 |
Software tools and actuarial services for risk management and insurance professionals Latest News | Products & Services | Support | Library | Company | Shop | Search |
|
|
|
Software tools and actuarial services for risk management and insurance professionals Latest News | Products & Services | Support | Library | Company | Shop | Search |
|
|
Specific Software Solutions · SIGMA Actuarial Consulting Group |
|
The History of Not Reporting Losses The Analytical Answer
|
 |
Introduction Prior to the introduction of the Experience Rating Adjustment (ERA), many insurance professionals advised their client companies to not report small medical only claims in states where this is legal. The resulting impact on the company’s mod was often substantial. However, with most states now having approved ERA, is it ever advantageous to not report medical only claims? The History of Not Reporting Losses ERA introduced several changes in the experience rating process (see "Explaining the Experience Rating Adjustment"). Medical only claims (IJ Code 6) must now be reduced by 70% before computation of the mod. This significantly decreases the impact that these losses have on the mod and therefore diminshes the incentive to not report these types of claims. Insurance companies and NCCI want to obtain the most complete set of data possible pertaining to workers’ compensation losses. The methodology prior to ERA produced an unintentional motivation for not reporting medical only claims, thus decreasing the quality of data gathered. ERA has effectively reduced the incentive to pay these claims out of pocket. But several of our ModMaster 2000 subscribers have asked, "Is there still a situation where not reporting medical only claims makes sense?" Without ERA, it is easy to see that eliminating small medical only claims from the mod calculation results in premium savings that exceed the cost of the small medical only claim. However, when the claim is reduced by 70% for purposes of experience rating, it becomes much more challenging to identify. Whether the company is large or small, the determining factor becomes the growth of the premium. Based on several case examples we constructed, it appears that the growth in workers compensation premiums has to be greater than 50% per year to create a scenario where there is any benefit from not reporting medical only claims. Of course, this is only a rule of thumb we observed in our analysis. Results for a specific company may vary. In summary, it appears that ERA is achieving its goal. Consequently, it is preferable to report all claims in a significant majority of situations. Please feel free to tell your colleagues about
NewSolutions...it's free to everyone. If
you haven't already, we encourage you to subscribe
now! Easy removal instructions will be at the bottom of each e-mail you
receive from us. |
