of law, medical management, claimant
psychology and litigation management.
Generally, the adjuster’s reserving philosophy should encompass the parameters
of promptness and accuracy.
4 They utilize reserving assistance. Workers’ Compensation insurance is
predicated on historical loss information.
There are several commercial databases
available that provide information to aid
adjusters in determining the length and
cost of a disability. Traditionally, the formulation of reserves has always been a subjective process based on the adjuster’s medical expertise and experience. This leads to
a lack of accuracy and continuity in establishing reserves. Statistical databases bring
objective criteria to the reserving process
and must be utilized with the subjective attributes of expertise and experience.
One of the more commonly used re-
5 They understand the fundamental components of the experience
serving tools involves evidence-based
medical guidelines. Such disability time
and loss cost parameters are formulated
from a number of medical databases
and add considerable objectivity, cred-
ibility and consistency to the reserving
of claims. State-of-the-art claims depart-
ments provide these tools to their work-
ers’ compensation adjusting staff.
Knowledgeable adjusters understand that
how they manage claims affects their insureds’ income statements (P&L) and the
cost of their Workers’ Compensation insurance. Any incorrect or unrelated payments or inaccurate reserves will unnecessarily increase the cost. Knowing the
components and function of the experience modification formula allows adjusters to understand how their actions influence the cost of an insured’s insurance.
The simplified experience modification
The Insured’s Actual
Incurred Losses (Paid + Reserved)
— dIvIded by —
Their expected Losses (expected losses
are a product of the insured’s anticipated
payroll and predicated, in part, on the
insured’s historical loss experience)
6 They understand the concept of net present value.
Adjusters often conclude claims by paying
monies that account for future benefits,
but a dollar today will not have the same
value in future years. Understanding net
present value and its future effect on the
value of claims will assist the adjuster in
formulating a reasonable and fair cost of
the claim. While considering the time value of money in the formulation of settlements is an important factor, most insurance companies and insurance regulators
do not allow the use of present value or
discounting when establishing reserves.
October 4 - 6, 2016
Join a distinguished gathering
of senior claim professionals and
service providers from across
the nation in Chicago, where we’ll
Evaluate a variety of large loss claim scenarios
through transformative workshops and learn
with the industry’s best and brightest
• Share ideas and adjustment strategies with
large loss claim professionals from across
For more information on educational workshops,
sponsorship opportunities, and to register,
please visit plrblargeloss.org or call 630-724-2200.
• Network with large loss adjusters and service
providers from across hundreds of disciplines
and specialty areas