improved outcomes, Braun said.
Otherwise, workers’ comp
managers could expend too much
effort executing program changes that
theoretically should reduce claims
costs, but are not producing the desired
“If it isn’t saving you any money,
it might require a lot of activity and
it might sound good, but it’s not
impacting the overall cost of risk,”
Applications for TCOR are
evolving along with the spread of
claims analytics, Ferrandino added.
Gallagher Bassett, for example,
developed a system that measures an
individual claim’s attributes to gauge its
complexity. That information, used in
conjunction with TCOR to benchmark
a workers’ comp program against peer
companies, provides additional insight
for determining risk retention levels,
“If you have a higher complexity
than your peers, you might want to
take a lower retention to mitigate the
volatility,” Ferrandino explained.
An aging workforce exacerbating
the severity of today’s claims also make
understanding an employer’s TCOR
increasingly critical, Braun said.
Aging workers may require
employers to modify their return-to-work program parameters, for example.
That calls for evaluating whether such
modifications are paying off.
“It is looking at services that
traditionally make sense, but need to
be modified,” he said.
Periodically reviewing the TCOR
rate is comparable to checking whether
an automobile dashboard’s engine
warning light is activated, Picone
explained. A changing TCOR rate
will not describe what is wrong with
a workers’ comp program, just as the
car’s engine warning light won’t reveal
what is wrong with the vehicle.
But like an engine warning light,
changes in a TCOR rate trend alerts
that something is amiss, requiring
TCOR rate changes can prompt
the risk manager to ask “is it a positive
trend or a negative trend?” Picone
said. “And if it is negative, why? Then
you peel it back and ask ‘Is it claims
mapping costs, is it loss costs, collateral
costs, vendor costs, etc?’ ”
Picone cited the example of a
client whose spend on nurse case
management services increased by
hundreds of thousands of dollars over
a few years. “Their loss adjustment
expenses for claims went through
the roof” while their TCOR rate
deteriorated, rather than improved.
The increase in expenses and
deteriorating TCOR rates pointed to a
potential for savings by reducing nurse
case management services.
TCOR provides a useful, “
whole-picture” look at how changes to one
part of a program might impact other
parts of the program, agreed Mark
Noonan, managing principal, casualty,
at broker Integro.
“Being able to look at the total
picture provides the opportunity to
see where things are working and
where they are not and how you act
in one area impacts other areas,”
TCOR analysis also benefits
companies by providing a more
consistent and efficient organizational
approach to risk management that can
ultimately help company profitability.
“There is certainly a benefit,” he
But too much emphasis on
shrinking TCOR has risks.
Reducing insurance premiums by
changing underwriters, or slashing
claims management fees by contracting
with a lower-cost claims administrator
could quickly reduce TCOR.
But a cheaper insurer or third party
administrator may pay less attention
to loss-reduction practices, driving up
“I have always viewed total cost of
risk as similar to the analogy of a Jell-O
mold,” Noonan said.
“If you squeeze premiums then
losses may go up. If you squeeze losses
then broker fees may go up. If you
squeeze broker fees then insurance
premiums may go up.”
Managing by TCOR requires
prudent decision making, Picone
“You can’t keep squeezing (TCOR)
down to the point where you are
jeopardizing coverage or jeopardizing
outcomes, or service to your
employees,” he said.
Depending on corporate culture
and financial strength, some employers
may provide certain workers’ comp
services despite their TCOR impact.
An employer with a reputation for
caring for its workers, for example,
might provide injured employees with
additional nurse case management
care beyond an amount shown to be
Despite the advantages of
understanding TCOR, employers do
not always call it by its formal name
nor do they always conduct a workers’
comp program TCOR analysis,
Even in those cases, however, risk
managers evaluate the return on
investment from their workers’ comp
program spend. But they could still
benefit further from TCOR analysis,
allowing a more complete view of their
program’s efficiency, Noonan said.
But there is one argument for
risks they have,” she said. “It’s claims
management and bringing greater
ROBERTO CENICEROS is a senior editor
with Risk & Insurance and chair of the
National Workers’ Compensation and
Disability Conference & Expo. He can be
reached at firstname.lastname@example.org.
understanding a program’s TCOR that
will make sense to risk managers.
Current workers’ comp insurance
market conditions leave little room for
employers to glean substantial savings
there, Ferrandino said.
“But where the opportunity is
for clients (to save workers’ comp
dollars) is really in managing the
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 significantly improving claims
outcomes. But the TCOR’s accuracy may be influenced by which expenses
the employer includes in the analysis. Some risk managers only include
insurance premiums and workers’ comp claims expenses in their analysis.
Others include a much broader range of expenses, such as the cost the
productivity losses occurring when workers are away from the job.
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 it, veteran risk
managers and other observers agree.
November 1, 2017
Part 3: Applying the Results: TCOR as problem solver. Applying a TCOR
analysis can help improve safety, speed claims resolutions, and reduce
an employer’s overall spend on workers’ comp. It can do so by helping
risk managers and workers’ compensation managers win corporate
leadership’s support for launching programs known to reduce losses. Once
upper management sees the total cost of risk they are likely to ask, “how do
we improve that?” The question opens the door for risk managers to obtain
the resources they need.