Insurer’s New Predictive Model Targets High Cost Workers’ Comp Claims

Workers’ compensation giant Liberty Mutual has developed a new predictive model that lets it more quickly identify and manage high cost workers’ compensation claims that typically make up about 20 percent of all workers’ compensation claims.

The new model is designed to help Liberty’s claims professionals identify claims that are potentially going to cost a lot and then bring the right resources to each one of these claims at the right time. The company should then be able to close these claims faster, thereby lowering overall claim costs.

The predictive model will be used to look at claims monthly and pick up changes in each claim’s profile that can negatively impact that claim’s development, such as emerging medical and non-medical factors.

Liberty Mutual has been using predictive models on workers’ compensation claims since 2004. Other workers’ compensation insurers, organizations and claims consultants have also been using models for several years.

Liberty Mutual’s latest proprietary model incorporates more data, enables more sophisticated multivariate analysis, and supports better decision making than its previous versions, according to George Neale, general manager of claims for Liberty Mutual’s Commercial Markets strategic business unit.

“We looked retrospectively at a lot of claims that we would consider adversely developed or had poor outcomes. We found that the recognition of those claims was really slow,” Neale says.

According to the company’s researchers, broader data, incorporating psychosocial factors and co-morbid medical conditions, can help predict a workers’ compensation claim’s duration and cost.

Also, the new model reflects that home environment, personal issues, employer-employee relationship can all affect the outcome of a work injury. “One of the biggest issues that we run into is certainly employee motivation,” Neale says.

Other potential risk factors that are weighed include existing medical conditions like hypertension, obesity and diabetes. It also considers that healing periods across the country can differ, which can affect the costs and period in which a claim must remain open.

Frequent model runs allow the risk of cost escalation to be continually assessed throughout the life of a claim. “We actually have five modeling stages,” says Neale. The five stages are intake, six months, 12 months, 18 months, and 24 months.

Controlling claim costs is important because the average cost of a workers compensation claim has been growing faster than inflation. Over the past 10 years, the average indemnity cost of a loss time claim grew 47 percent, from approximately $15,200 to $22,300, according to the National Council on Compensation Insurance (NCCI). That’s an average annual increase of roughly 4 percent.

The medical portion of lost time claims grew even faster – at a rate of 6.9 percent per year— over the last 10 years, going from $14,200 in 2000 to $27,700 in 2010, according to the NCCI.

In addition to providing the obvious benefits of cost reduction and earlier file closings, the model has the potential to benefit employers by reducing their premium. “The losses that you have go directly to determining the premium levels,” says Neale.

The latest model’s development began in late December 2010. The data employed comes from a variety of systems including the carrier’s own claims database, its own Research Institute, and an in-house medical loss database. The company says it evaluated more than 825,000 lost time claims and 140 million individual medical billing transactions. To validate the accuracy of the updated model, developers ran more than 200,000 lost time claims through it.

Liberty Mutual has also developed related resources for use by adjusters. These include early alert and medical referral tools and a dashboard, providing claims information flagged by importance.

Involving policyholders and in-house regional medical directors in the treatment protocol helps get employees back to work. “Once people are back to work, a lot of the…additional medical treatment falls into line at that point because you’re getting back to being productive; you’re getting your life back to what it was before,” Neale says.

Getting a worker back to work and to maximum medical improvement as soon as possible benefits all involved, says Neale. Not only does the worker benefit, but also the policyholder benefits by getting back a productive employee.