Workers' Compensation

Nearly 70 Percent of Denied Workers’ Comp Claims Are Converted and Paid, Says Lockton Study

Denied workers' comp claims that are converted to paid claims can cost up to 50 percent more.
By: | June 25, 2018 • 3 min read

Carriers and employers that think they are saving money by denying workers’ comp claims are actually doing the opposite.


According to new research from Lockton, 67 percent of claims originally denied are converted to paid claims within a year. Just as striking, the amount of money awarded for a converted claim is on average 55 percent higher than the original claim.

The report offers the following example: “Lockton found that the average net incurred value of a claim that is accepted and pays out is $10,153. However, the average for a claim that is denied, and then pays out, is $15,694.”

The report found that denials are also associated with lower productivity and decreased employee loyalty and trust. Yet still, carriers and self-insured employers increasingly are denying claims.

“Once a claim has been denied, employers lose the right to direct an employee as to how and where to seek coverage.” — Kelly Flannery, risk analyst for Lockton Companies

Denial rates for workers’ comp claims increased by 20 percent during the five-year period of 2013 to 2017, according to Lockton Analytics’ new benchmarking study of 273,000 claims. Here is a list of the top 10 reasons for claims denials.

“We think much of the increase is occurring because employers and claims adjusters have access to more data than ever before,” said Kelly Flannery, risk analyst, Lockton Companies, LLC.

“They are using this data to drive their decision-making about which claims to accept and which to deny.”

While saving money through claims denial may look like a cost-reducing measure at first glance, employers would do well to consider the bigger picture.

Real Costs Incurred

The study also examines three “buckets” of related costs: indemnity, medical and overall expense. In two of the three buckets, the costs were significantly higher for denied claims. The overall expense of a denied claim is nearly triple that of accepted claims, and the indemnity cost on denied claims was on average about $2,585 more than accepted claims.

In the third bucket — medical — employers did see a cost savings, but a minimal one, with an average decrease of $548.

Even a lesser percentage of converted claims or a lesser payout amount differential would be causes for concern from any savvy employer, but these exorbitant differences are a loud and clear wake-up call for all risk managers, claims managers and their enterprise-wide business partners.

Industry and Geography Considerations

Lockton’s study also examined the costs of denied claims by industry and found some differences. However, in every industry Lockton examined, converted denials cost more than claims that were accepted.

Denial conversions also varied from state to state. California has a higher conversion rate, while Texas and Florida have lower conversion rates when compared to the national average. This is another statistic employers should consider including when analyzing their claims costs.

“Since medical costs vary across the country, if the claim eventually gets paid, then the costs may be higher in certain areas than if the claim was paid out when originally filed.” — Kelly Flannery, risk analyst for Lockton Companies

“There are multiple factors at work in how geography impacts claim outcomes,” said Flannery.


“For starters, states set their own legislation to determine benefits for workers’ comp coverage, and these benefits can vary vastly from state to state. This means that a specific type of injury in one state may pay out very differently than if that same injury happened in a different state.

“Once a claim has been denied, employers lose the right to direct an employee as to how and where to seek coverage. Since medical costs vary across the country, if the claim eventually gets paid, then the costs may be higher in certain areas than if the claim was paid out when originally filed. States that have higher litigation rates will have higher average expenses per claim than those where litigation is less likely,” Flannery added.

Litigation Costs

Lockton’s benchmarking report indicated that 27.5 percent of non-denied claims are litigated, while 70.6 percent of denied claims are litigated. That significant statistic is astounding on its own. But consider this: Non-litigated, non-denied claims resulted in average net claim compensation of $7,489. Denied litigated claims resulted in average net claim compensation of $36,991.

The authors of the study recommend that companies work with their claims department to review claims management practices, costs and how the company’s numbers compare to Lockton’s benchmarking results. Closely examining the real cost of converted denials will help companies make better claims decisions. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

To the High Net Worth Homeowner: Build a Disaster Resiliency Plan You Can Be Proud Of

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.


Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”


Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.


“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]