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Paduda: Now's the Time to Fix That Roof

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Barring some catastrophic exogenic event (war with Iran, pandemic, sudden recession), workers’ comp premiums will continue to shrink.

Joe Paduda

Joe Paduda

Meanwhile, despite compelling evidence, work comp execs are worried about the opposite problem: that they won’t be able to raise rates high and fast enough if something bad happens. This at a time when industry profits have never been higher, insurers are awash with cash and all indicators point to continued low combined ratios.

Claim frequency continues to decline (yes, there are increases here and there, but these are NOT altering the decades-long trend). I penned a four-parter on frequency awhile back that provides more detail.

The large and mid-sized payers I speak with are seeing declines in claim counts. Medical costs are flat, and have been for several years.

Yet the National Council on Compensation Insurance's poll of workers’ comp execs finds these folks are worried about rate adequacy (that means claims costs will go up faster than insurance premiums, leading to financial losses for insurers).

Wrong problem, folks.

The real issue facing C-suiters is declining premium dollars, which means less money to pay for administrative expenses, which means fewer dollars to invest in information technology and new IT projects; revamping claims systems; electronic connections to providers, vendors and other third parties; adjuster training and retention; and innovation.

I get that CEOs have to do worst-case scenario planning, but the chances of that worst-case (claim costs increase and rate increases can’t keep up) happening are minimal. Yet this “problem” is top-of-mind (according to NCCI), so execs are investing in predictive analytics to help with pricing, and dedicating more resources to actuarial research and analysis. Insurers are closely evaluating and monitoring risks for the purposes of acceptability, pricing and coverage.

There is compelling evidence that rates are too high now and will remain too high for some time to come. The cause is the steep drop in opioid usage among work comp patients, a drop that is slashing claim duration, increasing claim closures and reducing reserves.

Opioid users’ claim costs are more than double that of non-opioid users. As usage plummets, rate decreases lag far behind. The result: Today’s rates are based on what happened years ago, not what’s happening now.

While the impact of rapidly decreasing opioid usage — and concomitant reduction in claims costs — is real indeed, rating models and methodologies haven’t caught up to this reality.

This is the problem execs should be devoting most of their time to: How will they manage their business with less revenue than they have today?

The time to fix the roof is when the sun is shining. Work comp execs would be well-advised to invest their record profits in ways that improve efficiency, automate low-value tasks and, most importantly, assure effective medical care.

What does this mean for you?

You don’t want to be on a roof in a rainstorm.

There will be more on this in a free webinar hosted by WorkCompCentral Feb. 27. Register here.

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.

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