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Workers' Compensation insurance industry trends affecting employers

With Workers' Compensation producing lackluster results for insurers, it's no surprise that they are looking for ways to return to profitability. One approach that is quickly gaining traction is the use of predictive modeling as an underwriting tool.

While insurance companies have moved to tighten underwriting standards, they are also looking to the science of predictive modeling to more effectively evaluate a company's Workers' Comp risk and select profitable accounts. As an example, CNA Financial Corporation uses a model that evaluates safety and health programs affecting an employer's Workers' Comp loss experience.

According to a recent Business Insurance article, "Predictive models increasingly being used as Workers' Comp underwriting tool," CNA has determined factors that make some companies safer than others. For instance, companies that have certain safeguards against falls from high places have a 38% lower injury rate than companies without those protections. And employers that have specific rules against cellphone use while driving have 25% fewer Workers' Comp claims than companies without such guidelines.

Such information is used to predict accidents and assess the quality of an account, which will affect the pricing and policy offerings. As the market continues to harden, it's vital that employers understand their "loss profile" and how the insurance company assesses their risks and exposure. By making investments to improve the loss profile, a company is better positioned to control costs and improve safety.

Financial and technological forces have also had an impact on adjusters. Historically, Workers' Comp adjusters have had a heavy workload; yet, in recent years, it has been compounded by budget cuts, increased communication expectations, growing regulations, real-time information demands and the retirement of veteran adjusters. There are also the beliefs that because today's workforce is more mobile and transient, insurers no longer make the considerable investment they once did to train young claims adjusters. While technological advances have aided efficiency and reduced costs, some argue it has adversely affected the personal contact with the injured worker, the ability to negotiate settlements and the proper monitoring of processes that have been automated, such as indemnity check writing. All of which are critical components of controlling costs.

As an example, doctor drug dispensing has been identified as one of the top cost drivers in pharmacy management for Workers' Compensation. Although there has been an increasing trend where pharmacy charges on medical provider bills are flagged by "bill review engines" for more specialized review, the technology is most effective when the adjuster uses the information to route patients away from those physicians, scrutinize other aspects of their care for over utilization, consult managed care services or remove the physicians from an approved network.

Similar to many other industries, Workers' Compensation has witnessed an increase in mergers and acquisitions that is expected to continue according to Joseph Paduda, principal of Health Strategy Associates. Many of the M&As have involved private equity firms, which worry some payers that consolidated services can lead to dictated prices.

Emerging from these trends is a resounding message to employers - a hands-off approach to the management of Workers' Comp claims is not an option. Involvement and oversight are required to reach better outcomes and control costs.