4 Key Metrics to Evaluate Your Workers’ Compensation Program’s Performance

Data is crucial in building and maintaining a workers’ compensation program. It helps determine a starting point, sets performance goals, and monitors a program’s progress. Used effectively, data is also helpful in increasing visibility and gaining commitment from both executive management and front-line supervision.

“As you define and track relevant data, make sure executive management is aware of the results,” said Betty Coulter, Senior Risk Control Manager at Safety National. “Properly tracked and reported data can convince even the most hesitant executive of the value of committing all of the necessary resources to a workers’ compensation program.”

These four metrics are essential for all risk managers to track the effectiveness of their workers’ compensation program and reach their goals.

1. Lost Workdays

Tracking lost workdays can help reduce the number of days an employee is away from work and should be an overall goal included in your program. Additionally, the measurement of lost workdays indicates both the effectiveness of your transitional duty program and the severity of the injuries in your workplace. Every unit manager or the department responsible for reporting days lost for the entity should be able to tell you how many injuries have occurred and how many workdays have been lost due to on-the-job injuries. In some organizations, this information can reside with the safety, workers’ compensation, or human resources divisions. Claims losses can be reduced by decreasing the number of claims and the number of lost days for each claim. It is important to note that a collaborative environment and cross-communication are effective in the process of addressing lost workdays.

2. Lag Time Reports

Lag time represents the span it takes to report a claim to the claims administrator or third-party administrator (TPA). All claims should be reported within 24 hours of the occurrence since late reporting can result in the following:

• Hampering the claims administrator’s ability to handle the claim effectively.
• Unnecessary and unrelated medical treatment, unpaid lost-time benefits, increased litigated claims, and other consequences.
• Losing the opportunity to obtain evidence if photographs of an accident location or recorded statements are needed.

With most TPAs, claims can be reported by phone, fax, or email. Look carefully to determine which reporting method best meets your needs and ensure procedures are followed. Every TPA can run a monthly lag time report for your company. Review this report and make sure it is accurate. If departments or business units are not reporting their claims on time, quickly determine the cause of the late reporting and correct the problem. Typically, an employee is waiting to hear from the TPA about their claim. If a claim is delayed, the employee can become concerned about treatment and medical expenses.

3. Incurred Losses

Incurred losses are the total potential costs of the claim, including the amounts paid to date for medical expenses, funds reserved for future medical needs, and lost wages on each claim. The cost of the direct expenses for each file, such as managed-care fees and legal expenses, is also added to this calculation. When you receive the loss data, review it carefully for errors. If you find inaccuracies, contact your TPA or claims administrator and ask to have the information corrected.

When an adjuster sets the reserves, they likely have some flexibility. If, for example, a company has an aggressive transitional duty program, the adjuster can set lower reserves for an indemnity claim than for a similar company that does not have an effective transitional duty program. When working with a company without an effective transitional duty program, the adjuster anticipates a longer period of lost time and, therefore, more lost wage payments. Money for reserves is not just theoretical; it is paid to the insurance company, so it has bottom-line implications.

When comparing incurred losses, make sure you have the same valuation date. If you are comparing your progress in 2024 to progress in 2023, each policy year must be valued with the same number of months. Be careful when comparing data. Not all risk management information systems capture historical data, making an apples-to-apples comparison more difficult. Ask your broker for a loss triangle report, which is a standard report capturing data at the same point in time for multiple policy years. If you are self-administered, it is important to run reports using the same evaluation methodology.

4. Process Goals

Organizations must identify each step in a successful injury management program and decide which milestones will be tracked. With the successful completion of those milestones, incurred losses will go down. Individual intermediate steps may not be directly measurable in dollars, but as you can demonstrate improvement in these operational milestones, bottom-line savings will follow.

Evaluate performance periodically to see how well your company is doing and to remind management about small steps that may need executive follow-up. Review and make sure you are not missing any relevant steps. Remember that incentive plans can be tied to achieving these operational or procedural goals. Establish periodic meetings with persons who are impacted by the process impacted by workers’ compensation administration. In addition to your TPA, key departments to include are safety, workers’ compensation administration, risk management, and human resources.