Predictive analytics for workers' compensation claims that adjusting still has not proven itself as a cost saver. Please note that I am referring to workers' compensation only.   

James Moore

Predictive analytics for other lines of casualty insurance such as auto and property damage has shown some promise over the years. However, workers' compensation adjusting and reserve analytics have not reached the point as a viable option. 

One of my longtime workers comp compatriots, Mark Walls of Safety National, went as far as calling analytics a myth. That is very strong language, but I cannot find one analytics package, app, program or cloud-based analytics suite that would allow me to challenge Mr. Walls’ assessment. 

Mark and I agree down the line on many facets of workers' compensation. With my actuarial background, I often give any type of statistics a wide berth to enhance the accuracy of workers' compensation benefit management. 

The bottom line is that I am still waiting for a great analytics package outside of an Excel(r) spreadsheet that would make me feel very comfortable with professing that “workers' compensation claim and reserving analytics have arrived.” 

I still cannot even begin to utter that phrase. Why?  

Two different random variables enter into the equation. Every injured employee has a different “healing window” of time to physically and mentally recover from an injury, and return to the workplace. The other variable is the mental healing capacity of the injured worker. No two people see a fractured arm in a cast with the same outlook.    

So let us look at what I am talking about in a formula for the number geeks such as myself:

Known and predictable statistic (1) * known and predictable statistic (2) * known and predictable statistic (3) = accurate predictive analytic.

But: 

Known and predictable statistic (1) * known and predictable statistic (2) * known and predictable statistic (3) *  physical healing random variable * mental healing random variable = shot in the dark at best.

As I have said, and Mark Walls says in his article: Show me the analytic. I will do an article at length on any software, etc., if I can be presented with one package that can predict claim outcomes.   

That is why reserving is an art, not just a formulaic contrivance of a few numbers on a spreadsheet. As Mark mentioned in his article, good experienced adjusters still survive as the best analytic tool for foretelling how a claim will turn out.

Hold on, though. Please see the word "good" in the prior sentence.   

Unfortunately, not all experienced adjusters are great at reserving. Then again, they can be the best claims handlers on earth using one technique. It is called the golden rule.   

As with my search for a decent workers' compensation app, I invite any person or company to show me a predictive analytics package that can foresee workers' compensation claims outcomes.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.