If you don’t measure it, you can’t improve it.
Measuring various components to track and assess the status of a workers’ compensation program can be useful toward impacting an organization’s bottom line. Below are three examples of workers’ compensation components that, when measured, can be a good first step toward establishing performance goals.
1. Claim activity: Claim activity is an obvious key component to measure, as it directly impacts all elements of a workers’ compensation program. Here are a few items to consider when measuring claim activity:
- Frequency: Keeping track of the total number of incidents on a quarterly, monthly, or annual basis allows you to measure progress as well as compare your results to similar firms. You should also consider tracking the type of claim(s) and cost per claim, as this will provide further insight into the performance of your risk management efforts and areas for improvement.
- Lag time reporting: Monitoring the time it takes for employees to report their injuries or illnesses is crucial, as delays can significantly impact claim costs. A study by the National Council on Compensation Insurance (NCCI) showed that delayed injury reporting can increase compensation claim costs by up to 51%.
- Average closure rate: Tracking the amount of time it takes for claims to close out is extremely important for the overall cost of a workers’ compensation program. Expectations should be discussed with your carrier or third-party administrator at the beginning of each program year.
2. Total cost of risk: Total cost of risk (TCOR) is a measurable and manageable number that can be identified and controlled. TCOR is the total cost of your insurance program, including but not limited to premiums, retained losses, loss control costs, outside vendor costs, indirect costs, administrative costs, and collateral.
Here are a few items to consider regarding TCOR:
- TCOR should be measured per $1,000 of revenue, as this will give you the ability to compare it to similar firms.
- According to the NCCI, the ratio between direct and indirect costs (for claims $10,000 and above) is 1:1.
- TCOR should be evaluated annually.
3. Gross revenue required to cover injury costs: This metric is valuable for measuring and comparing workers’ compensation costs to something meaningful in the company. The formula is:
INCURRED LOSSES
————————
PROFIT MARGIN
For example, $50,000 in incurred losses divided by a 5% profit margin would equal $1,000,000 in gross revenue.
There are various ways you can measure the progress of a workers’ compensation program; however, the key is to use the metrics that are most meaningful to your organization. The next step is establishing goals and objectives based on these metrics. Because after all, what gets measured gets results.
If you need help turning your program’s data into actionable insights, contact a Marsh McLennan Agency advisor today.
