IN DEPTH: WORKERS’ COMPENSATION
Capturing the Best Data
cost of risk has value;
getting your hands on
the right data set is
By Roberto Ceniceros
Determining total cost of risk in workers’ compensation means owning up to the cost of lost productivity.
F or a well-organized risk management department, collecting the array of expense data needed to calculate the total cost of risk for its workers’ compensation program should be fairly straightforward. But aggregating all the desired data is often challenging for employers, particularly when it must be collected from various workers’ comp service
providers who may use different formats for tracking the information.
Expense information maintained within the risk management department might
also be tabulated in different ways, depending on factors such as whether contracts
call for paying flat fees or per-claim charges, further complicating matters.
“Some self-insureds and some insureds with large deductibles will have
significantly different sources, or places, where the data might be kept in terms of
what can be included in the total cost of risk number for workers’ comp,” said Bill
Zachry, a longtime risk manager and senior fellow at the Sedgwick Institute.
“It’s one of the challenges in doing it well,” he added.
Other risk managers evaluating their total cost of risk, or TCOR, for workers’
comp, however, don’t find a need to seek data from many sources, depending on
their goals and program structures.
Carolyn Snow, director of risk management at Humana Inc. and the 2014 Risk
and Insurance Management Society Inc. president, relies on a TCOR analysis to
help allocate workers’ comp expenses — insured through a captive — to company
Information used to calculate her TCOR includes excess insurer premiums,
third party administration claims-management expenses and the cost of time
spent conducting claims reviews.
She obtains other TCOR input data from Humana’s business units and
considers the cost of lost productivity when workers are absent due to workplace
injuries. But that leaves little need to collect information from other sources.
“We don’t use a lot of outside information” to calculate TCOR, she said.
Regardless of the degree of the challenge in collecting data, a TCOR analysis is
a powerful tool for a workers’ comp program and well worth the effort required to
uncover it, veteran risk managers and other observers agree.
They encourage other risk and workers’ comp managers to gain a deeper
understanding and better ability to manage the real cost drivers behind their
workers’ comp spending by conducting a TCOR analysis — even when some
expense information needed for a solid analysis must be based on estimations.
“I always felt that it was very valuable as a risk manager to understand what my
TCOR was,” Zachry said.
Many workers’ comp claims payers, however, focus only on learning their
insurance and claims adjudication costs, forgoing the opportunity to examine how
all the pieces of their program truly impact costs and claims outcomes, TCOR
“It doesn’t happen nearly as
often as we would like it to,” Patrick
Walsh, executive VP and chief claims
officer at York Risk Services Group,
responded when asked how often risk
managers request York’s help to obtain
information needed for a TCOR
But when risk managers dig beneath
the surface of their workers’ comp
program to really understand their total
cost of risk, they can discern how to
optimize their role and improve program
“I always felt that it was very
valuable as a risk manager
to understand what my TCOR
—Bill Zachry, senior fellow, Sedgwick Institute
• Risk managers often fail to ask
their vendors for expense data.
• To bundle or unbundle is often
the question, as with many
workers’ comp issues.
• Productivity losses, as hard as
they may be to calculate, must be
considered part of TCOR.