The Impact of Claim Reserves on Your Experience Modification Rate

Experience Modification Rate

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If your company has employees and injuries are a possibility, understanding the nuances of insurance can make a significant difference in your premiums. One critical factor is the Experience Modification Rate (EMR), often just referred to as the “mod or x-mod.” Claim reserves play a key role in determining your mod. Here, we will delve into the impact of claim reserves on your EMR and provide a suggested timeline for reviewing claims and reporting to the bureau.

What are Claim Reserves?

First, let’s establish what claim reserves are.

When an insurance claim is made due to an incident, the insurance company sets aside a specific amount of money, the ‘reserve,’ to handle the anticipated costs of that claim. This could include medical bills, rehabilitation costs, and any other potential expenses.  Many times the carrier may have minimum reserves for a claim such as $10,000 or larger claim reserves are based on adjuster discretion and what the expected cost is based upon the medical scenario presented.  Many times these claims reserves are greater than the final cost of the claim and recently a report by NCCI indicated claims over-reserving has reached an all-time high of $16 Billion. Most time carriers’ reserves try to be accurate as possible, but when in doubt it’s better to over reserve than under reserve and have a claim cost significantly more.

It’s important that your company monitor these reserves and keep in contact with the adjuster as the claim progresses.  One of the most common scenarios is when an employee is injured and gets a few days off work and a minimum reserve of $10,000 is used.  This may seem high, but remember that the adjuster is likely working hundreds of claims and this is the minimum.  If this amount gets reported during your mod calculation, this amount will be used, increasing your mod score.  It’s best to keep in contact and let them know when the employee is back to work. This allows them reduce reserves and close the claim.  Communication is key on getting the outcome you want.

Experience Modification Rate (EMR) Explained

Your EMR is a measure used by insurance companies to gauge the past cost of injuries and the future chances of risk for your company. If your company has an EMR greater than 1.0, it’s an indication that your loss experience is worse than expected. On the flip side, an EMR under 1.0 indicates better-than-expected loss experience.

See other blog article here for more information – “what is an x-mod“.

The Relationship Between Claim Reserves and Experience Modification Rate

The amount reserved for a claim is a projection. Over time, as the claim gets resolved, the actual costs become clearer. If the reserves are set too high, and they are not adjusted in a timely manner, you may end up paying higher premiums due to an inflated EMR.

Conversely, if reserves are set too low, and the claim ends up costing more, the reserve will need to be increased. This could still impact your EMR, albeit in a different reporting period.

A Suggested Timeline for Reviewing Claims:

1. Immediately After the Incident: As soon as an incident occurs, it’s essential to report it to your insurer. Quick reporting ensures that the initial reserve is set based on the most accurate information.

2. Two to Three Days after the incident:  Review the claim and prepare a plan.  The goal should be to bring the injured employee back to work without any payment for lost time.  A common misconception is that the business has no options when the physician indicates they must be off work for a small period of time.  This isn’t true and can be re visited.  It’s best if you can work with the physician to create a list of tasks. These task should say what they are able to do and for how long.  This will help with your return to work efforts.  The best way to control your mod is to keep the claim medical only or reduce overall claim spend.

3. Six Months Before Renewal: This is crucial, especially if you have larger claims. Discussing these with your carrier can give you an idea if the reserves are set appropriately.  Do your homework first though and be familiar with current claim status and employee updates.  Your adjuster may not be fully aware given their current workload.  If you can provide solid updates and information that will help them justify a lower reserve, you both win.

4. Three Months Before Renewal: Finalize any adjustments.  This is important especially during the renewal phase as loss runs will be used to determine underwriting acceptability, loss ratio, and pricing. 

5. After Renewal: Review all open claims and reserves.  There’s a good chance that how things appear right now will be what is reported to the bureau and used in the mod promulgation.  Once data is reported to the bureau, review it for accuracy. If discrepancies are found, they can be corrected, but it’s essential to be proactive.

In Conclusion

Claim reserves significantly impact your Experience Modification Rate. By understanding this relationship and following a structured timeline, you can be proactive in managing your reserves and, consequently, your EMR. An accurate and timely review can lead to substantial premium savings and a clearer representation of your company’s risk profile. If you need further assistance, reach out to us at [email protected] so we can put you in contact with the right work comp professional.