Reserve Redundancy Reports: A Sixty-Second Seminar in Workers’ Compensation Claims Handling

Do you know what a reserve redundancy report is? Almost every major insurance company, third party administrator, and self-insured employer generates this report. Its purpose is to grade a claims adjuster’s reserve accuracy performance. It can make or break and adjuster’s career with a company. Yet the report has a serious flaw that often goes unnoticed.

When a claim is over-reserved, it means that a certain amount of money intended for payment of a claim is unnecessarily set-aside. That money could have been used for investment purposes. A reserve redundancy report will identify the amount of over-reserved funds. The greater the sum, the more trouble the adjuster is in. Of course, the goal of any claims department is to reserve accurately by setting-aside as close as possible the exact amount of money needed to pay claims.

Allow us to tell you a story about a poor claims adjuster who was disciplined based on a flawed reserve redundancy report. The adjuster was assigned a death claim valued at $360,000. Because the employer was self-insured, the Dept of Self-Insured Plans required posting of full reserves. However, the adjuster disputed liability and worked like a dog gathering past medical evidence, locating witnesses, coordinating a defense and litigating liability. Because he did such a great job, he ended up winning the case, saving the employer $360,000 upon closure of the file. However, the reserve redundancy report that was later generated by the employer’s out-of-state home office, identified this claim as being over-reserved by $360,000. Despite doing a great job and winning the case, resulting in nothing being paid, the adjuster was denied an annual salary increase by home office because of over-reserving as identified in the reserve redundancy report. Management had failed to inquire into the facts of the case to ascertain why $360,000 was left over. Perhaps next time the adjuster may consider deliberately losing the case to keep his name off the report. Better yet, perhaps the employer should correct the obvious flaw that exists in the reserve redundancy report as they ended up punishing a claims adjuster for doing a fabulous job.