Peer Dialogues: Developing an Organizational Settlement Philosophy
When I started my career as a young claims adjuster at an insurance company, my managers showed me the secret handshake and explained the position's responsibilities. They then told me that to settle claims, we would negotiate to an agreed level of impairment, and provide lifetime future medical care if the employee was still employed at the employer.
After a few years of adhering to that principle, I started thinking that there might be a better way. Perhaps we should strive to completely close all claims faster, even for those employees still working for an organization.
It was a hard case to make, but soon our leadership agreed. What happened? It worked. At one point we had more than 15,000 open files. Within four years, during which our overall number of claims filed remained constant, we'd closed two-thirds of that pending inventory.
Our success was achieved by changing our long-held claims' resolution philosophy. And it is here where risk managers play an important role. Knowing the factors that influence a claims settlement and how those factors impact risk and reserves can help you better manage your overall workers' compensation program. Your claims philosophy helps to set the table for the entire organization. As risk managers, it's important that you be a part of that dialogue and execution. Here's a brief overview on why and where to begin.
The issues to explore
When I discuss claims philosophy with my peers, several questions and issues are hotly debated. These include:
-If benefits are paid to the injured worker in a lump sum, what will preclude that person from using the money for other purposes than care and income replacement? If that happens, where will those costs be shifted? To the group health domain?
-If the employer settles on a body part, what happens if the employee alleges another injury to the same body part?
-Can this approach be undertaken in all jurisdictions?
Let's take a closer look at those issues that can become barriers to the adoption of a new claims resolution philosophy.
Cost shifting to group health. As with most complex issues, the question of cost-shifting needs to consider a range of issues. One is whether or not it is best for the employee to remain tethered to the employer for an indefinite period of time. Does that approach engender permanent, full, or partial impairment? There is no hard data on the question. However, based on millions of settled claims, at Sedgwick, we know that when organizations work with injured workers to help educate them about how to manage their settlement, it is often economically better for the worker and the employer. Concerns about how individual claimants will manage their lump sum payments must be considered. However, it's not the employer or insurers alone who make such decisions. Both sides make their case using sound data and prospective analysis. Judges then play an important role in terms of checks and balances. Overall judges stand on the side of caution on behalf of the injured worker and look carefully at the governing laws and the claim to ensure adequate and appropriate compensation is provided.
Recidivism/new claims. What if the injured worker claims a new injury to a different body part after a claim is settled? While a valid concern, a closer look at data shows that when a program is carefully developed, and communicated properly to injured workers, there's little recidivism. And that holds true across industries, jurisdictions and job classifications. For example, like many organizations, a large university system in California wanted to reduce their open claims inventory and outstanding liability, improve actuarial outcomes, and lower their cost of risk. To achieve those goals, partnering with Sedgwick, the university instituted a Compromise and Release Arrangement (CRA) program for every claim, regardless of employment status. This included giving employees with workers' compensation claims a lump sum that was the value of their remaining medical treatments. Over a six-year period, Sedgwick's team settled 5,089 cases by CRA. Out of those, only 241 (5%) ever filed another claim for the same body part.
Jurisdictional limitations. Certain jurisdictions do not allow for CRA for future medical claims. These include: Delaware, Minnesota, Nevada, New Mexico, Texas, and Washington. Some states will allow CRA with hearings and/or other judicial considerations. The fact that these states do not allow for CRA does not mean the philosophy shouldn't be applied in other jurisdictions – there are simply too many benefits to be gleaned. When developing a philosophy ensure you examine the implications of jurisdictional limitations on your resolution strategies.
A closer examination of current data shows that many of the long-held concerns about claims resolution should be revisited. Now may be the time for risk managers to explore altering their current philosophies. Here are some steps to consider:
Look for partners and administrators who will work with you to stablish the new claims' philosophy and the principles that support its purpose and value for the organization.
Ensure your claims' administrator has the knowledge, reputation and capability to communicate the change in philosophy to their organization, and if necessary the C-suite of your organization – everyone needs to be on board.
Make sure to explain fully to the CFO and the financial team that there will be a change in cash flow and that it will appear on financial reports. Give them the data necessary to adjust reporting accordingly and reassure senior leadership that positive financial outcomes will ensue.
Reassure your internal claims' team that while the portfolio of claims will decrease over time, there is considerable work still to be done. Claims managers can now focus more time earlier in the process on complex or troublesome claims.
Partner with your claims' administrator to work with your internal team to review the settlement philosophy with the defense attorney panel. Ask if there are any known barriers to implementing the change and address all concerns.
Work with an administrator that provides continuous education to their staff as well as support for your internal team so that the benefits of your organization's new claims' philosophy can be effectively communicated to the injured worker. For example, with the money in hand, an employee has the freedom to select their own treatment and schedule it anytime and anywhere they choose.
Positive results for all
Instituting a new claims philosophy is not an easy task. The challenge for those who are responsible for establishing claims' settlement policy is to choose the best approach for their particular exposure and company culture. The result of embracing change will be reduced risk, a more manageable claims portfolio and better outcomes for workers.
The good news is that experienced administrators can help you in this effort. We know the benefits of instituting a strong claims philosophy and have seen it work.
ABOUT THE AUTHOR
William Zachry is a Senior Fellow at Sedgwick Institute. He serves on the board of the State Compensation Insurance Fund, California's largest provider of workers' compensation insurance. Zachry was appointed to the board by Gov. Arnold Schwarzenegger in 2010 and reappointed by Gov. Jerry Brown in 2014. He also participated in the design and implementation of landmark regulations to bring greater equity to the California workers' compensation system.
Disclaimer: WorkersCompensation.com publishes independently generated writings from a variety of workers' compensation industry stakeholders. The opinions expressed are solely those of the author and do not necessarily reflect those of WorkersCompensation.com.