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Knowing the milestones in your policy year can help lower costs

Many employers focus on Workers' Comp close to the renewal date; however, this is not the opportune time to control costs. Workers' Comp is one of the most loss sensitive policies - the more you use, the more you are going to pay. While it is always a good practice to proactively manage claims, a quarterly claims review process is critical because of the timing of the calculation of the Experience Mod, which is the one factor you can control to lower premiums.

It's important to review loss runs and assess all open claims three months into the new policy year because the critical number crunching for calculating the Experience Mod takes place six months after the policy anniversary date. This gives you three months to reduce or close claims that will affect the Mod calculation. Policies that renew on January 1, 2014 use the loss experience from policies that were effective 1/1/10-1/1/11,1/1/11-1/1/12, and 1/1/12-1/1/13. They will not include the most recent year's losses.

A laser focus on closing claims and reducing reserves should begin. Top priority is getting the injured employees back to full or modified duty. If that isn't possible and return to work appears unlikely, then consideration should be given to settling the claim.

Six months after policy inception is the most important day of the year for Workers' Compensation because this is when the insurance company sends loss information to the rating bureau to be used in the promulgation of the Experience Mod. This is called the valuation date (aka, unit stat date).

This information includes not only the money that the insurance company has spent on claims, but also what it expects to spend (the reserves). In effect, your insurer takes a snapshot of your loss information and it is absolutely critical that these numbers be correct. With few exceptions, once the bureau has the numbers, they are set in stone.

And the numbers often are not correct. Errors are rampart in the system. The window of opportunity is short and the process of correcting mistakes can take time, another reason for the comprehensive review three months after the policy's inception.

Pay close attention to reserves. The reserves represent what the insurance company thinks the ultimate cost of the claim will be. It is not a guess, but it is more of an art than a science. Its accuracy depends on the precision of the adjuster in evaluating the employee's medical condition, anticipated time away from work, cost of medical care and other relevant costs. Yet, the cost projections get counted exactly the same as the dollars paid out, so if the reserve is set too high, you will pay too much.

Although the Experience Mod is set at the sixth month mark, it is a good idea to continue the quarterly review process at nine months. Throughout the year, proactive management of all open claims will ensure that there are no surprises at renewal.