1. Christopher E. Schaffer, Esquire Vice President of National Sales National Claim Trends Insight. In Touch.

2. Spiraling Costs, Resource Drain & Loss of Production Governments and businesses in NC are experiencing an increase in WC costs that outpaces other operating expenses Loss Costs expected to increase by 18% What is the cause? What can be done?

3. National Claim Trends Total Cost is dependent on 2 factors:Total Cost is dependent on 2 factors: –Claim Frequency –Claim Severity

4. Claim Frequency is Down Source: NCCI (based on states where NCCI provides ratemaking services). Frequency down 35% 1.7 1.1

5. Claim Frequency Impact on Claim Severity Source: NCCI (based on states where NCCI provides ratemaking services). Claim Frequency per $1M Of Wage-Adjusted Payroll -12% -22% -24%

6. If Frequency in NC is Down, Why are Costs Up? Claim severity has increased Medical costs have skyrocketed Claim management practices have not been modified for current condition Fraud

7. What Can Be Done?

8. Claims Management Controlling the costs of workers’ compensation coverage begins and ends with claims management You should not rely on your TPA or insurance company to control costs You need to commit to an active and sustained role in the management of your workers’ compensation claims The Employer, Insurer and Administrator all have important roles in claims management

9. Evaluate Your TPA’s Ability to Contain Medical Costs Double Digit Growth in Medical in 3 of 4 years WC medical growth well beyond medical CPI Causes are: –Defensive Medicine –Increased Volume & Intensity of Treatment –Cost of Prescriptions now 13% of medical –Repeat Diagnostics

10. Source: NCCI (based on states where NCCI provides ratemaking services). 1986 1996 2006p Medical Payments as Percentage of Claim Cost

11. WC Medical Severity Rising Far Faster than Medical CPI Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states. 4.3 pts WC medical severity is rising twice as fast as the medical CPI

12. Medical Containment Programs That Should Be In Place Bill Auditing Software and PPO Networks WC Prescription Drug Programs – –Daily EDI – –First Fill – –Brand to Generic – –Home Delivery Diagnostic Programs Durable Medical Equipment

13. NCCI’s List of Factors that Change Medical Severity 1.Changes in prices by service category 2.Changes in the number of treatments within a service category 3.Changes in the mix of service categories 4.Changes in the mix of diagnoses 5.Changes in the mix of treatments within service categories Up 22% Down -6% Quality Bill Review Data Savings Percentage

14. Evaluating Your Reporting Process Do your employees know what to do when they are injured on the job? Does your management know what to do? Evaluate lag times between Accident, Employee Notice and Employer’s First Report. How quickly does your adjuster respond and begin investigation?

15. Evaluating Your Investigative Process Separate witnesses and claimant Obtain statements Photos of Accident Scene Confirm Facts Subrogation - Preserve Evidence Drug/Alcohol Testing Occupational Health Clinic Documentation

16. Evaluate Your Modified Duty Program Helps to contain temporary disability Lessens disability period – –Keeps employee from watching lawyer commercials while on couch with narcotics – –Doctors are more inclined to release to full duty if modified duty was productive Helps retain employee in work force and active Can reduce workers’ compensation costs by 35%

17. Evaluate Your Claims Administrator Are they local? Do they provide on-line access to claims information? What are the average LT and MO caseloads? Have they ever visited and do they understand your operations? Do they investigate accidents, pursue subrogation and obtain recorded statements? Are they responsive? Are they proactive or reactive?

18. Evaluate Your Communication Process With Injured Employee Inquire how employee is doing Show empathy and concern Express desire to see full recovery Require employees to communicate restrictions and provide disability slips after each appointment With Claims Adjuster Require responsiveness from your adjuster Conduct regular claim reviews of WC claims Request status reports and a plan of action on claims Request electronic access to claim files

19. Claim Shift Economics Current MixKeep 2% of LT Claims as MO Percent of Total Claims Incurred Per Claim Med Only78%$500 Lost Time22%$21,100 Weighted Average:$5,032 Percent of Total Claims Incurred Per Claim Med Only80%$500 Lost Time20%$21,100 Weighted Average:$4,620 $412 Savings On Every Claim

20. Comments Questions?