California Insurance Company/Applied Risk Services received a #1 rank in insurance company claims performance from the State of California in their 2020 PAR Audit Release. This article was originally published by WorkCompCentral on December 4, 2020. We thank them for permission to include it here in this year’s Almanac.
When the State of California issued its 30th annual Workers’ Compensation Profile Audit Review (PAR) exam on insurance companies, third-party administrators (TPAs) and self-insured employers, they continued to raise the bar on claims handling performance.
Workers’ compensation providers are now being held to an increasingly higher required passing score than in past years. The PAR audit process results in the state reporting a single exam score, released to the insurance industry, state businesses and the public, annually.
The PAR score serves as an indicator of how well claims administrators are fulfilling their obligations, including measurement of prompt and accurate delivery of workers’ compensation benefits, claims payments, and customer relations. With its higher standards, the PAR Audit, among many exams conducted by insurance regulators and other organizations, is emerging as a useful benchmark for buyers.
The PAR exam methodology is consistent audit-to-audit over many years so that comparisons may be made between companies’ individual performances and so that they may be viewed competitively. As an extra feature, PAR exam data provides that administrators who adjust claims out of multiple offices are audited separately at each location, providing an even more useful analytical tool.
The recently released 2020 Report set its standard passing score at 1.36133 for claims administrators reviewed in 2019, seen as a tough standard by many. In looking at the data that follows note that the PAR exam, like most regulatory exams, is an audit by exception, so a higher score represents poorer performance while a lower score represents superior performance. Of the 39 administrators subjected to audit in 2019, only 27 met or beat the PAR standard. The spread of results demonstrates where best performers achieved scores well below the target standard, and lower-ranking performers scored about six times as high.
Looking at the scores of all enterprises examined, the following chart includes five self-insured employers, four insurance companies and one TPA:
Looking at the scores of insurance carriers only, here is the way they stacked up:
INSURANCE COMPANY PERFORMANCE RANK
2019 PAR AUDIT REVIEW
Claims administrators are automatically audited by the DWC every six years unless there are complaints or other issues that trigger an audit sooner. Looking back over the last 10 years and compiling the relative ranking of each carrier over all of its audits for a decade (1 represents first place, 2 represents second place, etc.) the winners are:
PAR AUDIT SCORE AVERAGE RANK
INSURANCE COMPANIES (2009-2019)
Overall, the 2020 PAR Report shows on average that self-insured employers performed the best, followed by insurance companies, and then TPAs.
Self-insured employers tend to score well due to a smaller caseload size, along with the fact they handle consistent types of caseloads compared to insurance companies and especially TPAs, which typically handle larger volumes of claims across a spectrum of industries. These are common findings when we look at the past 17 years of PAR score averages, by administrator type.
2019 PAR SCORES BY RANGE & ADJUSTER TYPE
With the PAR standard trending downward over the years, fewer workers’ compensation providers are passing—just two years ago 90% of audit subjects met or exceeded versus this year’s 67%.
AVERAGE PAR SCORES BY YEAR
Performance Over Time: Self-insured employers show relatively steady PAR scores, primarily due to the ongoing nature of their smaller caseload size and type, in comparison to insurance companies and TPAs.
ANNUAL AVERAGE PAR SCORES
(2004–2019, ALL AUDIT SUBJECT TYPES)
Tightening Expectations: Annually lowering the PAR standard reduces audited claims administrators an allowable margin of error for timely execution of
indemnity payments to injured workers.
PAR SCORE ANALYSIS HELPS FACILITATE SELECTION DECISIONS
PAR scores provide a relatively objective, useful tool enabling agents and their clients to predict how an insurance company or TPA will perform in what is arguably the most significant portion of their workers’ compensation administrative expenditure — claims handling.