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Employers choose higher retentions to fight rising workers comp costs

Raising retentions requires evaluation of program strength

Employers choose higher retentions to fight rising workers comp costs

INDIANAPOLIS — Employers are choosing higher self-insured retentions to help limit rising workers compensation costs as the market continues to firm, a panel of excess workers comp insurers said last week.

A discussion on the state of the excess comp lines sector was held during the Self-Insurance Institute of America Inc.'s national conference last week in Indianapolis. Panelists included Melodee J. Saunders, president and chief operating officer of Midwest Employers Casualty Co. in Chesterfield, Mo.; Gene R. Maier, senior vice president of workers compensation underwriting for Safety National Casualty Corp. in St. Louis; and Charles C. Caldwell, president and CEO of Midlands Management Corp. in Oklahoma City.

Panelists said the hardening workers comp market seems to be pushing more employers toward higher retentions.

“Most of the buyers seem to be opting for the higher (retentions) to lower their up-front costs, whether (or not) that's the right thing to do over time,” Mr. Caldwell said.

Mr. Maier said state insurance regulators have pressured some companies to select lower retention levels in order to ensure that comp claims will be covered, particularly among firms that are facing financial challenges.

“In many situations, the state is analyzing the financials of the self-insured and really determining what the (retention) should be,” he said. “So companies that have great financials, they have the luxury of being able to opt for that higher (retention) and ... the state may be trying to keep them at the lowest (retention) possible.”


The decision to take a higher retention should be based on the strength of a company's workers comp program, Ms. Saunders said. That includes the effectiveness of the company's third-party administrator, a consideration of its risk appetite, and its ability to predict comp losses.

“Whether or not you take a higher (retention) shouldn't just be purely a decision based on whether I can buy cheap excess insurance or not,” Ms. Saunders said. “It should be what's my financial condition as a company ... and how much risk can I take into my balance sheet?”

In a separate panel at the SIIA conference, experts said the workers comp industry can benefit by adopting best practices currently used in group health settings.

For instance, panelists discussed the use of predictive modeling in the group health and workers compensation arenas to identify claims that are at risk of generating high costs.

Group health insurers have used such information to guide patient intervention for improved outcomes, said Dr. Jennifer Christian, president of Wayland, Mass.-based Webility Corp., a service provider that aims to reduce return-to-work times in workers comp and disability claims. But she said the workers comp industry has struggled to find practical applications for predictive modeling data.

“On the work comp side, there's a lot of talk about predictive modeling, but not too much clarity about what to do once you identify somebody at risk,” Dr. Christian said.


Additionally, Dr. Christian said claims adjusters sometimes disregard predictive modeling results that flag potentially troublesome workers comp claims. She said companies should have procedures to ensure flagged claims receive proper handling, such as by automatically referring high-risk cases for intensive claims management.

“You cannot have meaning in a screening tool unless you respect it,” Dr. Christian said.

Panelists in that session also included Carrie Hatch, Meridian, Idaho-based director of operations for third-party administrator AmeriBen/IEC Group; Robert Jackson, chief operating officer of Atlanta-based medical cost management firm Stratose Inc.; and Jason Davis, vice president of medical cost management firm Global Excel Management Inc. in Sherbrooke, Quebec.

The panel was moderated by Steven J. Link, chief innovation officer for Midwest Employers.

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