Show me a case with a proper reserve and I will show you an adjuster who knows their claim. There is a blend of intuition and science required in setting reserves for workers' compensation claims. During the entire workers' compensation claim handling process, it is important to be aware of the employee’s progress while being wary of critical milestones with potential impact on the outcome. An adjuster must be confident that a claimant is on the right path to recovery, or must realize quickly if the claim has taken a turn for the worse. Don’t be caught unaware – your clients won’t appreciate a sudden tenfold increase because you assumed “return to work” but the claimant schedules surgery!
In our eBook titled “Taking the Mystery Out of Workers’ Compensation Claim Reserve Adjustments,” we review some of the common reserving mistakes made while handling workers’ compensation claims, and how to avoid them. Whether you under-reserve, over-reserve, late-reserve or guess-reserve, all have a financial impact on the insurer and/or employer’s balance sheet.
The Four Common Scenarios
There are 4 common scenarios where a workers’ compensation adjuster can find themselves. Even seasoned adjusters with good working experience need to avoid getting caught in these traps.
#1 The Under Reserved Claim
An adjuster under-reserves when they are naively hopeful, when they lack information, or when they don’t pay proper attention. Artificially low reserves will make the company’s financial outlook appear much better than it is because the adjuster didn’t set aside enough money to pay the claim. These claims end up off the radar too long, and have critical resources applied too little and too late. Consequently they stay open much longer than what was expected and may cost even more than they might have with diligent management. Adjusters need to heed early identification of claims with potential for radical shifts, place them on shorter diaries, and aggressively seek updated information. Don’t gamble with complacency. As soon as the adjuster gets updated information from the doctor or employee, the reserves should be adjusted accordingly.
#2 The Over Reserved Claim
An adjuster over-reserves a claim when they have wrong information, when they accept indications of major issues (such as a claimant simply mentioning surgery) before they are actually approved, or when they are lazy and apply a “better safe than sorry” attitude. Over-reserved claims will make the company’s financials look much worse than they actually are. Sometimes the initial description of an injury makes it sound much worse than it really is. The employee may have “crushed” his finger, leading the examiner to assume surgery was required, but the reality of a closed-fracture and availability of modified work made the claim relatively low cost. An adjuster must weigh early medical opinion with early indications of a claimant’s motives to properly calculate a reserve. Adjusters must take the time to close these loops and avoid putting up knee-jerk reserves and moving on to the next claim to satisfy productivity.
#3 Late Reserving/Delayed Reserving
Late reserving occurs during the interim period of a claim. An adjuster setting arbitrary diary dates or relying on pre-programmed diaries can miss opportunity to assess reserves in real time. Diaries should be set to match key milestones, such as IME’s or hearing dates. The lesson for this type of reserving practice is to adjust your reserves when you receive new information. Some examples: If an employee is out for an extended period of time and the last approved course of physical therapy isn’t working, surgery may be the next step. An employee injured his knee, and after 6 months of treatment, an IME confirmed that surgery was required. Defense counsel reports that discussion at hearing reveals an immediate settlement opportunity. Stated simply, It is important for the adjuster to modify the reserves as soon as this information is obtained.
#4 Stair Stepping Claim
This scenario is a most common failure in reserving. Stair stepping is when the reserves are adjusted periodically for an interim amount of time. If the injured employee sees his doctor every 4 weeks, and the doctor keeps extending his treatment, a short-sighted adjuster may never conceive of an end and simply approve increases with every follow-up appointment. This results in the reserves being increased incrementally for a long period of time. It is essential that every claim has a reserve that indicates the best estimate of the claim’s full final value based on information at hand. The adjuster needs more information combined with a presumed outlook for the resolution of a claim to estimate the correct reserves. In our example, the adjuster could institute an IME appointment and Field Nurse assignment to then presume maximum improvement might occur within two months. Combine that presumption with a PD estimate and a final reserve can be set. As an important note, not only does stair-stepping impact the company’s financial outlook, but it takes a lot of time from the adjuster. If the claim is constantly being reviewed, it takes away valuable time that the adjuster should be working on other claims.
Conclusion
There are best practices that should be followed when setting reserves for a claim. Experienced adjusters will have a better feel for how certain injuries will play out. Our eBook about this topic will help you understand how reserves impact the company’s financial outlook and learn about some best practices and tips for effectively setting and updating reserves.
Click on the link below to download our eBook “Taking the Mystery Out of Workers’ Compensation Claim Reserve Adjustments."
