4 Steps to Help Mitigate the Cost of Open Workers Compensation Claims

4 Steps to Help Mitigate the Cost of Open Workers Compensation Claims
August 20, 2024 12 mins

4 Steps to Help Mitigate the Cost of Open Workers Compensation Claims

Four Steps to Help Mitigate the Cost of Open Workers Compensation Claims

Open legacy workers compensation claims place rising financial burdens on employers, who are faced with closing out aged claim inventory and improving their balance sheets in the process.

Key Takeaways
  1. Historically, 12 percent of claims account for 88 percent of a business's workers compensation claim costs.
  2. Claims that are on the books for longer than a year directly impact the bottom line.
  3. Delivering workers compensation claim efficiency requires a proactive management plan that focuses on eliminating open aging claims.

Open legacy workers compensation claims — those claims that that can sit on a company’s books for years — impact a business’s capital and place a burden on its fiscal wellbeing. That’s because the longer a claim remains open, the higher its direct claim costs increase.

Historically, about 12 percent of a typical organization’s claim volume accounts for 88 percent of its costs, according to Aon data. These are generally legacy open claims, and reducing the time they remain open helps improve the balance sheet.

“The quicker we can close open claims, the better the impact on the organization’s balance sheet,” says Chris Iovino, Managing Director of Aon’s Global Risk Consulting practice. “The business must reserve for those open claims. And the longer they stay open, the greater the impact on the business — whether it’s collateral or perpetual reserve increases for a claim that may have occurred five years ago.”

How Open Workers Compensation Claims Impact Bottom Line

The Importance of a Strong Claims Management Plan

Managing workers compensation claims efficiently requires a proactive management plan that focuses on eliminating open aging claims. The following points help explain how aging claims can impact workers compensation claims outcomes:

  • Cost-sensitive programs: Workers compensation programs for medium-to-large sized organizations are generally cost-sensitive and often underwritten as large deductible programs. 
  • Organizations assume payment of all losses: Beyond the direct cost of claims, there are likely to be indirect costs such as collateral requirements (necessary to secure the losses for the underwriting carrier).
  • Collateral calculations: Collateral is typically based on actuarial forecasts that predict how losses will develop over time, based on an organization’s loss history, industry development factors and financial grade of the organization. 
  • Impact on organization: If an organization has not effectively and diligently managed these losses, its predicted future losses may suffer the same fate.

“With social inflation and economic inflation impacting medical costs, it is even more imperative for businesses to act on open claims and manage them to closure so they are off the books,” adds Iovino. 

71%

of aged claims have reached maximum medical improvement.

Aon data

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The quicker we can close open claims, the better the impact on the organization’s balance sheet.

Chris Iovino
Managing Director, Global Risk Consulting

Taking a Proactive Approach to Managing Open Claims

The impact of open duration on workers compensation claims grows when a claim reaches its one-year mark. That’s a critical tipping point for claims to develop more rapidly.

“These aged claims represent a substantial increase in costs and can be expected, on average, to take as long as 53 months to close,” says Sharon Himbera, Managing Director in Aon’s U.S. Casualty Claims Consulting practice. “By improving the amount of time a claim remains open, an organization will see a better balance sheet, sustaining both direct and indirect cost improvements.”

Four strategic claims management actions can help expedite claims closure, reduce open claim duration and drive claims management efficiency. Once properly resolved, these claims will no longer deteriorate and impact a business’s P&L statement.

12%

of workers compensation claims represent 88 percent of claim costs.

Aon data

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  • 1. Assess Closure Status

    Understanding why a claim remains open is the first step in developing an appropriate strategy to resolve a claim. A thorough and comprehensive assessment of the claim helps identify exactly what’s driving costs and any outstanding issues — for instance, duplicate prescriptions, medical treatments the claimant has missed or medical treatments that are being covered under the claim but shouldn’t be. This information will help businesses determine their next steps. Organizations should use a regimented and closure-specific assessment methodology, which serves two purposes:

    • Provides an objective assessment of where an individual claim lies on the closure spectrum
    • Identifies specific gaps in claim closure practices that must be addressed for continuous program improvement

    Those gaps typically fall along these seven key claims characteristics:

    • Medical Management
    • Reserve Rationale
    • Proactive Action Plan
    • Return to Work
    • Litigation Management
    • Recovery
    • Investigation
  • 2. Develop a Proactive Plan

    While it seems simple, developing a clear and effective action plan to resolve open claims can be difficult. The plan should define parameters for settlement, stakeholders and what needs to happen for a claim to be settled. For example, extending monetary offers as opposed to simply inquiring into a claimant’s settlement interest. An effective resolution may also require companies to think strategically about where and when to invest and how to reduce costs during the claims settlement process. A strategy session should include adjusters to ensure consensus on the claim’s direction, which will help them shift focus from a task-based tactical approach to a more results-oriented strategic approach.

    “Adjusters are trained to conduct initial investigations and compensability decisions, but often lack the training to strategically resolve claims closure,” adds Himbera. “Therefore, it’s important to partner with them to help manage and resolve costly aged claims.”

    According to Aon Claim Closure Services data, 71 percent of aged claims (greater than one year from date of loss) have reached maximum medical improvement (MMI) and are primarily open for palliative treatment. When a claim reaches MMI status, there are few remaining settlement barriers. These claims should be targeted for resolution to avoid future decline.

    Percent of Claims that Reach Maximum Medical Improvement Status

    Percent of Claims that Reach Maximum Medical Improvement Status

    Aon’s data further indicates that 35 percent of aged claims are in settlement posture. Claims that remain in this position often lack a specific direction and expertise to expedite resolution.

    Workers Compensation Claims Settlement Status

    Workers Compensation Claims Settlement Status
    Having a strong plan in place can provide the right direction and effort needed to resolve these claims and remove them from balance sheets earlier in the process.
  • 3. Create Greater Accountability and Track Data

    Many companies lack an effective, data-driven process for tackling open claims. Establishing a process with regular communication and accountability checkpoints will help avoid lingering claims — and businesses can then use the claims' data to put more preventive measures in place. 

    It’s important that companies have a good data-tracking process to ensure adjusters aren’t overlooking opportunities to mitigate costs and resolve claims. Data can be used to measure claims against specific closure metrics or key performance indicators to help companies act faster and concentrate their efforts on resolution opportunities that are more likely to close. Holding adjusters accountable to proactive and resolution-focused plans will also reduce duration and claim costs. 

    The key to a successful claim closure approach is having a thorough understanding of which claims to monitor and when. Correlating financial exposure with expected closure target dates can help prioritize management activity to expedite the process. 

  • 4. Make Dynamic Course Corrections

    As facts change, plans need to be revised. Settlement is not always favorable or possible. In such cases, the focus should transition to cost-mitigation techniques. 

    “When working to establish proactive plans to ensure tasks are executed in a timely fashion, adjusters will ultimately improve their strategic resolution skills,” says Himbera. “These newly learned skills will gradually become habit and transfer to new claims that lead to sustained balance-sheet improvement.” 

    Work with a broker that’s skilled in aged-claim resolution to help make the often-necessary course corrections that can lead to claims closing as quickly and economically as possible. The broker should have the experience to address aging claim challenges that burden many organizations, regardless of industry, jurisdiction, size, carrier or third-party administrator.

Aon’s Thought Leaders
  • Chris Iovino
    Managing Director, Global Risk Consulting
  • Sharon Himbera
    Managing Director, U.S. Casualty Claims Consulting

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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