Cost Allocation Methods for Workers Compensation

With the recent growth of alternative risk financing for workers compensation, in retrospectively rated insurance programs, high deductible insurance programs, self-insurance trusts, captives, and other insurance programs, cost allocation methods for workers compensation funding is an increasingly important, if not overlooked, subject matter. This paper presents a cost allocation methodology for workers compensation, and will develop different approaches for allocation. Due to the heightened awareness of workers compensation and safety during the past decade, many cost containment programs, legislation changes, and medical cost containment programs have been initiated. Workers compensation change back programs can be one important tool in the containment of workers compensation costs. Given this development, the allocation of those costs have become crucial management issues of business. The interaction of OSHA statistics and workers compensation losses will be discussed, as both sets of statistics are important in the management of workers compensation costs. The benefit of this paper is to document different techniques for cost allocation, to show the pros and cons of the various methods, and to explore the ramifications for cost allocation upon loss control techniques. Other key words: funding studies, large accounts, management information, financial analysis.