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April 12, 2012

Lag Time And The Cost Of Claims

Summary:

Reporting injuries within a few days will save you money, reduce your chances of being litigated, and will help the overall morale of your workforce. This is one example of when it's beneficial to act as quickly as possible to comply with a government mandate.

When it comes to complying with government mandates, most of us wait until the last minute. Renewing our driver's license and paying taxes are two examples that come easily to mind. So if we live in states like Missouri, Kansas, Georgia and New Jersey, we might be inclined to wait the required 21 to 30 days to report a workers' compensation claim.

That would be a mistake.

Increased Claim Costs
Many people don't realize that with every passing day, the cost of a non-reported injury goes higher and higher. In a 2001 study titled First Report of Injury: Impact on Claims Cost, Anne Engleman and Patrick Vice found that with each week of not reporting a claim, the expenses increase dramatically.

The following table shows the increase in claim expenses compared to reporting within one week.

Reporting (Lag) Time Expense Increase
2 weeks 18%
3 weeks 29%
4 weeks 31%
5 weeks 45%

Let's put real numbers to that. According to the Workers' Compensation Insurance Rating Bureau of California, the average cost of a workers' comp indemnity claim in California for 2010 was $65,000. Here's what happens to that claim for each week you delay reporting it:

Reporting (Lag) Time Cost Of Claim Due To Delay
2 weeks $76,700
3 weeks $83,850
4 weeks $85,150
5 weeks $94,250

I don't know about you, but saving over $11,000 by reporting an injury within seven days instead of 14 is well worth it.

Summit Holdings, a member of the Liberty Mutual Group, stated in its April 2009 newsletter COMPpress that the average cost of a claim increases three percent every day the claim report is delayed.

Increased Potential For Litigation
The cost of the injury isn't the only thing that goes up. With every passing day of not reporting a claim, the potential for litigation goes up as well.

The Summit report stated that 22 percent of injuries reported within 10 days are litigated. Wait a month to report the injury and your chances of litigation go up to 47 percent!

Human Cost
Dollars and litigation worries aside, there's another cost to not reporting an injury — the human cost. We could cite study after study, but do we really need to? Injured employees want to know they are being cared for; they want to know their injury means something to the owners and supervisors for whom they work. It's really that simple.

Injured workers need and deserve to be treated as quickly and completely as possible. Yes, there are “frequent flyers” out there who take advantage of the system, but most workplace injuries are legitimate accidents where good people get hurt. Letting them know you sincerely care, and working hard to get them treated and back to work is the right thing to do.

And there's a side benefit, but this should not be the reason you reach out — when employees feel cared for and well-treated, they are quicker to return to work, and far less likely to litigate.

Best Practices In Claim Reporting
The facts are clear — if you wait to report an injury, your costs will go up along with the potential of litigation.

There really isn't an excuse to delay. Most insurance carriers and Third Party Administrators have some type of online reporting tool, and although they may not be great software applications (in many cases they are down right terrible), they still provide the ability to report an injury in a timely manner.

Some reporting services, like ClaimCompass, allow you to use either an online application, a call center, a fax data-entry service, or their new mobile app. Claims reported through ClaimCompass can be sent to any carrier, or Third Party Administrator, or to any claim system.

Other software applications, like MountainView Software's ClaimZone or Riskonnect, offer far more than just claim reporting. They offer full-service claims and risk administration tools, giving you the ability to not only report a claim, but to manage the entire claims process.

The bottom line is this: reporting injuries within a few days will save you money, reduce your chances of being litigated, and will help the overall morale of your workforce.

This is one example of when it's beneficial to act as quickly as possible to comply with a government mandate, and that's no mistake.

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About the Author

Steve Schmutz is the Founder and CEO of Claimwire.com. Steve has over 30 years experience in the software indsutry. The last 15 years focused on claims and risk management. He is an active participant in the workers’ comp industry, and a frequent contributing author for several web sites, including Forbes.com.

follow @steveschmutz or @insurancethough for more stories like this

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