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Workers comp predictive modeling presents challenges to self-insured groups

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CHICAGO — Predictive modeling among workers compensation insurers is presenting a challenge to self-insured groups, who are facing off with insurers that are offering increasingly competitive pricing.

Predictive technology can be helpful identifying “migratory catastrophe claims” — comp claims that seem relatively minor at first but last for years and result in significant costs — said Steven J. Link, executive vice president and chief innovation officer for Midwest Employers Casualty Co. in Chesterfield, Mo.

Mr. Link gave the example of an injured worker whose claim costs had reached $388,000 and who was taking 11 medications before Midwest Employers' excess comp coverage kicked in. The insurer entered the worker into a functional restoration treatment program, allowing the woman to return to work and to stop taking her prescriptions within six months of the intervention.

“Had we picked it off in six months instead of five years and the interventions occurred sooner, we would have saved that $388,000, or a big chunk of that, plus a lot of the pain and misery that person went through,” Mr. Link said, adding that Midwest Employers has begun using predictive modeling to catch such claims early on.

His comments were made during the Self-Insurance Institute of America Inc. annual conference held Oct. 21-23 in Chicago.

While models can help reduce claim costs and duration, they also are allowing traditional insurers to provide competitive workers comp pricing to some clients instead of throwing out entire books of business, such as construction firms, Mr. Link said. He said that dynamic has hurt self-insured groups during the soft workers comp market.

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Insurers are “smarter about what they're hanging onto and they're smarter about what they let go, and that's negative to the self-insured groups industry, who historically writes a whirlwind at this stage of the cycle,” Mr. Link said.

Self-insured groups can work with consultants to take advantage of predictive modeling and improve their own pricing, said Stanford A. Smith, predictive analytics manager for the Northeast region at consultancy Milliman Inc. in Wakefield, Mass. “You'll be much more informed,” he said. “I look at it as managing the underwriting process with intelligence that's not been available before. It affects both the selection and guides the pricing process.”

Mike Crandall, founder and owner of Covenant Risk Partners Inc. in Norcross, Ga., said self-insured groups should see predictive models as a tool that can help make them more competitive with insurers. “This is an opportunity to bring improvements though similar modeling techniques to both sides of the equation, so you have improved risk selection, more appropriate pricing and you're doing ... smarter things sooner on the claims side to help over time improve the profitability of the business you have,” he said.

The predictive modeling panel was moderated by Kimble E. Coaker, CEO and administrator of the Alabama Trucking Association Workers Compensation Fund in Montgomery, Ala.

In another SIIA conference session, panelists said group captives can provide stability for small to midsize employers that seek to avoid fluctuating prices in the traditional workers comp market.

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Tom Schmidt, vice president and general manager of Walford, Iowa-based Gordon Sevig Trucking Co., said his company has belonged to the Traffic Insurance Ltd. group captive for 20 years. Gordon Sevig no longer shops for traditional workers comp insurance because the company has been able to manage its comp claims within the captive and control its costs.

“I know what my cost is going to be by the time it comes around per my losses over the past five years,” said Mr. Schmidt, whose company has about 180 employees.

Tony Griffin, president of Charlotte, N.C.-based Griffin Masonry Inc., said being in a group captive has increased his firm's profits by about 2% by reducing his workers comp insurance costs. Griffin Masonry and two affiliated businesses have about 800 employees covered by the Archway Insurance Ltd. group captive.

“It has stabilized our rates,” said Mr. Griffin, whose firms joined Archway in 2005. “We don't have the swings that happen (in the traditional comp market), and it has given us, we think, a competitive advantage. We haven't shopped our rates in about three years.”