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Using Better Benchmarking to Improve Workers’ Compensation TCOR

The “new normal” requires an informed and fresh perspective as organizations look to improve total cost of risk (TCOR). Workers’ compensation continues to be a key part of annual expenses as well as a balance sheet concern.  


Fortunately, progressive organizations are working to find the next-generation strategies for cost mitigation by digging deep to leverage actionable data and metrics available in loss run data sets to build benchmarking and scorecards to:

  • Drive loss analysis and make better decisions to deliver more quantifiable loss analysis and improved results
  • Give a high-level view of claim frequency and severity within the organizational structure
  • Identify locations for pre- and post-loss cost reduction initiatives
  • Paint a favorable risk management and loss picture to carriers
  • Facilitate discussions and identify solutions to risk issues with the executive C-suite

Look at your TCOR as a return on investment and not a cost of doing business through the use of key performance indicators (KPIs). Focus on areas that are controllable – KPIs and claim elements you can track, benchmark and impact, ultimately creating dynamic changes in your risk profile that will catch the attention of carriers and your C-suite.

This new perspective of your TCOR, requires an understanding of the value of data and how to locate less-common metrics to create benchmarking against your industry and your organization’s results. The benefits to the organization can be immense, not only in reducing costs but in favorably impacting employee health and organizational resilience. 

 

What Can Be Measured to Impact Retained Losses

The left side of the graphic below shows the three main traditional elements of workers’ compensation TCOR – insurance costs, claim costs and risk management costs. To the right are influential and controllable elements that can be measured through KPIs and leveraged to provide insights that enable risk managers to build a better story to carrier markets and leadership.

Understanding Total Cost of Risk

Traditional TCOR:

  • Insurance Costs
  • Claim Costs
  • Risk Management Costs

Controllable KPIs:

  • Collateral
  • Actuarial trends
  • Claims Process
  • Litigation Management
  • Information Management
  • Hiring Strategy Prevention
  • Program Structure
  • Prevention
  • Premiums
  • Coverage
  • Disability Management
  • State Pass-Throughs
  • Absence Management
  • Medical Strategy

 

Measuring these data points provides an organization with an integrated and comprehensive view of its workers’ compensation TCOR from both pre-loss and post-loss perspectives. This gives risk professionals a clearer look of where losses are coming from, what influences their cost and which of the myriad of prevention, mitigation strategies and management models should be considered.

You’ll gain valuable information from such areas as detailed payment histories including pharmacy and legal expenses, and as many as 40 other additional line item payments across medical indemnity and expense payment categories.  The data is accessible from your carrier, third-party administrator (TPA) and risk management information system. There are hundreds of data points in loss runs in which you have access to, but risk professionals may not know what is available until they ask for it.

While the depth of data for your organization is thorough, it is not being optimized if you are not generating insights from it to drive an improvement strategy. The data can help track risk performance and make necessary strategic adjustments that can improve results and lead to fruitful conversations with markets and your C-suite that illustrate positive changes in your risk profile.

To make the most of their data, risk managers should identify key areas of improvement and develop strategies around them to improve metrics, in addition to monitoring their progress over time. The insights generated will not only help identify actional next steps for your organization, but also give risk professionals and their brokers the opportunity to show carriers how effective they are at managing their risk by providing the metric improvement as evidence.

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The data is available. Work with your workers’ compensation carrier, claim TPAs and with your broker for the types of accessible data and data specificity available about your organization. It can give you the evidence you need to improve your workers’ compensation risk management strategy and counteract the headwinds that may be threatening your program.