When reviewing exposures for a prospect or client, we often see a concerning trend: an uptick in lag time, coupled with a higher percentage of claims in litigation. The red flags are clear—companies attempting to manage claims on their own, often without the necessary expertise and resources.
In the staffing industry, workplace injuries can occur unexpectedly, often in environments outside the agency’s direct control. To avoid impacting their loss run or overall premiums, some agencies attempt to handle claims internally. While this may seem cost-effective initially, it can lead to serious legal, financial, and compliance issues. Here are the key reasons why agencies should avoid self-managing claims:
1. Failure to report claims timely increases costs
Timely claim reporting is crucial. Early involvement allows carriers to intervene effectively, which can reduce claim severity. Delays can result in:
- Worsened injuries, leading to higher medical costs and longer recovery
- Increased likelihood of lost-time claims
- Limited ability for the carrier to direct injured workers to approved providers
- Data indicates that claims reported after 7–14 days can cost 30–50% more than those reported immediately.
2. Loss of legal protection
Carriers provide essential legal support and defense resources. Managing claims internally risks:
- Improper collection of evidence, such as incident reports and witness statements
- Statements or promises that weaken the agency’s legal position
- Missed deadlines, resulting in penalties or loss of defenses
3. Compliance issues related to delayed reporting
States have strict injury reporting requirements. Failing to report injuries to the carrier—who reports to the state—can lead to:
- Potential coverage issues or claim denial
- Fines or sanctions
- Audits revealing other compliance issues
- Suspicion of claim suppression, with serious legal consequences
4. Damage to company brand and employee relationship
Employees who perceive mishandling or underreporting injuries may:
- Hire attorneys, increasing costs and prolonging claims
- File complaints with regulatory agencies
- Lose trust in the agency, harming reputation and retention
5. Impact on experience modification and premiums
Attempting to avoid claims can backfire. Larger, delayed claims negatively affect the agency’s Experience Modification Rate (EMR), leading to:
- Higher future premiums
- Increased reserves due to uncertainty
- Reduced carrier willingness to renew coverage or offer favorable terms
6. Potential liability exposure
Agencies paying for treatment privately or negotiating off the books risk:
- Being liable for ongoing medical costs without workers’ compensation protections
- Setting a precedent for future unreported claims
- Violating state insurance regulations
Best practices for staffing agencies
To mitigate these risks, consider the following:
- Report all injuries immediately, regardless of severity
- Educate supervisors and recruiters on proper reporting procedures
- Document incident details thoroughly from the outset
- Collaborate with carriers to ensure use of approved providers and effective return-to-work programs
Conclusion
Self-managing workers’ compensation claims outside the carrier’s process is a high-risk and low-reward strategy. The potential costs, compliance violations, and reputational damage far outweigh any short-term savings. Prompt, transparent reporting to the carrier remains the safest and most cost-effective approach in the long run.
For more information on the concerns associated with self-managing workers’ compensation claims, please contact a Marsh McLennan Agency (MMA) advisor.
