Workers’ Compensation loss run reports: the trail to finding lost money
Almost any employer might ask, “What’s a Loss Run Report? Why
do I need it? Where do I get one?” While it may not sound very exciting,
it documents information about your company’s Workers’ Compensation
claims––and that includes where your money is going.
Loss run reports come from your insurance company or Third Party Administrator
(TPA). While some reports are more thorough than others, there is always
useful information on job-related accidents and claims.
Just as a balance sheet helps business owners understand
the financial strength and capabilities of their company, a good
loss run report can guide a Workers’ Compensation program
in developing risk management plans, tracking the results of current
risk management efforts, identifying problem areas and projecting
Yet, because insurance providers send mountains of paper or the loss
run reports lack understandable content, many business owners and managers
ignore them, failing to recognize the value they offer as a management
Surprisingly, the content of loss run reports varies dramatically. A
very basic loss run report (see figure 1) offers minimal information
(the name of the injured employee, the total cost incurred and a comments
column) for employers who want to evaluate and improve their injury management
process. They will know very little beyond the number of claims and their
On the other hand, other loss run reports (see figure 2) include a wealth
of valuable and meaningful data.
The second report has more value for several reasons. First, there are
four dates: Date of Injury, Report to Employer, Carrier Notified and
Carrier Entry. The timeliness of reporting injuries is a key metric in
managing Workers’ Compensation costs. The claims costs are much
more likely to be lower the faster a business reports a Workers’ Compensation
injury. A Hartford Insurance Company study showed that even a week’s
delay can increase claim costs by 10% and that claims filed a month or
more after an injury cost an average of 48% more to settle than those
reported the first week.
Furthermore, the study supports conventional wisdom – the longer
the reporting period, the higher the probability of litigation leading
to higher costs. A National Council on Compensation Insurance (NCCI)
study found that litigated claims cost 40% more than non-litigated claims.
Seriously delayed reporting (more than 10 days to report the majority
of claims) and a high litigation rate are a recipe for higher costs.
Insurance carriers view these as serious red flags, creating a high risk
that could lead to higher costs. The desired goal is to report all injuries
within 24-hours of when they occur.
By analyzing a loss run’s date information, employers can determine
if their current injury reporting process (lag time) is effective or
could use fine-tuning. If so, this can become the basis for formulating
actions to reduce the lag time. Future loss run reports can then be used
to monitor progress.
A good loss run report also includes information as to whether or not
a claim is litigated. Ideally, a 5% litigation rate is very good (10-15%
is good and anything over 20% should be considered a red flag and warrant
further analysis). Nevertheless, a number of legitimate factors
can result in higher rates. A good benchmark for comparison can be determined
by looking at the statistics available from your State’s Workers’ Compensation
High litigation rates can signal all is not well on the employer’s
home front. Rates in excess of your state’s average could indicate
a need for more and better communication between the injured employee
and the employer, a general mistrust of the employer, a fear of losing
one’s job, mistrust or lack of confidence in the medical treatment
being rendered, or general employee job dissatisfaction. Overall, it
simply indicates a need to ask more questions, to look at your current
process and try to identify the source of the mistrust or dissatisfaction.
Another area of interest is the “claim status” data, which
indicates whether a claim is open or closed, and it’s important
for several reasons. Excessive time lags in care or claims may indicate
that a case can be spiraling out of control. Coupled with the payment
and reserve information, it also gives a picture of the ultimate cost
of claims. Drilling down to the accident description, nature of the injury
and particular department can help identify problem areas and point to
Third, the report identifies the type of claim and indicates if the claim
is medical only or indemnity, which involves lost time. The percentage
of claims that are lost time is another key metric in managing Workers’ Compensation
expenses. A good target for lost time is no more
than 20% – 25%
of claims. Higher percentages are a red flag, signaling that the
employer needs to look closely at the company’s current return to work process
and dig further to determine what is occurring.
Fourth, the report includes the occupation code that enables employers
to determine if injuries are concentrated in particular jobs. A rash
of injuries in one area may be due to inadequate training, poor hiring
practices, unsafe conditions or a combination of these. Armed with this
information, the employer can take steps to identify and correct the
Date of hire is another valuable data point on the loss run. A high number
of injuries among new employees (within the first 30 – 60 days)
could indicate improper training or perhaps an inappropriate hire.
Injury codes on loss run reports identify the nature and severity of
the injury, the cause of the injury and the body part injured. All of
this is critical information for developing, monitoring and strengthening
an injury management program. It enables employers to identify trends
and high risks of a particular cause of injury, prepare prevention strategies
and evaluate the effectiveness of intervention programs. Employers can
focus on the activities within the company that create the greatest cost.
Other pertinent data can include the departments, locations or states
where injuries have occurred.
Determining what should be monitored and how often is also key. At a
minimum, loss runs should be reviewed quarterly. However, to keep an
injury management program on course, a simple monthly measurement of
the average cost of claims – total incurred costs divided by total
claims – can be a guide. The total incurred cost is the sum of
payments plus outstanding liabilities (or what is yet to be spent). Small
incremental changes indicate the program is working well and spikes are
a red flag that warrant more analysis.
Understanding the factors that impact Workers’ Compensation costs
allows employers to design programs that maintain a healthy balance between
cost and quality to keep the employer profitable and better serve injured
Since loss run reports may not always provide this critical data, it
becomes the responsibility of the insurance agent or the employer to
request information they need from the insurance company or TPA. While
a common response may be that loss run reports cannot be modified, alternative
reports with the desired information can be requested. After all, it
is the employees’ safety and the employers’ bottom line that
are at risk.