elements, Walsh said. They can learn, for
example, what practices really motivate
employees to want to return to work as
soon as possible following an injury.
“When you do get someone to the
table and have the discussion about
total cost of risk and really focus on
outcomes and what processes will get
you those outcomes, it can actually be a
fun discussion,” Walsh said.
“You start talking about things that
really matter and the roles an employer
can play in the claims process.”
TCOR is a key measurement for
decreasing workers’ comp variable
claims expenses, explained George
Pallis, director of marketing and
analytics for the national accounts
division of Travelers.
“Some customers focus too much
on the fixed cost component,” of their
program, Pallis said.
But fixed costs, or insurance
purchasing expenses, typically amount
to 20 to 30 percent of a program’s
overall expense with the remainder of
overall costs variable.
“The real opportunity to improve
the overall cost of risk is the variable loss
component,” or claims expense, Pallis said.
“We try to get [customers] to focus
on the variable loss component because
that is where we can bring our claims
handling expertise and risk control
practices … and really impact that total
cost of risk number.”
Focusing on reducing TCOR
in that fashion is not only good for
the customer, it also contributes to
Travelers workers’ comp book of
business, achieving a combined ratio
that beats the average for its industry
by 11 percent, Pallis said.
ACCESSING THE DATA
But Walsh said he knows also that
uncovering an accurate TCOR may be
challenging for employers, especially
for those purchasing multiple workers’
comp services “unbundled” from a
variety of vendors.
“Full disclosure, [a TCOR analysis
is] not an easy exercise to do right,”
“It does require a lot of effort to pull
the data in from the [disparate] pieces
of the puzzle. Some of it is relatively
easy. The claims data should be easy to
get. Some of the service data, especially
if it is bundled, will be easy to get.
“If it is unbundled, it might be a bit
of a struggle to get it in a way that you
can pull it all together easily.”
Pallis also noted that employers
unbundling a variety of claims services
might find a TCOR analysis more
“You have to go to different places,
and it might be difficult to quantify
total cost of
risk,” he said.
TCOR may not
be difficult when
such as loss
budgets are readily available in an
organized format, said Joe Picone,
casualty claims practice leader at Willis
“It’s difficult if your protocols for
storage of costs and budget [data] are
not well defined,” Picone added.
“A well-organized risk management
department will have access to most of
their costs. If your organization isn’t
capturing TCOR inputs on a regular
basis in a centralized manner, it could
The fewer components included
in a TCOR analysis, the easier the
computation task may be.
But that also increases the
likelihood that a less-than-optimal
final analysis will encourage program
changes that don’t improve costs or
claims outcomes, observers said.
Potential TCOR components are
significant expense considerations, yet
are very difficult to precisely measure.
One tough item to calculate are the
productivity losses employers suffer
when injured workers miss work.
Despite the difficulty of attributing
a precise number to productivity losses,
experts say it is valuable to include
it in a TCOR analysis, even if it’s an
“That is where you are going to
reach a point where you are willing to
make some assumptions reasonably
based on data you do have,” Walsh said.
“But I think ignoring that is a mistake.”
Snow, the director of risk
management at Humana, agrees.
While she does not have precise
measurements for productivity losses,
she does consider the cost when
[is not included] is the moment
you are going to have a problem
accomplishing your goal,” he said.
“Because if you decide after your
analysis that the goal is to get one
party to do something faster or better,
it is still incumbent on the other
parties to help them reach that.” &
ROBERTO CENICEROS is a senior editor
with Risk & Insurance® and the chair of
the National Workers’ Compensation and
Disability Conference® & Expo. He can be
reached at email@example.com
To overcome the challenges,
Walsh suggests an honest evaluation
of what matters to an employer, what
they want to accomplish and make
assumptions where necessary.
But document those assumptions
so that they can be replaced with data
as it becomes available, he said.
Also collaborate with both broker
and TPA, as each may have a role
in implementing improvements
suggested by a TCOR analysis.
“The moment one of those parties
DETERMINING TOTAL COST OF RISK:
A THREE PART SERIES
Savvy risk managers understand that analyzing the total cost of risk for
an employer’s workers’ compensation program provides a clearer picture
of where impactful improvements can be made. They also know that a
TCOR analysis helps win upper management approval for the investments
necessary to make those improvements. Read about potential data
elements to include in a TCOR analysis, expected challenges in collecting
the necessary information and examples of how successful risk managers
have applied the results.
October 1, 2017
Part 1: The Value of TCOR: Measuring the total cost of risk, or TCOR, for an
employer’s workers’ compensation program is a fundamental practice for
gauging the program’s strengths and weaknesses. A TCOR analysis can
help employers uncover which services and program elements are working
and which ones are expending resources without impacting outcomes. But
the TCOR’s accuracy may be influenced by which expenses the employer
includes in the analysis.
October 15, 2017
Part 2: Capturing the Data: How risk management departments are
structured and how they arrange the claims services they contract for will
determine the degree of challenge encountered when amassing a range
of expense data necessary to conduct a workers’ compensation total cost
of risk analysis. Regardless of the degree of challenge, conducting a TCOR
analysis is a powerful tool for understanding a workers’ comp program’s
value and well worth the effort required to uncover.
November 1, 2017
Part 3: Applying the Results: Applying a TCOR analysis can help improve
safety, speed claims resolutions and reduce an employer’s overall spend
on workers’ comp. It can help risk managers and workers’ comp managers
win corporate leadership’s support for launching programs known to
reduce losses. Once upper management sees their company’s total cost of
risk, they’re likely to ask, “How do we improve that?” This question opens
the door for risk managers to obtain the resources they need.
[a TCOR analysis
is] not an easy
exercise to do
— Patrick Walsh, executive VP
and chief claims officer, York
Risk Services Group