Risk Spotlight: An Integrated Approach to Managing Workers' Compensation Exposures
Published on: 03-Apr- 2012 | Comments: 0
Controlling workers’ compensation costs and improving workplace safety are key issues for most companies. But in their search for causes and solutions, too many organizations treat workplace safety, workers’ compensation claims administration, and accompanying data and analytics as isolated functions.
A more effective approach is to develop an integrated workers’ compensation cost containment strategy. Such an approach is built on a deep analytical foundation that examines not only the loss drivers, but also potential returns of any cost containment effort, which leads to:
- an examination of the root causes of workers’ compensation costs;
- development and execution of focused safety management and claims administration solutions;
- consideration of a range of risk transfer opportunities;
- enhanced measurement of program outcomes; and
- adjustment of priorities and cost containment measures as necessary.
Understand The Financial Considerations
The first step in an integrated approach is to consider the financial costs and potential return of any one cost containment path. This entails modeling an organization’s workers’ compensation claims data versus credible benchmarks. Once the data has been analyzed and modeled, the individual components of an integrated approach can be properly designed taking into consideration anticipated savings and projected costs. Armed with this analysis, organizations are poised to make informed decisions.
Determine Root Causes
The second component to an integrated approach involves identifying the root causes behind an organization’s workplace injuries. Loss control, occupational health and safety, claim management, injury management, and employment practices and processes all need to be reviewed. Through such a diagnostic exercise an organization should be able to:
- identify the unique cost drivers of its workers’ compensation program;
- benchmark its performance against peers;
- estimate future losses at specified retention levels;
- identify any claims and workplace safety management gaps; and
- fine tune solutions to maximize cost containment efforts and improve the bottom line.
Put The Program In Place
Once the root causes have been determined, an integrated program that addresses workplace safety and claims management can be put in place. By taking steps to improve health and safety performance through such steps as behavior modification, swift action on ergonomics issues, and continuous improvement measures, the frequency of claims—and related administrative burdens—can be reduced. At the same time, an organization should pursue aggressive claim closure strategies, scalable and well-defined managed care programs, and improvements in measurable claim outcomes delivered from vendors.
Align Risk Transfer
An effective integrated approach also depends on the proper management of insurance and retention levels. The financial impact and review activities undertaken in the early stages of the cost reduction program should provide an organization the data needed to obtain more favorable insurance coverage terms, conditions, and pricing.
The Value Of The Integrated Approach
Implementing an integrated approach to workers’ compensation can help an organization to:
- reduce the frequency and severity of potential claims;
- manage medical and disability costs on existing claims; and
- accelerate the closure and limit the potential development of legacy claims.
For it to remain of value in the long term, however, processes must be put in place that allow for effective monitoring and measuring of outcomes. This helps ensure that the initial cost reduction gains from the integrated approach are not just a one-time “bonus” for the organization. Such an approach requires expertise in analytics, claim management, behavioral risk, ergonomics, and brokerage, among other risk management disciplines.
An integrated approach should help organizations mitigate their workers’ compensation costs and free up capital for further investment in its business and people, while providing a safer workplace.
To learn more about the how organizations can meaningfully impact their workers’ compensation programs and costs through analytics, claims and workplace safety risk management measures, optimized risk transfer, and continuous improvement, join Marsh’s upcoming New Reality of Risk webcast, “Controlling Workers’ Compensation Claims Costs,” to be held April 11, 2012, at 11 a.m. (ET).
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