Monday, August 11, 2014

Increase in Frequency or Paper?

Last week the California Workers' Compensation Insurance Rating Bureau issued a report on the state of the industry.

Noting that California, and more particularly the Los Angeles area, continues to buck the national trend of decreasing claim frequency, various theories abound.

Some speculate that increased permanent disability indemnity benefits are motivating more claims.

Others think that the high rate of litigation in the Los Angeles area (according to the WCIRB report, Los Angeles County was responsible for the highest rate of claim frequency growth in the state − 19% since 2009 − compared with the statewide increase of 9%) is to blame.

Still others hypothesize that the pace of economic growth since the recession ended is responsible.

Or perhaps it's a combination of all three.

Or maybe it's just the way "injuries" are measured...

According to one claims chief that I exchanged emails with, his front line people believe that some of the frequency is due to a change in how Applications for Adjudication of Claims are filed at the Workers' Compensation Appeals Board district offices due to changes in procedure introduced by SB 863.
"You mean I'm drawing the wrong conclusion?"
The explanation is that claims used to be filed as "skin and contents" within a single Application. Now, the theory goes, several Applications are being filed for a single individual breaking out separate claims for specific and continuous trauma injuries.

I haven't seen any studies or reports to validate this, but it would seem reasonable that the measuring methodology may be flawed in that we're counting "injuries" rather than "injured" and that the "increase in claims frequency" is really just an increase in the amount of paperwork being filed.

Take a look at SB 863 and what it attempted to do - eliminate various "add ons" as body parts to a claimed injury.

If those "body parts" aren't "added on" but rather are pled as separate "injuries" then a single injurious event may give rise to four or more Applications for Adjudications of Claim forms.

And I haven't done permanent disability ratings lately, so this might be completely off base, but the indemnity value of a string of "injuries" arising out of a single injurious event may be more than if a single pleading were used to cover all claims (particularly if there are no "add ons").

The rise in "claims frequency" has surprisingly (or not) correlation to the passage of SB 863.

Prior to 2012 California tracked the nation in claims frequency decline very closely.

But in 2012, the year that SB 863 became law, California's measured rise in frequency was 3 percent which contrasts with the national decline in frequency of almost one percent (continuing the measured trend).

2013's frequency in California increased about five percent while the national average went down that same number.

And although "frequency" increased in California during this period, ultimate claims count for indemnity claims continued to decrease according to WCIRB's end of year numbers for 2013.

This phenomenon of the data not making sense in the initial review isn't really any different than the estimates that were used to determine the volume that would be expected to go through the Independent Medical Review process - researchers likely counted how many cases went before a judge for adjudication of medical treatment requests.

There was no accounting for all of the many cases for which judicial intervention was sought but which never got to the a judge because the matter settled.

My take-away is that this industry does a lot of measuring and analyzing, but often enough we either measure and analyze the wrong thing, or don't interpret the results correctly, or fail to account for reasonable and obvious explanations.

And the problem with that is we end up trying to "fix" something that isn't broken in the first place.

So California claims frequency is up, and it is more concentrated in the Greater Los Angeles area - calm down. We may not have a "crisis" and the sky may not be falling.

1 comment:

  1. It's really not that hard to figure out why LA continues to have a huge issue. Target the root cause and eliminate the problem.