PEO Risk Management Best Practices - LP and Claims

This article represents the third of three that will outline the 5 major categories for which Risk Management Best Practices have been defined. Here are the 5 major categories (defined by CI): Basic Organizational Requirements, Client Service Contracts, Client Risk Assessment, Loss Prevention Management, and Claims Management.

If you haven’t read the first two articles in this series, here are the links:

• Part 1 – Risk Management Best Practices – Basics
• Part 2 – Risk Management Best Practices – Client Selection

The purpose of this article is to outline best practice activities defined by the Certification Institute for PEO risk management in the areas of Loss Prevention and Claims Management.

Loss Prevention Management – consistently implemented best practices in the area of loss prevention consist of the following elements:

1. Compliance with Loss Prevention Requirements - the PEO must establish and follow written procedures for requiring the client to comply with “critical” requirements. The procedures should include (a) communicating requirements to the client, (b) establishing target dates, (c) taking appropriate action for failure to comply, and (d) documenting action(s) taken.
2. New Client Needs Assessment –the PEO must establish and follow procedures for conducting a needs assessment and producing a service plan. The assessment should consider exposures, loss history, and compliance with state or federal regulations.
3. Providing Appropriate Loss Prevention Services – written procedures must be established and followed for delivering loss prevention services to the client with the service plan.
4. Accident Investigation – written policies should include a provision requiring investigation of employee accidents when the accidents result in work related injury and claim to the PEO. Procedures should describe which accidents will be investigated, the method and the form documenting the results.
5. Certificate Tracking Confirmation – the PEO should confirm that clients with material contingent WC exposures (i.e. subcontractors) have certificate tracking processes in place
6. Background Investigation – the PEO should require that clients cooperate in conducting background investigations as permitted by law for job positions with significant exposures.
7. Claims Review – the PEO should review and document at least monthly claims experience and resulting recommendations for clients with claims frequency and severity issues.

Claims Management - consistently implemented best practices in the area of claims management consist of the following elements:

1. Immediate Contact – the PEO must establish and follow written procedures that ensure an experienced claims person immediately contact injured workers (or family), who are involved in lost-time accidents.
2. Case Review – the PEO must follow written procedures to ensure an experienced claims manager reviews open claims with the carrier’s adjuster to ensure timely and appropriate adjustment of claims reserves on a quarterly basis.
3. Fraud Hotline – unless provided by the WC carrier, the PEO should provide a WC fraud hotline with a reward for the confidential reporting of fraudulent claims that lead to a conviction
4. Claims Analysis – using loss runs or RMIS system, the PEO should monitor, at least monthly, WC claims performance for each WC policy. It is important to note: (a) new claims, (b) changes in open/closed status, (c) total incurred and (d) changes in amount paid. Additional details should describe claims >$25,000 and lost time claims.
5. Return-to-Work – the PEO should establish an up-front return-to-work program for all employees that describes potential light duty work and compensation
6. Compliance with Timely Reporting Requirements – the PEO should require that employees and supervisors report all accidents on the day of occurrence to the worksite manager. All worksite managers are to report claims to the PEO by the next business day to ensure timely reporting to the WC carrier within three days.
7. Managed Care Providers – the PEO should use managed care providers where available to treat injured workers consistent with carrier requirements and state law.

All of the best practices outlined in this 3-part series will help you take your PEO from good to great. These procedures have already helped numerous PEOs across the U.S. establish themselves as a leader in the field. Using these procedures have also helped create significant profit centers for PEOs who have elected to retain risk through Retrospective Rating or Large Deductible insurance plans. Regardless whether the PEO manages these best practices in-house or elects to outsource them to PEO Risk Management Consultants, expectations should be the same: lower WC experience modifier, lower claims frequency and severity, increased client acquisition, and increased profits.

^{David E. Carothers is a Risk Manager and Managing Principal with Praxiom Risk Management in Tampa, FL. David is a founding and still active member of the Advisory Board to the Certification Institute for PEO Workers Compensation. He has also been a speaker at NAPEO conferences and authored several articles for the PEO Insider. Praxiom is a full-service outsourced Risk Management consulting firm specializing in PEO safety, loss prevention, claims management, and insurance placement. Praxiom works with PEO clients nationwide. You can email David at dcarothers@praxiom-rm.com for comments, questions, and consulting engagements. Click here for a full bio.}