Reduce Your Next NCCI Experience Mod: Reserve Auditing
Updated: Jan 5, 2022
There is a good reason why I send this reminder at the beginning of the year which I'll explain. But, first, in case you're not familiar with reserve auditing, it's the only way to proactively manage your upcoming experience modification rating (outside of identifying errors through a premium audit). Reserve auditing is the process of auditing the reserves set on open claims to 1) identify those that are suspiciously high and 2) negotiate more favorable reserve values. Your next experience modification rate will benefit from the reduced value of those claims.
If you don’t have online claims access (you should request this from your carrier anyway), start by requesting currently valued loss runs for the three most recently expired work comp policies. Data from your last three policy terms (not your current) will appear on your next EMR. Then, start the conversation with your broker’s Claims Advocate or a third-party consultancy about reviewing open claims. There are great EBM (Evidence Based Medicine) tools now we can use to identify overvalued claims.
As you know, keeping that EMR as close to your minimum mod as possible is important. If successful negotiating lower reserves, you will decrease your upcoming Experience Mod and directly reduce the cost of your renewal premiums. Depending on your industry, you may help your organization retain business and win new clients by keeping your Experience Modification Rate low.
Getting back to why I send this out at the beginning of the year; you want to start the process of reserve auditing not too long after you renew. And, since 70% of organizations renew on 12/31 or 1/1, it's the time of year for 70% of you to think about scheduling a reserve audit.
The timing of reserve audits is important because there is a deadline, your Valuation Date, when reserve values on open claims are sent to NCCI or your independent rating bureau for the production of your next Experience Modification Rate.
Your Valuation Date is 6 months after you renew. So, if you renewed on 1/1, your Valuation Date is 7/1. After 7/1 reserves are locked no matter what happens to the normal development of that claim between 7/1 and 1/1 of next year. If a claim is reserved for $50,000 on 7/1 and the adjuster takes that value down to $35,000 or closes it for $20,000 on, say, 9/1, it's still going to appear on your next EMR for $50,000.
Six months before your Valuation Date may seem like a lot of time, but you don’t want to wait and give yourself just 60 or 90 days to accomplish this. Start early by talking to someone who could help and get the review scheduled.
If you have any questions about reserve auditing or anything related to your work comp program, please don't hesitate to call or email.
Have a great day! Stuart
Stuart Cytron, MBA has been published in trade journals such Construction Forum St. Louis and St. Louis Business Journal among others. You can read more about Stuart and how he developed a passion for helping businesses reduce work comp expenses on his website.