What is a Loss Run Report and How Can It Benefit Your Small Business?
Almost every state requires small business owners to carry workers’ compensation insurance. But after securing the policy, the small business owner’s responsibility has really just begun. The onus remains on the policyholder to ask the insurer for a Loss Run report at least once a year and to review it carefully to spot ways to improve workplace safety and potentially lower premiums.
A Loss Run report is a claims history report for a business. Insurance companies provide Loss Run reports for most types of business insurance, including workers’ compensation. State laws require insurance companies to provide these reports within a specified time, but the allotted time and workers’ compensation insurance laws vary by state.
Loss Run reports provide a summary of a small business’ insurance claims history, including the types of claims filed in the past, the frequency of past claims filed and the related costs. This data is used by insurers to help figure out how risky a business is to insure. The calculated risk directly impacts the premium amount a business will pay for insurance. The higher the risk, the higher the premium. Risk levels also help determine whether an insurer will offer a policy or renew a policy.
Because claims history is one of the factors that impacts insurance premiums, at a minimum, business owners should review Loss Run reports annually to make sure they are accurate and current.
Using Loss Run reports to improve workplace safety
Reports typically show a detailed account of claims activity for the policy period, including the insured’s name and policy number, the date for each claim or loss, the date the claim was reported to the carrier, a description of the injury, any payouts to the insured, claims reserves, and whether a claim is open or closed. They also reveal the most common and frequent injuries reported and where they occurred. All of this can help a small business owner evaluate safety programs and potentially better control insurance costs.
From a workplace safety perspective, Loss Run reports will contain data to help small business owners evaluate trends and identify areas for improvement. If injuries occur repeatedly in certain locations, certain physical areas within a workplace, certain departments or in certain jobs, small business owners have spotted a problem that can be corrected with better training, better hiring or better working conditions.
The reports will also detail injuries by type, cause and severity, how injuries happened and what body part(s) suffered injury. With that knowledge, small business owners can spot negative trends, take preventive actions and reevaluate safety programs to ensure these injuries don’t reoccur. In summary, the report can be used as a guide to help small business owners determine where to focus safety strategies for improvement.
Using Loss Run reports to inform business practices
Small business owners should examine the Loss Run report to make sure the information is accurate. It should include the name of the claimant, the type of injury, illness or fatality, the amount of money reserved for the claim, a brief description of the loss, whether the claim is still open and whether the claim has been litigated. A business owner should be able to identify every claim and injured employee on the report. The frequency and severity of the claims will be factored into the Experience Modification Rate (sometimes referred to as EMR, XMod, Ex-Mod, or MOD), which is one of the components that may impact future premium. Incorrect information and invalid claims could affect that premium. If an error is found or something unrecognizable is in the report, small business owners should contact their insurance carrier or agent so they can investigate.
Small business owners should note the number of “lost-time” claims, or compensation paid to an injured worker when they are absent, and compare that with the total number of claims. A lost-time claim percentage higher than the national average of 20% to 25% of total claims may reveal a need for a small business owner to review their return-to-work policy and process.
They should also note the number of claims litigated. A high percentage of claims litigated could mean employees mistrust the small business owner, are worried about losing their job, have some job dissatisfaction or aren’t satisfied with medical treatments related to the claim. That should signal to the small business owner a need for better communication and the potential for high turnover, which can be costly over the long term.
Loss Run reports show the number of claims open in a given time period – the date of an injury, when it was reported to the employer, when the insurer was notified and insurer entry. The longer a claim is open, the more it costs. Small business owners should aim to close out claims as soon as possible after the injury is reported. Checking a Loss Run report periodically can help owners stay on top of open claims and work to get them resolved more quickly.
Another pattern that might be identified is the frequency of claims by specific individuals. This information can help business owners and agents discuss steps to foster a culture of safety and reduce the likelihood of future claims. Employees should also be trained to report all injuries to their supervisor immediately and no later than the end of their work day.
Small business owners should also pay attention to reserves in the report. The amount held in reserves for each claim is how much money was set aside by the insurer to cover the anticipated costs of obligations associated with the claim. It is calculated by assessing the likely medical, indemnity and other expenses of each injury or illness. Insurance carriers try to calculate the expected costs of a claim as accurately as possible. However, the reserve amount could potentially be higher or lower than what ultimately gets paid out.
Using Loss Run reports to benefit the bottom line
Finally, small business owners who know their claims activity can use that to advantage when it comes time to renew their workers’ compensation policy. If the Loss Run report shows low claims activity consistently, owners may be able to use that evidence to show that they are low-risk and negotiate for a lower premium.
A Loss Run report is an important tool that provides small business owners a clear picture of their claims history and shows how losses can potentially contribute to increased premium costs. For this reason, a Loss Run report is one of the most important documents to regularly review and understand.
EMPLOYERS is committed to helping small businesses operate safer, more efficient workplaces. Contact EMPLOYERS® today to learn more about our cost-effective workers’ compensation insurance.
The information provided is intended to provide a general overview. This information is not legal advice and should not be relied on as such. EMPLOYERS® makes no warranties for the accuracy, adequacy, or completeness of the information provided, and will not be responsible for any actions taken based on the information contained herein. If you have legal questions or need legal advice, please consult an attorney.