How to Close Old Open Claims and Clean Up Your Loss Runs

To clean up your loss runs, list every open claim and ask each adjuster, in writing, what it takes to close it and whether the reserve still fits the facts. Send what is missing, then get updated loss runs and write a one-page summary for underwriters. Open claims matter because underwriters and the workers' comp experience mod use incurred amounts, which count reserves (money the insurer expects to pay but has not paid yet) as if they were already spent. This guide is for new owners who inherited loss runs with old open claims and want them current before a renewal, a remarketing or a refinancing.

Why do open claims hurt your insurance pricing?

A loss run (the insurer's report of every claim on a policy) shows, for each claim, what has been paid and what is reserved. The reserve is the adjuster's estimate of what is still to come. Paid plus reserved is the incurred amount, and incurred is the number most underwriters and the experience mod use. Many loss runs also include defense and adjusting costs in incurred, and the mod generally leaves most of those out, so compare a loss run line with the claim value on your mod worksheet before you assume they match. If you have not read your loss runs closely yet, start with how to read loss runs after you buy a business.

Reserves are set when a claim is reported and updated as facts come in. On a busy desk, an old claim can sit with a reserve that no longer fits: the injured employee went back to full duty months ago, the repair was finished for less than the estimate, or the other driver's insurer already paid. Each of those claims still counts at its full incurred amount until someone updates it.

Open claims cost you in two ways:

• Bigger numbers. An inflated reserve makes the business look more expensive to insure than it is.
• Uncertainty. A claim that has been open for years invites the question of whether it will grow. Underwriters may price for that possibility, and some may decline to quote.

Reserves can also be too low. A review sometimes moves a reserve up. That is still worth knowing before an underwriter finds it.

Whose claims are they after an acquisition?

It depends on how the deal was structured. In a stock purchase you own the same company, so its open claims are your company's claims, and you now manage them with the insurer. In an asset purchase, claims from before closing usually sit under the seller's policies, with the seller as the insured. See stock vs asset deal: who covers old claims.

Even in an asset deal, you have a stake. Under most workers' comp rating rules, the seller's payroll and claims history follows the business to the buyer, so the seller's open claims can feed your experience mod. Underwriters on other lines also tend to ask about the history of the operations you bought.

Adjusters generally discuss a claim only with the insured. If the claims are under the seller's policies, ask the seller for a signed authorization letting you or your broker get status updates, and check what cooperation the purchase agreement requires. Deal counsel can tell you what the agreement allows.

Which open claims should you look at first?

Sort open claims by incurred amount and by how long they have been open, then work down this list.

How do you work with adjusters to close or update a claim?

1. Start four to six months before renewal and pull current loss runs for every line, ideally five years, dated within the last few months. That leaves time for updated loss runs before the submission goes out 90 to 120 days before renewal.
2. Build a list of open claims with claim number, line, adjuster, reserve, last payment date and date opened.
3. Email each adjuster with three questions: what is the current status, what is needed to close the claim, and does the reserve reflect current facts.
4. Send the documents that answer those questions, from the table above.
5. Ask for a claim review if you have several open claims with one carrier. Many carriers will walk through open claims with the insured and broker.
6. Escalate politely through your broker to a claims supervisor if you get no answer in a few weeks.
7. Get it in writing. Ask for confirmation of each closing and the final amount, and request updated loss runs afterward.

Keep expectations realistic. Reserving is the insurer's professional judgment, and it can decline to change a reserve. Do not pressure an adjuster to underreserve or an injured worker to settle. A quick, oversized settlement can raise the incurred amount instead of lowering it, and workers' comp claims can reopen under some states' laws. If your program has a large deductible or retention, you reimburse the insurer for losses within it, so closing claims accurately also affects your cash directly.

When does the timing matter for your experience mod?

The experience mod does not use today's claim values. Under the National Council on Compensation Insurance (NCCI) plan, each policy year's claims are reported at set valuation dates, first about 18 months after the policy starts and then at later intervals, and the mod uses the values as of those dates.

Close a claim before its next valuation date, and the lower value can reach the next mod. Close it just after, and the benefit usually waits a year. If a value was already wrong on the valuation date, it may be correctable (see how to check your experience mod for errors).

So ask the carrier for the valuation schedule of each open policy year: the next date each year's claims will be reported, and which mod that report feeds. Put those dates on the same list as your open claims, and work the claims with the nearest dates first.

Independent rating bureaus and the state funds in North Dakota, Ohio, Washington and Wyoming have their own schedules. Ask your broker how the schedule works where your employees are. For new injuries, a return-to-work program helps keep claims from becoming the next stale file.

How do you document the cleanup for underwriters?

Underwriters see hundreds of loss runs. A short claim summary that explains what changed, and why it will not repeat, is easier to price than raw data. Send it with the fresh loss runs when you renew or remarket.

A hypothetical example. A new owner finds three open claims before renewal and works them with the adjusters.

The numbers are illustrative; real outcomes depend on the claims and the insurer. On the workers' comp mod, a big drop in a large claim mostly lowers the excess part (the share above a state-set split point, which counts less), so the mod moves less than the dollar change suggests. Underwriters on every line still see the full incurred drop. Add a sentence on the ownership change and the controls you added since closing. For what else underwriters look for, see what underwriters want from new owners. Morrow can help you read inherited loss runs and organize the summary if that is useful.

Keep reading

• How to Read Loss Runs After You Buy a Business
• How to Check Your Experience Mod for Errors After an Acquisition
• Return-to-Work Programs: How Light Duty Can Lower Workers' Comp Claim Costs
• What Underwriters Want to See From a New Business Owner
• How to Remarket an Inherited Insurance Program After an Acquisition
• All guides for new business owners

Frequently asked questions

Can I ask the insurer to lower a reserve?

You can ask the adjuster to review the reserve against current facts and send documents that support a change. Setting reserves is the insurer's decision, and a review can move a reserve up as well as down.

Will closing old claims lower my premium right away?

Not always. Renewal pricing uses loss runs as of the date the underwriter reviews them, the experience mod uses values as of set valuation dates, and the wider market moves premiums too. Cleaner loss runs give underwriters a better basis, but no carrier promises a specific result.

The seller's old insurer will not talk to me. What can I do?

Adjusters generally speak only with the named insured. Ask the seller for a signed authorization that lets you or your broker receive claim updates, and check the cooperation terms in your purchase agreement with deal counsel.

Can a closed claim reopen?

Yes. Some claims reopen when new facts appear, and workers' comp claims can reopen under the laws of some states. A closed claim with documented facts is still easier to explain than an open one.

Should I pay a claimant myself to make a claim go away?

Generally no. Paying a claimant directly can conflict with your policy's conditions and can undercut the insurer's handling. If your program has a deductible, reimburse the insurer as the policy describes, and let the adjuster resolve the claim.

References

• NCCI: ABCs of Experience Rating
• IRMI: Loss reserve definition
• IRMI: Incurred losses definition
• IRMI: Loss development definition

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.