to complete work
• Economic loss to injured worker's family
• Management time spent dealing with the injured worker, adjusters and attorneys

Studies conducted by the Construc­tion Industry Institute estimate indirect costs of worker's compensation claims as follows:

Recordable Incident - $1,000

Lost Work Day Case - $26,000

A Litigated Case - $100,000

These costs are not transferred to an insurance company but are absorbed into the operating costs of the construction firm. They can add up quickly and are, in many cases, invisible to the traditional worker's compensation cost analysis. Most contractors now agree that these costs can represent as much as three to five times the direct insured losses. A contractor with $1 million in worker's compensation claims could have as much as $3 to $5 million in indirect costs impacting the construction operations.

Specific risk management techniques that can be used with regard to indirect costs include the following:

1. Maintain a strong position for modi­fied duty and return to work.
2. Develop standards for accident and incident investigations.
3. Examine the cost containment and utilization review technologies of the insurance company for an important balance between care quality for the injured worker and cost manage­ment controls negotiated with providers. By treating each injured worker like an industrial athlete and returning him or her to work, the employer can avoid costly litigation and improve field production at the same time.
4. Evaluate the insurance company's performance in both occupational and disability management, compar­ing to national averages and specific historical models.
5. Utilize structured settlement options where possible and economical.
6. Evaluate the quality of the insurance company's adjusting staff from the perspective of workload, employee turnover and construction industry experience.
   

   Indicators of Workers' Compensation Fraud

   Conflicting history of accident (by claimant, doctor, hospital).	A claim filed while employee is on strike or just prior to strike.
   Late reported claims (over 30 days).	A claim filed after employee has been notified that he/she is going to be terminated or laid off.
   Unwitnessed accidents in general.	A claim filed after plant is closed down or just prior to plant closing down.
   Monday morning accidents (especially if claimant just returned from vacation).	Claimant is not home when called during the day.
   Friday evening accidents (may have occurred over the weekend).	The claimant is disabled longer than the nature of injury warrants.
   Claimant refuses to give a statement.	Anonymous letters received advising that the claimant is working.
   Claimant is injured on the first day or first week of employment.	Claimant has an attorney immediately following the accident.
   Claimant is difficult to contact by mail or telephone.	Injuries are of the subjectively diagnosed variety (soft tissue).
   Accident occurring (allegedly) on the last day of employment, especially with seasonal employment.	Minor incident results in extensive (exaggerated) personal injuries.

7. Consider developing project or location physician clinics and hospi­tals whereby the contractor's posi­tion on modified duty and return-to-­work programs have been effectively communicated throughout the system, creating incentives for the health providers to