Executive Summary
The workers’ compensation industry focuses on caseloads as a primary way to manage expenses. Claims administration, in the insurance vernacular, is Unallocated Loss Adjustment Expense (ULAE). This paper’s primary premise is that the Workers’ Compensation industry needs to focus on reducing loss rather than managing ULAE expenses as a primary goal.
The second premise of this paper is that claims administrators are focused on static claim caseloads instead of claim throughput as a metric to measure claims efficiency.
Even with the optimum human and technology support, high caseloads result in poorer customer service for injured workers and higher claims costs.
The industry’s focus should be reducing loss dollars by strategically applying its human and technology resources to maximize claim throughput.
Adjusters are decision machines
With a suite of “Ideal” support tools, the claims adjuster will usually achieve optimum claims throughput, prompt, accurate benefit provision for the injured worker, and lower costs for the insured and the claims organization. The advent and implementation of AI are driving this concept beyond what was imaginable only a few years ago.
The best support tools utilize experience, data, and AI for reserving, medical management, litigation management, and fraud detection.
Targeted minor efficiencies in getting routine tasks performed are additive in allowing the claims adjuster to focus on high-value tasks and high-cost claims.****
The evolution of claims technology has had a direct impact on identifying the ideal processes to improve claim throughput. Improved screen design to capture data more effectively or use systems to “read” large parts of claim correspondence into the claim impact the ability of the claims examiner to do the work efficiently.
Even with the right support tools, caseloads above the capacity of the claims adjuster’s skill level and time restraints result in increased litigation, delays in compensability determination, problems with compliance in following the system laws, rules, and regulations, increased length of TD, higher PD, delays in claims settlement and closure and increased claims administration expenses.**
High caseloads have historically slowed the throughput of claims and impaired the ability of the adjuster to determine compensability and provide prompt, accurate benefits. High caseloads are a serious customer service problem for the injured workers.
An ideal caseload results in faster claims throughput and a greater reduction in total claims costs than the “savings” in salaries and ULAE from having higher caseloads. *
Focusing on the ideal caseload instead of resulting in a prompt throughput of clams is a concept that needs to be better understood by the employer community or (at times) not very well managed by the insurance or claims adjusting community.
Caseload Statements, Axioms, and Numbers
No definitive study provides a conclusion concerning the ideal workers’ compensation claims caseload.
Underwriters rarely calculate an employer’s impact on the ULAE expenses (by promptly reporting claims or providing light or modified duties). This should be included in the underwriting process.
There is no one or single “Ideal Caseload” to apply across the board to all adjusters. The caseload for each adjuster should be individualized to the adjuster based on their experience level and the other factors included in this paper.
High caseloads result in burned-out adjusters, which is a reason for early retirement and produces greater turnover in the claims operations.
Business as usual is fatal. Insurance companies and other claims administrators have to relentlessly question all aspects of claim handling, run tests, try new ideas, and amass meaningful stats on all aspects of performance.
High claims caseloads impair accurate benefit determination, accurate and timely benefit provisions increase litigation, impair prompt closure, and can increase claims cost by up to 20% per claim.*
Quality claims adjusting can reduce litigation rates between 10 and 20%.
Failure of the worker to engage in their recovery is a leading indicator of claims that require more effort on the part of the claims examiner. This is particularly true of injured workers who do not do physical therapy.
Quality claims adjusting can reduce the file duration by up to 30%.
Prompt provision of quality medical care can reduce litigation rates and lost time.
The clam organization should always adequately staff its operations to ensure compliance with the local laws, rules, regulations, and contractual requirements.
Every unresolved catastrophic jumper claim could have been resolved earlier and for far less loss and expense dollars if the claims adjuster had known it was a jumper claim and if the adjuster had been given adequate encouragement and authority to settle the claim.
If a claims supervisor has a caseload and supervisory responsibilities, the claims results (and claims oversight) are different than if the supervisor is exclusively dedicated to supervising the claims unit.
Most claims supervisors know if their adjusters are overwhelmed by their workload.
Transferred files can take up to six months for the new adjuster to fully understand and manage. Transferred litigated claims may be impacted less by a transfer if the defense counsel remains assigned to the file. With non-litigated claims, the new adjusters in transferred files achieve a different relationship than the adjuster who initially began collaborating with the injured worker. Transferred files on non-litigated claims may increase the claim’s costs by up to 20%.
Each state or jurisdiction has its workload for claims.
California is two states, each with significantly different results.
Three percent of the claims account for 60% of the loss dollars.
Fifty-one percent of the claims account for 10% of the loss dollars.
What is the ideal caseload?
A national claims management research paper published in 2019 included data concerning the average caseload for workers’ compensation claims adjusters. The data included TPA, Self-Administrated, and Insurance Company caseloads. In the study, the caseloads (for an average adjuster) ranged from a low of eighty indemnity claims to a high exceeding three hundred indemnity claims. Both the high and low numbers were outliers. For most claims administrators, the survey was between 110 and 140 per claims adjuster.
There is an informal consensus among many claims professionals that a caseload under 110 will result in improved case closures.
and lower loss costs and that caseloads over 125 will not achieve the optimum claims results. The actual number should vary by jurisdiction, the support staff, the claims system, and the skill set of the adjuster.
My ideal claims load was 90 indemnity claims per claim adjuster.
Headwinds in achieving an ideal caseload
Achieving an ideal caseload has headwinds pushing against the industry achieving the ideal caseload.
The first problem is the need for qualified senior claims adjusters and experienced supervisors to fill all open positions.
The need for claims adjusters thwarts the effort of companies trying to achieve an Ideal caseload.
Four years ago, studies reported that 40% of insurance industry professionals would be of retirement age and leave the industry within the next five years. Those numbers were correct. As they have aged, baby boomers have retired in the past four years. The “great resignation” did not significantly impact the industry, but boomer retirements continue to remove experienced talent from the industry.
One factor contributing to the current claim adjuster shortage is that for the past few years, claim administrators have already been running high caseloads. * Few claim adjusters are prepared to step up as senior adjusters or as supervisors who will train the current crop of neophytes.
Another factor in the claim adjuster shortage is that only some claims organizations hired or trained enough new workers’ compensation claims adjusters during the first two years of the COVID-19 pandemic. The reduced claims frequency due to the shelter-in-place programs gave the claims administrators a false sense of security regarding their staffing needs. Hiring and training new adjusters takes excellent expense and time, and there is a significant dropout rate in the first year. It also takes adjusters between 18 and 24 months to become genuinely effective adjusters. Training organizations also need help because if they are known for the quality of their training, they lose up to 70% of their new adjusters in the first three years as other companies snipe the trainees.
Self-insured companies, self-administered companies, and TPAs need help retaining their best adjusters. They and their competitors now pay up to 30% more to experienced, qualified outside candidates to fill their open positions. Notwithstanding current inflation levels, during the past three years, most of these companies have only been offering 3% to 5% salary increases for their existing staff.
Internal salary inequities are quickly recognized and easily understood by most claim adjusters. This phenomenon has resulted in a wave of employees leaving their companies to get their salary increases.
Claims adjusters with ideal caseloads are far less likely to leave the company even if the salary is not competitive. Most claims adjusters are seeking a quality work-life balance. Factors that they consider are their current caseload, the offer of remote work, and the claims culture, such as encouraging supervision, recognition for a job well done, appropriate dedicated support staff, employers, and other customers who support their efforts, as well as adequate settlement authority,
The focus on controlling expenses through maximizing caseloads is particularly true when the TPA’s customers are exclusively focused on managing their contracted claims expenses and not concentrating on claim outcomes or when insurance companies measure their VP of claims results only on the administration budget rather than holding the VP of claims responsible as part of the team needed to bring down the total loss dollars.
Caseloads are also problematic when self-insured, self-administered companies have financial trouble and attempt to “right the ship” by reducing headcount. I have seen self-insured, self-administered companies mandate a 10% or 20% headcount reduction in all departments companywide due to profit or expense problems. This has resulted in significant increases in the caseloads in their self-administered programs.
To avoid these problems with “headcount hunting,” some self-insured companies have outsourced their claims administration to a TPA.
ULAE vs Loss Dollars
Instead of only focusing on Unallocated Loss Adjustment Expense (ULAE, commonly known as caseloads), claims administrators should focus on organizing the claims operations to control the loss dollars (which is the largest opportunity) and then on Allocated Loss Adjustment Expense (ALAE) and unallocated loss adjustment expense (ULAE). The ULAE expense is only 23% of system expenses, and the loss dollars are 68% of the system expenses. **
ULAE is an Unallocated Loss Adjustment Expense that covers the overhead for the adjusters, their support staff, and the systems that they use.
Rather than attempting to reduce loss dollars, many employers (their brokers) and insurance companies focus on controlling their expenses by attempting to reduce the number of adjusters handling their claims.
The assumption is that claims outcomes cannot be reduced or mitigated by the claims handler because they are a fixed benefit determined by the labor code.
When insurance companies hold their senior claims executives accountable for their ULAE budget and do not require them to focus on reducing the total loss dollars, they tend to have a much higher loss ratio than companies that focus on managing and reducing losses.
I have seen CFOs and company procurement committees doing everything they can to lower the claims administration costs by increasing the claims caseload and, at the same time, ignoring the loss dollars and their decisions’ impact on the loss dollars. In doing so, they demonstrate that they need help understanding or appreciating the bottom-line impact that a well-spent dollar may have on the ultimate total cost of the claim. When companies go for the lowest bid for claims administration rather than look at the weakest outcomes for claims administrators, they are doing themselves a great disservice.
Calculating the ideal caseload has become more complex with the advent of Covid-19. In the space of a few months, most of the industry went from mandating all claims adjusters work in the office to 100% working from home. As the COVID-19 pandemic ebbs and flows, the claims process has yet to be fully returned to the office.
COVID-19 issues
There are a myriad of factors resulting from the Covid-19 pandemic which impacted the ability of the adjusters to adjust a claim properly:
- Inadequate internet access from home.
- Inability to meet with the injured worker to perform a proper investigation or explain benefits to the injured workers.
- Lack of adequate space and privacy to handle claims at the home.
- Children and other responsibilities at home interrupting the daily work.
- Ability to print and mail from home vs from the office.
- Timely access to incoming hard copy mail.
- Timely access to new claims reports.
- System support from the claims administration software to avoid missed diaries and legal timelines.
- Changes in presumptions associated with the Covid-19 pandemic.
Most of these issues have been adequately managed, and current data suggests that for most adjusters, working from home is as productive as working in an office.
Factors which impact claims adjuster productivity
Many factors are associated with high caseloads, resulting in increased claims costs and poor claims results.
Any ideal case book size calculation must include weighting for the type and complexity.
Clinical complexity is a significant factor in determining the appropriate caseload.
A problematic medical provider is another crucial factor in case complexity.
One of the most critical determinants of claim efficiency is the age of the claim. Claims less than 12 weeks old use more resources than most older claims.
One factor in efficient handling is to drive for quick closure and to minimize maintenance activities. Only a few claims need to be open for over 12 months.
Employers have a crucial role in improving claims efficiency in several ways. An employer who is seriously engaged in providing TRTW light duties and modified duties significantly impacts the claims outcomes,
Assignment of claims. When the claims administrator can assign claims to the adjusters best suited to handling specific claims, the outcomes are better, and the transfer of files is reduced. However, if the examiner is unfamiliar with the employer or the broker, the examiner’s productivity is reduced.
Having a full-function smartphone/portal claimant interface also helps the examiner’s productivity by allowing claimants to access information about their claim and the process without having to talk with an adjuster, reserving adjuster time for high-value discussions.
State-of-the-art, real-time quality control systems are also vital.
How claims organizations manage and control new system release timing and implement new claims-related systems directly impacts the examiners’ productivity. This problem is determined by how often they cycle through new versions.
**** 3% of the clams account for 60% of the dollars.
*** All the numbers mentioned in this paper are either from the CA WCIRB or from my experience as a VP of Claims, Risk Manager, Senior Fellow in a WC Institute, or an industry consultant. They are not those of the California State Fund.
** These numbers may vary significantly within different organizations and jurisdictions.
* These are my observations and comments, which are not supported by current studies.
Stay tuned for Part 2 of this paper next week.
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