IN DEPTH: WORKERS’ COMPENSATION
The Value of TCOR
Determining it may be
inexact, but pursuing it
By Roberto Ceniceros
Determining total cost of risk is an inexact science that nevertheless must be pursued.
Determining what to include in a total cost of risk analysis for a workers’ compensation program is an imprecise exercise. Yet uncovering and measuring the total cost of risk, or TCOR, is a fundamental practice for gauging the strengths and weaknesses of a workers’ comp program’s individual components. It can help
determine the efficient allocation of resources so each component is optimally
managed to extract the best results from the entire program.
“It’s a precisely measured, nebulous term,” explained Pamela F. Ferrandino, a
vice president at Gallagher Bassett.
“While TCOR can be nebulous, it’s important to define it and continue to
measure it and see where you can make rational improvements.”
TCOR is an invaluable communications tool, added Carolyn Snow, director of
risk management at Humana Inc.
Humana insures its workers’ comp risks through a captive and allocates
insurance costs to individual business units. TCOR helps communicate to the
upper management of those business units why their losses may be driving any
additional expense, said Snow, who was the Risk and Insurance Management
Society Inc. president in 2014.
“You are not going to go to a business unit CFO and say ‘You know, your costs
are going up.’ They are going to ask why and you are not going to say, ‘They just
are,’ ” Snow elaborated.
“You might do that one time, but you will never do it again without having a
good business case of why,” she said.
TCOR is often thought of in its simplest form, typically including insurance
costs plus claims liability expenses and administration costs. It is commonly
mentioned as one entire amount comprised of the sum of those components.
But for a more sophisticated dive into how workers’ comp program spending is
paying off, or not paying off, a wider array of components can be included in how
TCOR is defined. More precise use also calls for viewing TCOR as a rate that
is compared to payroll or some other useful marker — say, for example, $13 per
$1,000 of payroll.
Additional components in a TCOR analysis can include brokerage fees,
collateral costs, legal services, reserves, risk management staff salaries and benefits
along all claims management services such as nurse case management and more.
TCOR can even include the cost of office space for an employer’s workers’
Employers frequently use TCOR to gauge how well their claims
administrators are managing various workers’ comp services they contract for, said
Paul Braun, managing director for Aon Global Risk Consulting.
In addition to gauging whether a workers’ comp program is functioning
optimally or going off kilter, brokers selling TCOR analysis services argue that
employers can apply it to help evaluate
appropriate risk retention levels
and assist in negotiations for better
It can play a role in determining the
best allocation of capital and assist in
making risk management personnel
decisions, they said.
The rise in use of claims analytics,
like predictive modeling, make it
increasingly useful to conduct TCOR
evaluations to measure whether
actionable program changes made at
the suggestion of those analytic findings
“You are not going to go to a
business unit CFO and say ‘You
know, your costs are going up.’
They are going to ask why and
you are not going to say ‘They
just are.’ ”
— Carolyn Snow, director of risk management,
• Determining TCOR enables a
risk manager to see how changes
in one piece of the WC program
• TCOR is a good way to measure
the success of claims adjustors.
• A less expensive TPA may
actually raise costs by being less