New Risk Management Challenges

With 2012 behind us, I want to start the new year off with some thoughts regarding best practices for managing workers’ compensation claims. As many of you know, medical inflation, poor underwriting and meager investment returns have placed workers’ compensation insurance deep in the red, with expected loss ratios in the 120-percent range. This is not good. It’s not good for the industry and certainly not good for contractors.

Some of this pain was

by the insurance industry. It was the result of political maneuvering of state laws and rates, ignoring loss patterns and models promising dire consequences.Regardless of the reasons, there is a problem, and with the economy continuing to sputter along, workers’ compensation claims continue to be reported. While insurers are taking serious measures to address rate inadequacies, contractors have a high degree of uncertainty regarding their ability to manage one of the largest insurance costs in their budgets.

Many of these variables are not in the contractor’s control. Managing the environment presented, however, is. Here are some best practices for managing workers’ compensation claims:

Reporting of Incidents and Accidents
Timely reporting of accidents is critical in starting the appropriate investigation on a given claim. Claims have a tendency to get worse as time passes, and much of the information on the claim can get lost or confused. Start early, and keep the review process going until the claim is closed.

A study on the reporting of claims and the consequences of late reporting was conducted a few years ago. If an incident happens week one, late reporting in week two resulted in an 18-percent average increase in workers’ compensation cost; week three, a 30-percent average increase; and week four, a 45-percent average increase.

Medical fraud
Over the past few years, there has been a tendency for soreness in a shoulder to evolve into an MRI-necessitating ailment, sending medical costs spiraling out of control. When workers are sent to the clinic following an injury, it is important to have them accompanied by someone who is aware of the red flags that can send a claim into the danger zone. Having a superintendent who understands the process can allow companies to assess the claim higher up the chain quickly when it is appropriate to do so, thus mitigating negative claim development.

Occupational clinics
Contractors need to be aware of the best occupational clinics in a given area. Having injured workers visit these facilities can help get the claim resolved and the worker back to work. Additionally, all lost-time accidents should involve aggressive return-to-work protocols or modified duty emphasis.

Job descriptions
Creating detailed job descriptions will help facilitate the injured worker’s transition back to work. Solid job descriptions will help the attending physician to support the contractor’s return-to-work program. Many times, the physician will not release to any modified duty strictly because of the vagueness of the job description. Detailed job descriptions can provide physicians with the information needed to allow injured workers to perform work on a limited basis.

Surveillance
If there is a questionable claim, early intervention and surveillance can help move the claim to a desirable outcome. In today’s high-tech world, social media surveillance is becoming a significant tool in tracking questionable injuries.

Claims-handling protocols
It is vital that the contractor has the ability to review and approve, in advance, the claims-handling protocols to be applied by the insurance company. This will set the strategy for all claims and provide a means of auditing success of the claims-handling party, be it an insurer or an independent third-party administrator.

Claim reviews
Quarterly meetings involving the contractor, claims adjuster and supervisors are an effective means of not only improving communication but of modifying the strategies that exist on a given claim. During the meetings, reserves can be discussed, eliminating surprises to the contractor regarding potential costs.

Counsel
Action-over cases are driving many of the large liability settlements in construction, particularly in states like New York, where labor laws have been exploited by a few cagey attorneys. Advance selection of top legal support is critical, as is understanding the challenges of various state venues. A minor workers’ compensation claim in a state like New York can escalate quickly into a serious liability claim. Be prepared, and have counsel assist in developing specific actions for cases that might one day be seen as a liability suit.

Historically, many contractors have “subcontracted” the claims-handling strategy to the insurance company adjusters and have been disappointed with the results, not realizing they have the power to influence how claims are managed and even who manages them. Get engaged early, and remember: it’s your money in the end.