Claims Trends

TPAs Take Wait-and-See View of Claims Volumes

As hiring growth begins to outpace claims volume growth, what will that mean for claims management organizations?
By: | September 10, 2014

Some claims management organizations are experiencing a slight uptick in workers’ compensation claims volume following labor market reports detailing gradual gains in hiring.

But claims volume growth isn’t likely to keep in lockstep with employment expansion, pushing third party administrators (TPAs) to look for other revenue opportunities.

Employers’ ongoing safety improvements and manufacturing processes relying more on technology and mechanization than physical labor mean continued decreases in claims frequency.

Manufacturing companies, for example, have seen successive months of job growth while new jobs are seen as an indicator of potential claims because new, inexperienced employees typically account for a significant portion of injury frequency.

But there hasn’t been a comparable rise in claims filed by injured manufacturing workers, said Neil J. Lentine, chief operating officer at Broadspire, a third party administrator.

“Even though you might see a slight increase in jobs … the safety measures companies are taking, as well as the way they do business from a technology prospective versus the [use of] old machinery, you see less and less of the claims,” Lentine said. “We have several manufacturing clients where frequency continues to decline even when the job rates are going up.”

Payroll Growth

Nationwide, the frequency of lost-time claims decreased 2 percent in 2013, following a 6.1 percent decline in 2012, according to an August 2014 “Gauging the Economy” newsletter from NCCI Holdings Inc.

Overall, however, TPA executives are seeing some gains in claims volume.

In an August earnings call for the second quarter of 2014, Crawford & Co. reported that hiring increases have led to clients referring more workers’ comp claims. Crawford is the parent of Broadspire.

“We have seen a slight increase in claims in existing business because of the economy,” Lentine added.

From February through July, U.S. employers added about 240,000 jobs per month. Total nonfarm payroll growth fell in August, however, dropping to 142,000 new jobs created for the month, according to an employment situation report released September 5 by the U.S. Bureau of Labor Statistics.

Despite the slowing growth estimated for August, it marked the 54th consecutive month of private sector jobs increases.

The U.S. Department of Labor also says that businesses have added more than 10 million jobs over the past four and one half years. But TPAs say their intake of claims is nowhere near pre-recession levels.

“They are not up to pre-recession levels by any stretch,” said Joseph McLaughlin, senior VP sales and marketing at TRISTAR Insurance Group.

As expected, though, claim volume has grown along with payrolls, said Michael Hessling, chief client officer and executive VP of account management at TPA Gallagher Bassett Services.

But it is well established that workers’ comp claims frequency has experienced a long-term decline and TPA clients tend to be particularly sophisticated adopters of loss control practices.

“Yes claims volumes are up, but not up in line with the economy because our clients are very effective at further reducing frequency,” Hessling said.

Declining Frequency

Meanwhile, an increased use of products such as nurse triage programs is driving a downward shift in the category and severity of claims TPAs receive, Hessling added. Triage nurses typically determine whether a worker injury is serious enough to require immediate medical attention or is slight enough that self care is all that is needed.

“All of those things collectively lead to pressure on frequency reduction while at the same time employment growth is leading to an increase in overall opportunities,” Hessling said. “The net [change] is claim volume is up, but it is up stronger than the past three to four years. It is not by any means a step change.”

Overall declining frequency means TPAs, more so than insurers, cannot count on claims volume, but must look for other opportunities, such as providing clients with managed care services, Lentine said.

“It does have an impact on us so we have to think of ways to grow our market share,” he said.

Meanwhile, TPA executives expect better days are ahead.

Claims tend to lag employment growth by three to eighteen months, said Glenn Backus, president at Alternative Service Concepts.

“We monitor [claim] intake closely and haven’t seen a noticeable increase yet,” the TPA’s president said. “However, we remain cautiously optimistic, knowing that the economy [including employment] is still on somewhat shaky ground.”

Roberto Ceniceros is a retired senior editor of Risk & Insurance® and the former chair of the National Workers' Compensation and Disability Conference® & Expo. Read more of his columns and features.

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