California employers routinely pay the highest insurance rates for workers’ compensation in the country. The increasing rates are due to several factors including rising medical costs and an aging workforce. In this environment, controlling costs and avoiding lawsuits can be challenging and damaging to a company’s finances. And here lies a valuable opportunity for brokers to step in and make sure their clients can mitigate their exposure to California worker’s comp claims.
For one, it’s critical for a broker advisor to understand the state-specific code litigation to be able to act as an extension of their client’s risk management team. As regulatory changes continue to evolve in California, broker advocates should be able to identify the potential workers’ comp vulnerabilities of an organization and find ways to reduce cost and control claim frequency.
A simple way a broker can help their clients reduce workers’ comp costs is to help them establish a comprehensive safety training program and create metrics to monitor its results. The broker should also review any existing Injury and Illness Prevention Program safety policies to help prevent similar losses from recurring on the job.
It’s important to also implement a return-to-work program to help injured employees return to work as soon as possible and prevent future injuries. These programs should cut down on indemnity costs based on each client’s risk profile.
In case of litigation, a settlement resolution strategy should occur within the first 90 to 120 days on all post termination and continuous trauma claims from the onset of the claim. This will eliminate medical legal lien exposure and state disability liens.
Due to a backlog of cases, lawsuits are often settled and resolved before going to trial. Often, the nuisance value to resolve a claim is roughly $20,000. Brokers need to work in conjunction with the insurance carriers and be aggressive in conducting more investigations, activity checks, and sub-rosa surveillance of the claimant (footage that questions the credibility of the applicant’s claim). There is no legal advantage to the employer to keep a claim going and a quick resolution is often the best way to avoid costly claims. The longer a claim stays open, the more expensive it will become.
In addition to helping to create strong worker safety programs and manage open claims, brokers should assist with regular reviews of reserves to keep down their client’s workers’ compensation costs.
Reserves impact a company’s experience modification rate which ultimately impacts their premiums for each policy year. Insurance carriers should reserve for a company’s indemnity, medical costs, and other expenses associated with the claim such as depositions and attorney fees. When reserving, it is important to keep in mind that medical expenses usually make up more than 60 percent of the total incurred value of a claim, according to the Workers’ Compensation Insurance Rating Bureau of California.
Currently, litigated cases in California remain open for an average of three to four years, which could cause a step ladder effect in claims costs. Again, the goal for employers should be to mitigate and close claims as quickly as possible as costs associated with those claims will affect their experience modification rate.
The key to a successful insurance program are the diligent professionals and claims experts who understand reserves, deductible, and retro programs. The broker should possess medical management expertise based on diagnosis and prognosis of a workers’ compensation claim, as well as carrier relationships that allows them to obtain competitive pricing with claims reserve reductions and closures.