Report Lag and Claim Severity

Introduction Effective claim management can only begin when a claim is reported We reviewed whether a delay in claim reporting corresponds to higher claim cost Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 2

The Hartford Study Earlier study by The Hartford* After the day of the accident, average claim cost rose as the delay in reporting increased Based on Hartford data Published in 2000 NCCI s recent study gives similar but slightly different results *Glen-Roberts Pitruzzello, The High Cost of Delays Findings on a Lag-Time Study, Issues Report, NCCI, 2000 Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 3

Findings From NCCI s New Study Median cost of claims is lowest for claims reported after the day of the accident, and within two weeks after an accident There is variation in this pattern by nature of injury Claims appear to be more complex and difficult to settle as the delay in reporting increases Source: NCCI s Detailed Claim Information Data for Report Years 2010 and 2011 case incurred losses valued as Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 4

Data for This Study Detailed Claim Information (DCI) Sample of lost-time claims Industrywide data from 44 states* Fatal and Permanent Total excluded Occupational disease and cumulative injury excluded Report Years 2010 and 2011 Valued as of 18 months after report date *AL, AK, AZ, AR, CO, CT, DC, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NY, NC, OK, OR, PA, RI, SC, SD, TN, UT, VT, VA, WV, and WI Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 5

Claim Cost In this presentation, claim cost is case incurred loss valued 18 months after report date Case incurred loss includes all claim payments and the case reserve Loss adjustment expense is not included Development factors are not applied to the reported claim costs; in particular, claim costs shown are not estimates of ultimate claim costs Results of these analyses are similar if case incurred losses valued as of 30 months after the report date are used Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 6

Report Lag Categories Report Date Accident Date Category Beginning Ending No Lag --- 0 days Week 1 1 day 7 days Week 2 8 days 14 days Week 3 15 days 21 days Week 4 22 days 28 days After Week 4 29 days --- An accident that occurs on May 15 and is reported on May 23 is assigned to the Week 2 category since 5/23 5/15 = 8 days A claim reported the day of the accident is a No Lag claim Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 7

Overall Claim Costs Median cost per claim for claims reported on the day of injury is 25% more than the median cost for claims reported in Week 1 Lowest median cost per claim is for claims reported in Weeks 1 and 2 Median cost rises for claims reported in Weeks 3 and 4 Source: NCCI s Detailed Claim Information Data for Report Years 2010 and 2011 case incurred losses valued as Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 8

Lowest Median Cost Is for Claims Reported During the Two Weeks Following the Day of the Accident $ Thousands 25 Median Case Incurred Cost per Claim 20 15 10 5 0 19.9 19.3 17.3 17.8 13.8 13.2 No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 9

Report Lag Distribution More than 70% of lost-time claims are reported in the first week Almost 20% of lost-time claims are reported the day of the accident Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 10

More Than 80% of Lost-Time Claims Are Reported Within Two Weeks 60% 50% 52.2% Percentage of All Claims 40% 30% 20% 10% 19.7% 10.5% 4.4% 2.4% 10.8% 0% No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 11

Nature of Injury Some of the most common workplace injuries Sprains and Strains (46%) Fractures (11%) Contusions (9%) Lacerations (5%) More than 70% of lost-time claims are for these injuries Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 12

Sprains and Strains Are Almost Half of Lost-Time Claims Share of All Claims 0% 10% 20% 30% 40% 50% Nature of Injury Sprain/Strain Rupture Puncture Others Other Trauma Multi Inj Laceration Infect/Inflam Hernia Heart Fracture Dislocation Crushing Contusion Concussion Burn Amputation 2% 1% 0% 2% 5% 3% 2% 0% 3% 1% 1% 2% 1% 9% 11% 11% 46% Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 13

Distribution of Natures of Injury Does Not Vary Much by Report Lag Share of All Claims 0% 10% 20% 30% 40% 50% 60% Nature of Injury Sprain/Strain Rupture Puncture Others Other Trauma Multi Inj Laceration Infect/Inflam Hernia Heart Fracture Dislocation Crushing Contusion Concussion Burn Amputation After Week 4 Week 4 Week 3 Week 2 Week 1 No Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 14

For Sprains and Strains the Lowest Median Cost Is for Claims Reported in Week 1 $ Thousands 30 Median Case Incurred Cost per Claim 25 20 15 10 5 15.4 11.7 13.0 19.5 19.9 20.9 0 No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 15

For Contusions the Lowest Median Cost Is for Claims Reported in Week 1 $ Thousands 30 Median Case Incurred Cost per Claim 25 20 15 10 5 12.9 9.3 11.1 14.5 18.1 18.9 0 No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 16

For Lacerations the Lowest Median Cost Is for Claims Reported in Week 2 $ Thousands 30 Median Case Incurred Cost per Claim 25 20 15 10 5 8.3 6.4 5.9 10.0 12.9 11.1 0 No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 17

For Fractures the Lowest Median Cost Is for Claims Reported in Week 2 $ Thousands 30 28.1 Median Case Incurred Cost per Claim 25 20 15 10 5 21.0 12.8 13.1 16.5 17.4 0 No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 18

Nature of Injury For most Natures of Injury reviewed, claims reported in Weeks 1 and 2 have lower median costs than claims reported in other periods Fractures are an exception Weeks 2 and 3 have the lowest median costs Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 19

Impact of Waiting Period A waiting period is the time between the accident date and when indemnity benefits begin Most of the 44 states included in this study use a 3- or 7-day waiting period 3-day 18 states 7-day 19 states Other 7 states We looked at whether the length of the waiting period correlated with report lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 20

Thousands 200 Waiting Period Does Not Appear to Affect Report Lag Number of Claims 150 100 72 147 170 3-Day: AL, AK, CO, CT, DC, HI, IL, IA, MD, MN, MO, NH, OK, RI, UT, VT, WV, WI 7-Day: AZ, FL, GA, IN, KS, KY, LA, ME, MI, NE, NJ, NM, NY, NC, PA, SC, SD, TN, VA 50 0 49 29 33 36 29 11 15 6 7 No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 21

Claims Reported After Week 2 Appear to Be More Complicated to Settle Claims reported after Week 2 Involve claimant attorneys more often Are more likely to include lump-sum amounts Are less likely to be closed within 18 months of the report date Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 22

Claimant Attorney Involvement Increases as Reporting Lag Increases 40% 31.7% Percentage of Claims With Attorney Involvement 30% 20% 10% 12.8% 15.7% 17.8% 19.9% 23.9% 0% No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 23

Use of Lump-Sum Payments Increases as Reporting Lag Increases 40% Share of Claims With at Least One Lump-Sum Payment 30% 20% 10% 14.7% 13.5% 15.1% 16.3% 17.6% 24.7% 0% No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 24

Lump-Sum Payment Share Increases as Reporting Lag Increases 80% Share of Case Incurred Losses Due to Lump-Sum Payments 60% 40% 20% 30.7% 30.8% 36.2% 39.2% 39.2% 58.7% 0% No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 25

Claims Are Less Likely to Be Closed Within 18 Months When There Is a Delay in Reporting the Accident 80% Share of Claims That Are Closed Within 18 Months After Report Date 60% 40% 20% 53.9% 55.2% 52.9% 49.2% 48.0% 29.4% 0% No Lag Week 1 Week 2 Week 3 Week 4 After Week 4 Report Lag Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 26

Summary Median cost of claims is lowest for claims reported after the date of injury either in Week 1 or Week 2, depending on the nature of injury Claims appear to be more complex and difficult to settle as the delay in reporting increases The full research paper is on ncci.com, and a shorter version is in the 2015 NCCI Issues Report Copyright 2015 NCCI Holdings, Inc. All Rights Reserved. 27