Claim Reserving Is Not For The Faint Of Heart

 

Claim reserving is complex, complicated, and difficult.  Just when a claims professional thinks they have got it down, a claimant has another failed back surgery and they are back to the drawing board. 
 
Any claims adjuster out there can fall victim to failed “lifetime reserving” of a file, no matter what their experience level. This is why the claims profession is so complex.  It is not just trying to forecast the cost of medical procedures or potential medical cost needs on a file.  The tricky part is knowing what is hiding around the corner, and knowing how to predict the future based on other aspects outside of, and in addition to, outright medical costs.
 
Every single carrier/TPA will have their own way of reserving a file. Usually it will consist of completing a worksheet early on in a file to get an initial reserve. Later on, typically within 3-5 months, a lifetime reserve will be placed into the file.  This is meant to be the reserve that should last until file closure.  Sadly, the reserve placed at this time is rarely the final reserve adjustment.  This is due to numerous factors such as an unplanned surgery, return to work complications, healing complications, employment terminations, vocational issues, litigation, and so on. 
 
Adjuster Claim Reserving Tips:
 
1.   Your initial investigation will be more important than you think.
 
Within 24 hours of receiving a new file, the adjuster is to complete their 3-point contacts.  This consists of contacting the employer, the occupational clinic, and completing a recorded statement with the claimant.  Upon talking to the claimant, you will attempt to gather as much information as possible, including non-occupational risk drivers that can affect the outcome of a claim.  For example, if your injured worker has diabetes, then you know it will take longer to heal than if they did not have diabetes. This means you will have to allow for more time away from work, more medical expense, and so on.  How much more will depend on the severity and type of injury.
 
Your employer contact will also yield clues that impact your reserving practice for this file.  Can they accommodate light duty work? Are they willing to return this worker back as soon as possible, or do they wait a few weeks?  Do they have other workers that can help your injured worker to complete tasks if some job duties fall outside of their restrictions?  The answers to these questions all affect the indemnity portion on a work comp claim.  If the employer refuses to put someone back to work until they are full duty, then you know you will need to place more indemnity reserves in this file than if the employer welcomed back the injured worker with open arms, willing to do whatever it took to get this person working again in any capacity.
 
 
2.   Remember to address impairment ratings if applicable
 
Should your claimant undergo a surgical procedure, remember you have to address your forecast on what the impairment rating will be, and how much this will potentially cost the file.  If a carpal tunnel surgery has an automatic impairment rating of 5% to each arm, this could equate to $5,000 or more.  So be sure to address that in your reserve.  It is a very easy thing to forget.  In fact, some adjusters will be optimistic and think the worker may not need surgery, and therefore addressing a disability rating is not necessary.  This will, of course, jinx the file, and reserves will have to be added later to address this rating.  This will upset a claims supervisor crazy, but it is also very common.  It is better to err on the side of caution place it in initially.  Carriers would almost always rather have too much in reserves, rather than not enough. 
 
Under-reserving a file leads to underestimating a premium cost, which of course is how the carrier makes money to begin with.  Plenty of carriers wind up in financial trouble because they are under-reserving files, and they are not charging enough for their policies.  The money has to come from somewhere, so reserving is always a fine dance between being safe with reserve amounts without being over the top.
 
 
3.   Factor in Psychological/Sociological/Secondary Gain issues
 
The adjuster assigned to a file is going to develop a relationship with the claimant.  Countless phone conversations, reviewing of medical records, and other issues are going to happen during the life of a file.  An investigation into a claim is never-ending. On a phone call, you may pick up kids in the background, or a baby crying.  This is a red flag that this person has kids, and maybe if your injured worker is home avoiding work at all costs it means that they are also saving money on daycare costs, gasoline costs, babysitters, etc.  Maybe the employer mentioned layoffs that are coming around the corner, meaning that your worker may be hesitant to return to work since they know when they come back that they are going to lose their job.  If that is the case, being on workers comp pay means that they will continue to have an income.  Is the claimant a new hire? Do they have a claim history when you complete a background check? Do they talk about having an attorney?  Have they been involved in past insurance litigation? Are their pain complaints out of proportion to the injury? Are they seeking constant narcotic pain medication?
 
All of these things should be major red flags to the adjuster.  Each one of those items indicates an issue which can be a roadblock to return to work, which means the claim is going to cost more than you think.  The adjuster must break these non-occupational issues apart and factor in how it is going to affect the claim from a cost standpoint.  The issues I listed above are far from the only ones that can affect a positive outcome on a claim.  Learning how to pick up on these issues comes with time and experience.
 
 
4.   Remember to utilize the resources around you if you have questions
 
An adjuster has a lot of resources around them to help if they were to have questions with what a claim could eventually cost.  For example, most carriers now will employ a team of Nurses, or Field Nurse Case Managers, to assist with high exposure claims.  But these Nurses are not only available for working a file.  They also can be consulted on medical costs, MMI timeframes, potential complications post-surgery, and so on. 
 
One of the best resources an adjuster has is their peers. Sometimes the best opinion is that of one your coworkers, who maybe had a claim in the past that is similar to what you are working on.  Roundtabling a file also is a good way to draw in opinions from your peers and supervisors, including perhaps your Legal Counsel.
 
Other resources at the disposal of the adjuster can include PBMs for Rx costs; Durable Medical Equipment providers can help you with DME costs if your worker needs long term equipment use and rental; IME physicians can give you a future medical treatment aspect on a file for future medical exposure, and so on. 
 
As you can see, between your coworkers and your vendor network, you have a lot of different opinions you can gather to help you make that final reserve analysis.  The more complete your analysis, the more accurate it will be.
 
 
Summary
 
Correctly reserving a file is a science.  Even the most seasoned claims adjusters can fall victim to a runaway claim.  Usually the best learning experience is to have a claim you are handling spiral out of control, worse than you could have imagined when you had first received notice of an injury.  But there is help available, and you should not be shy about asking for help.  You will find out that everyone is more than happy to assist you.  All you have to do is ask. 

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional about workers comp issues.

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