Claim frequency

The outrageous anecdotes cited by Huber and others as evidence of the dangers of a runaway strict-liability system should be evaluated in the context of the second and third insights. One should not and cannot infer from such cases much about the overall optimality of the liability system. "Simply put, the relationship between claim frequency and the number of injuries is too complex for reliable assessment of the deterrent effects of reforms" (Hughes and Snyder 1989, 426). 

Shannon et al. (1996) is an example of a study limited in both of these ways. It doesn t have any variables on employees involvement with the company s financial returns, and it doesn t present the results of the analysis in a multivariate ftamewoik. The researchers examine a matched sample of questionnaires sent to firms in Ontario with data on those firms lost-time frequency rates (equivalent to the analysis of claim frequency given below). Survey questionnaires include responses from both workers and management. The paper discusses only univariate statistical analyses that compare various workplace practices to whether a firm has a low, medium, or high claim frequency. A multivariate regression analysis is mentioned but not reported on in the paper. 

This factor is not statistically significant in Hunt and Habeck s (1993) multivariate regression, but the results are suggestive a 10 percent increase in this people-oriented culture variable is associated with a 4.2 percent reduction in lost workdays rate, as predicted by our model. This analysis focuses only on claim frequency, so the authors do not report any analysis of claim severity. Our results on claim frequency support the analyses of both Hunt and Habeck (1993) and Hunt et al. (1993), and suggest litde or no effect of involvement in decision making on claim duration. Their findings with respect to management culture variables (the focus of their study) will be discussed below. 

Claim frequency is also lower in the Sharmon et al. (1996) sample, where a long-term disability plan is provided. The cost of such plans, whether by experience-rated premiums or by self-insirrance, reflects the long-term safety experience of the workforce. Hence it is expected that where such programs are in place, management will be more attentive to workplace risks and will work harder to limit those risks. In other words, it will have an additional financial incentive to be involved with the safety culture of the firm. 

This study goes beyond much of the earlier research and— following the approach of Hunt and Habeck (1993) and Hunt et al. (1993)—seeks to estimate the role of HRM practices in the determination of workers compensation costs in a multivariate framework. It uses a workplace safety model that incorporates a wider variety of HRM practices than has been previously employed. In particular, it analyzes the impact of the three important dimensions of HRM practices on safety employee participation in decision making, employee participation in financial returns, and the firm s management safety culture. In addition, this is the first study to consider file effect of each of these factors on claim frequency and claim severity, and to ask whether any observed change is file result of changes in technical efficiency or moral hazard (principal-agent) incentives. 

Following this procedure, we merge firm-level data from the survey to claimant-level data from Miimesota s workers compensation files at the Department of Labor and Industry. Since costs are the product of claim fi equency, claim duration, and benefits, we partition our statistical analysis into claim frequency and claim duration components to see whether the HRM practices affect claim fi equency, claim duration, or both. This will provide evidence about whether costs are reduced either because of loss prevention effects (in that a particular practice reduces the number of claims) or loss control effects (in that a particular practice limits the costs of those injuries that have occurred). We assume that the benefit parameters (maximum and minimum benefits) are exogenous relative to the choices made by the firms in our survey and do not model benefit determination here. 

As a result of our desire to partition HRM effects into their claim frequency and claim duration components, our descriptive sample statistics vary by t)q)e of analysis. These descriptive statistics are given in the empirical work in the next two chapters of the monograph, next to the corresponding analysis relevant to the descriptive statistics. 

Given the results cited in the literature above, our expectations are that higher values of these HRM variables will generally lower claim frequency. Which HRM practices actually do lower claim frequency, and by how much, is an empirical issue addressed in Table 3.2. 

HR practice Impact on claim frequency (%) Impact on claim duration (%) Overall impact on indemnity costs (%) Indemnity cost change per employee ( ) (per std. dev. change)... 

As an example, if a firm were to go from using two to using three financial returns programs (Employee Participation in Financial Returns went from 2 to 3), then claim frequency would fall by 23 percent and claim duration would fall by 13 percent. Lost work-time benefit eosts... 

Finally, interactions in the claim frequency reported below between the downsize dummy variable and HRM practices were statistically insignificant (partially, of course, because of the small sample sizes). 

If, for example, more financial involvement in the firm reduces claim frequency by a reduction in moral hazard, then we would e q)ect that more employee financial involvement would also reduce the number of claim denials on the part of firms. Similarly, since claim-reporting moral hazard is most likely to occur in difficult-to-monitor claims such as back sprains and strains, we would expect that firms offering more financial rewards linked to workers productivity would experience relatively fewer back strain claims as the moral hazard-induced reporting of those claims falls. We examine the empirical evidence associated with these predictions in the next two sections. 

Claim duration may rise or faU, depending on whether the change in claim frequency substantially shifts the relative number of short- and long-duration claims. If this composition effect is small, we would expect the average claim duration to increase with downsizing as injury severity increases with injury risk. 

Safety measmements such as accident and claim frequency and... 

Workers Compensation Claim Frequency Down again NCCI, 2005... 

A 2005 National Council on Compensation Insurance (NCCI) research brief titled Workers Compensation Claim Frequency down Again (2005), states that there has been a larger decline in the frequency of smaller lost-time claims than in the frequency of larger lost-time claims. That runs contrary to the Heinrichean premise that achieving frequency reduction will produce an equivalent reduction in serious injuries. 

In the August 2011 NCCI Research Brief titled Workers Compensation Claims Frequency NCCI says that from 2005 through 2009, after accounting for wage and medical cost inflation, claims below 50,000 exhibited a greater rate of decline than those above 50,000 (Table 8.2). 

The data in Table 8.2 is in concert, generally, with the trending previously shown for the years 1999 through 2003 in Table 8.1. Reductions in less serious injuries are down substantially more than that for more serious injuries. In the August 2011 NCCI Research Brief, NCCI also says that workers compensation claim frequency for lost-time claims has increased 3% in 2010. This represents the first increase since 1997 and only the third time that frequency has increased in the last 20 years. This upward claim frequency trend for lost time cases is relative to the increase in fatalities for 2010 as shown in Table 8.3. 

Workers Compensation Claims Frequency. NCCI Research Brief, August 2011. Also at https //www.ncci.com/documents/2011 Claim Freq Research. pdf. 

Data on the trending of serious injuries and workers compensation claims contradict the premise that focusing on incident frequency reduction will achieve equivalent severity reduction. The following data have been extracted from publications of the National Council on Compensation Insurance (NCCI). A July 2009 NCCI bulletin is titled Workers Compensation Claim Frequency Continues Its Decline in 2008. The reduction was 4.0 percent. A May 2010 NCCI report says that the cumulative reduction in claims frequency from 1991 through 2008 is 54.7 percent. 

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