Understanding the Workers’ Comp Reserve System

Many employers don’t have a clear understanding of what reserves refer to in Workers’ Compensation issues. Reserves are funds allocated by your insurance carrier or claims administrator to pay your claims. If your employee is injured, an adjuster, in addition to managing the medical care, must estimate the total cost to pay the claim from initial treatment through settlement.

If the injury impairs an employee’s future capacity to work, adjusters must also estimate the amount to pay for this impairment early in the life of the claim, as well as the cost of investigating, defending and managing the injury. If vocational rehabilitation is required in your state, your adjuster must assess these costs, as well.

The reserve system includes: medical costs, which pay for doctor visits, prescriptions, and physical therapy; wage replacement costs, which replace wages temporarily, or permanently in cases of partial or total disability; and loss adjustment expenses, which assist in evaluating and defending claims. Vocational rehabilitation, may be included, depending on the jurisdiction of the injury.

Because reserves established on your company’s claims greatly impact your experience modification factor, they should be closely monitored. Review loss runs at least quarterly to watch reserve development. As the client, you should monitor and question the progress of claims.

The reserve system can work for you if you understand how it works, ensure you monitor loss runs on a regular basis, and move claims forward. Talk to your adjuster regularly and make a point of asking questions.