Tag Archives: self-insured

Projecting workers’ comp losses for self-insureds

Self-insureds that understand the factors used by actuaries to project workers’ compensation losses can better integrate them into their projection process and benefit from insightful discussions with actuaries. Milliman consultants Carly Rowland and Richard Frese offer some perspective in the Business Insurance article “Ten considerations for projecting self-insured workers compensation losses.”

Captive considerations for healthcare organizations

A captive insurance program can offer healthcare organizations several benefits such as broader coverage, improved cash flow, and direct access to reinsurance markets. However, not every organization is suited for a captive. Its management must assess the benefits and drawbacks before creating one. Milliman’s Richard Frese provides perspective in his article “Captive insurance: Is it the right choice for your insurance exposures?” He also discusses the background of captives, how organizations should choose a domicile, selecting coverage policies, actuarial analysis for loss projections, and considerations when shutting down a captive.

Predictive analytics provide savings opportunities for self-insureds

Self-insureds are experiencing benefits assessing risks and controlling costs using predictive analytics. In this Insight article, Elizabeth Bart discusses how these tools can help self-insureds mitigate claim losses.

Here is an excerpt:

A notable benefit of predictive analytics is that it provides quantitative cost-saving information to risk managers. Continuing with the prior example, assume 2,500 employees are newly hired, low-wage employees in Illinois and their average costs have been shown to be three times higher than the company average of USD $1.50/$100 of payroll. We can estimate that a reduction from $4.50 to $1.50 could create $2.25 million in savings. Asking senior management for $100,000 for more new hire training in Illinois facilities will be much easier with the quantitative support provided by predictive analytics.

(2,500 employees with an average payroll of $30,000 save $3 = 2,500 x 30,000/100 x 3 = $2.25M)

Not only can predictive analytics assist with reducing cost ‘pre-claim’ by focusing on exposure, it can also reduce costs once a claim has occurred. Knowing the easy-to-identify large claims will be second nature to risk managers, however, ‘post-claim’ predictive analytics can look into claim development details to find characteristics that late-developing, problematic claims (and often not the obvious large ones) have in common. After a loss has occurred, one of the most effective ways to manage costs is to involve a very experienced claims handler as soon as possible. The results of effective ‘post-claim’ predictive analyses will assist in implementing cost-saving claims triage. Because the best resource post-claim is good claim management, predictive analytics can get late-developing, problematic claims the timely attention they need to contain the ultimate costs or even settle the claim.

Loss savings based on predictive analyses extend beyond claim cost reduction. Being able to quantitatively show potential savings and concrete mitigation plans will make a positive impression on senior company management and excess insurance carriers. Demonstrating shrewd knowledge of the loss drivers and material plans to reduce the losses can aid in premium negotiations with excess carriers for all future policy years. And if the insurer or state is holding any collateral, the predictive analytics’ results can be used by the self-insured in negotiating.

The key to unlocking further potential cost savings in your self-insured plan is readily available in your own data. Predictive analytics is the tool that will help risk managers make better claim reduction decisions and produce actionable items with real cost savings now and in the future. Risk managers and self-insured companies can look forward to possible benefits such as loss cost reductions along with reductions in excess premium and collateral, and quantitative information to help them with budgeting and allocation. As more self-insureds begin applying predictive analytics to control costs, companies that are not using these tools will be at a competitive disadvantage.

For more perspective on how self-insureds can benefit from predictive analytics, watch this Google Hangout.

Google+ Hangout: Predictive analytics for self-insureds

Insurance companies capture and store large amounts of data that influence key business decisions. Predictive analytics allows insurers to identify granular patterns in data that can lead to better business practices.

In this Google Hangout, Milliman’s Elizabeth Bart, Michael Paczolt, and Terry Wade discuss how self-insureds can benefit from the use of predictive analytics.

Milliman offers predictive analytics and modeling solutions that produce clear, actionable results, and critical strategic insights. To learn more, click here.

Workers’ compensation – The other self-insured liability

Medical malpractice is often the most considered exposure in a healthcare entity’s self-insurance program. However, these organizations should closely evaluate their workers’ compensation losses as well. In his article “Workers’ compensation: The other self-insured liability,” Richard Frese provides steps that self-insured healthcare entities should take to understand, report, and control their exposure to workers’ compensation risk.

Here is an excerpt:

Understanding exposures and estimating losses
From the date of loss to the final payment, the development of workers’ compensation losses can extend over a period of a few years on average and up to 40 or 50 years in severe cases. Losses are usually estimated on an occurrence or accident-year basis, which considers when an accident occurs, regardless of when it is reported. Occurrence losses account for losses that are already known, such as payments and case reserves, as well as unknown losses, which are referred to as incurred but not reported (IBNR).

Elements of IBNR. IBNR comprises pure late reportings, case development on known claims, development on reopened claims, and known instances that will be presented as future claims. Case development on known claims and development on reopened claims are significant components of workers’ compensation IBNR.

For example, consider a workers’ compensation back injury. This type of injury usually is reported soon after it occurs but can easily take an adverse course if symptoms reoccur and additional surgeries are needed after a claim is initially closed. In contrast, pure late reportings represent a relatively minor category for workers’ compensation. At the end of any given year, roughly 5 to 15 percent of losses that occurred in that year will still be unknown. This percentage is significantly lower than the corresponding percentage of medical malpractice cases; more than half of malpractice losses are still unknown at the end of a typical year.

Unique characteristics. In developing loss estimations, several considerations unique to workers’ compensation should be taken into account:

• The medical inflation component of workers’ compensation losses is increasing at a faster rate than inflation of lost-time claims, and becoming a larger share of payments.
• Healthcare entities can offer treatment to their own workers at a discounted fee.
• The frequency of losses may be affected by the economy and reductions in workforce as some workers try to supplement lost income through workers’ compensation benefits.
• Structured settlements may be used as a mechanism to manage annual payments, especially for a permanent total disability.
• Workers’ Compensation Medicare Set-Aside Arrangements (WCMSAs) typically extend employer liability.
• Workers’ compensation benefits vary by state.

Actuarial estimates are based on the theory that the past is indicative of the future. When using an actuary, management should communicate to the actuary any program change that affects the timing and valuation of claim payment (e.g., paying or reserving claims quickly and a new level of conservatism versus prior slower, undervalued reserves), claim definition (e.g., when a bandage that might have been excluded previously is coded as a medical-only claim), or claim handling (e.g., changes made by a third-party administrator). In addition, the actuary should be informed of any retention change or mix in the class of workers, such as an increase in nursing exposures. Actuaries will typically give credit to a program’s own development in workers’ compensation, but when incorporating industry information, they should consider the program’s retention to avoid overstating IBNR.

For more Milliman perspective on workers’ compensation, click here.

Self-insured entities and California’s workers’ comp reforms

The California Department of Industrial Relations recently issued new actuarial report requirements and changes to the collateralization formula for self-insured workers’ compensation employers. The “emergency” regulations require every self-insurer to retain an independent actuary to prepare an estimate of its self-insured obligations as of December 31, 2012.

The latest issue of P&C Perspectives discusses both past and present standards for securitizing unpaid self-insured workers’ compensation liabilities. The article also provides perspective regarding the required annual actuarial study. Here is an excerpt:

The requirement for an annual actuarial study applies to all qualified private self-insurers and self-insurance groups. The requirement does not apply to public entities, such as cities, counties, and other governmental entities. The actuarial study must include an analysis of all, and only, the California self-insured exposures of the self-insurer, even if California represents a relatively small portion of total operations. In addition, the actuarial report must be based on loss data and case reserved amounts as of December 31, 2012 (i.e., the same data underlying the private Self-insurer’s Annual Report).

Employers and self-insurance groups that already commission actuarial reviews of their self-insured worker’s compensation exposure may need to commission an additional report. The existing actuarial work may be used, in part, as the basis of the California analysis, but the California analysis will need to summarize the estimated loss and loss adjustment expenses (LAE) reserves as of December 31, 2012, using actual paid losses and case reserves as of December 31, 2012, for California exposures only. The estimates in the California standalone report might differ from the actuarial estimates in other analyses prepared to assist companies with their financial reporting. For example, the California standalone report will need to include all reserve components listed in the prior section, but self-insured companies do not commonly establish reserves for unallocated loss adjustment expenses (ULAE) costs. The standalone report must also present amounts net and gross of excess insurance in addition to other potential differences with existing actuarial estimates, such as the use of discounting and contingency margins.

Employers that have never had an actuarial study completed should begin to gather the data necessary to complete one. Typically, actuaries review an employer’s claims listing (ideally available at a number historical valuations) and payroll. It will also be necessary to have a summary of excess insurance policies, including carriers and limits, because the actuary must estimate claim liabilities net and gross of this coverage.

To read the entire article, click here.