Industry Headlines Reveal That Risk Managers Increasingly Need Greater Control and Transparency in the Pricing and Utilization of Allocated Loss Adjustment Expenses ("ALAE")

ORLANDO, Fla., April 18, 2011 /PRNewswire/ -- It's time to evaluate your current workers' compensation program and shine a light on the high cost of "cost-containment," says Paul Hughes, CEO of Risk Transfer. The most misunderstood and abused aspect of the workers' compensation system is the cost and utilization of cost containment vendors and processes. Cost containment vendors in the workers' compensation system include managed care companies, legal, surveillance, and vocational rehabilitation professionals, among others. On average, cost containment vendors amount to 20% of incurred loss or 13% percent of premium.  There is a wide variation in these fees by carrier with some being as high as 50% of loss. "ALAE expenses roll up on an aggregate basis under the terminology of 'other' or 'expense' on an insured's loss run," according to Mr. Hughes.

Will Gable, President Risk Transfer's customer advocacy company, RiskAware™, Risk Transfer's information and risk mitigation center of excellence, says, "There has been a shocking spike in the percentage of ALAE as a function of both paid and incurred losses."  In 2009, ALAE (as reported in insurance company financial statements as DCC) represented 20.6% of incurred losses in California and 21.4% in Florida.  In round terms, for every $1 million of claims paid, $200 thousand of this amount goes into the expenses associated with the containment of loss.  In addition, these results trending upwards rapidly.

A more often abused profit center for carriers, TPAs and managed care companies is a simple calculation that charges the savings of network fees back to the file.  Most national carriers charge up to 25% of these savings.  One company that provided a proposal for a Risk Transfer client charged back a whopping 40% of medical savings to the file as an expense, according to Mr. Hughes.

The following is an example presented by Will Gable and outlines what was observed on the managed care network charges alone.

Mr. Hughes explains, "Due to something as innocuous as percentage of savings to network charges, this client would have paid additional hidden costs of $970,000; or over 24.25 points more in losses and an addition to effective loss ratio as a percentage of manual premiums (managed care net costs/manual premiums) of 16.17%."  In a workers' compensation marketplace that is deteriorating rapidly every dollar needs to be squeezed out of the system by the client, not the carrier-TPA managed care company.

Questions? Call Risk Transfer today at (866) 481-9363 or email [email protected]. We are here not to just shine a light on the high cost of "cost-containment" but to help evaluate your current workers' compensation program and advise what can be done to better predict future workers' compensation costs.

About Risk Transfer: Our mission is to educate our clients about the risks within their business environment, and to deliver solutions with the highest integrity and unmatched insurance acumen. Through our specialized insurance companies and alternative risk facilities, we deploy the core competencies and experience to serve the unique insurance needs of your organization and business environment.

FOR FURTHER INFORMATION:

Paul Hughes, CEO
[email protected]
www.risktransfercorp.com
219 East Livingston Street
Orlando, FL 3280
Direct: 321-281-0701

SOURCE Risk Transfer