Two self-insured employers buy the same service from the same vendor at the same annual cost. One recovers a share of it from the excess carrier. The other does not.
The difference is not the rate. It is how the invoice is written.
What excess policies say about expense
Excess workers’ compensation forms handle allocated loss adjustment expense in materially different ways, and the treatment is negotiated rather than standard. Three forms illustrate the range.
One filed specimen, CKE-1167M, excludes ALAE from Loss altogether. Its definition states that Loss does not include “allocated loss adjustment expenses which means costs associated with investigation, adjustment or legal expenses directly and definitely chargeable to a specific workers compensation claim”. Under that form, expense sits entirely outside the tower. It does not erode the retention and it is never reimbursed.
A second form, XS WC 0002, includes claims expenses inside Loss and defines them to cover “all reasonable expenses incurred by you in the investigation or defense of a claim or suit”. Claims expenses count toward the retention and erode the carrier’s limit. The exclusion is narrow: “fees and expenses of independent claim adjusting organizations or third party claims administrators hired by you”.
A third, an in-force policy issued to an Illinois school district on Star Insurance form 46 51 WC 04 12, defines Loss to include “court costs, interest upon awards and judgments, and allocated investigation, adjustment and legal expenses pertaining to claims under the Workers’ Compensation Law”, excluding only employee salaries, service company fees, and claims administrator fees.
Two of those three treat allocated investigation expense as recoverable. All three that include it exclude the same category, and the category is administration.
The distinction the forms are drawing
Read the exclusions together and the logic is consistent.
The carrier will share the cost of investigating a specific claim. The carrier will not share the cost of running a claims operation.
An IME on a named claimant investigates that claim. A monthly fee for handling a book of claims runs an operation. A medical record review commissioned because a particular file has a causation question investigates that claim. A per-employee-per-month charge for having review capacity available runs an operation.
The service can be identical in both cases. The classification follows the invoice.
What this means in practice
Bill per claim, against a claim number, with the deliverable attached, and the charge reads as allocated investigation expense.
Bill monthly, per employee, on retainer, or bundled inside a TPA’s administration fee, and the charge reads as a service company or claims administrator fee. It is excluded by name.
There is a corollary for TPAs that most vendors do not think about until it costs them. If a record review vendor subcontracts under a TPA and the work is folded into the TPA’s fee, the vendor’s cost becomes non-recoverable ALAE for the insured. The TPA absorbs it, prices it as a cost center, and squeezes it. If the same vendor invoices the self-insured employer or the pool directly against a claim number, the insured can present it as allocated expense.
Same work. Different economics for everybody in the chain.
The industry treats these costs as claim expenses
The classification is not an argument I am inventing. Matthiesen, Wickert & Lehrer’s survey of what workers’ compensation benefits can be subrogated lists nurse case management, medical bill audits, vocational rehabilitation, utilization review, independent medical exams, and nurse case worker services as allocated loss adjustment expense, defined as expenses attributed to the handling of a specific workers’ compensation claim.
Compare the position on the group health side. Great American’s medical stop-loss administration manual names, as expressly non-reimbursable, “claims administrator-initiated peer to peer medical reviews”, “medical record retrieval”, and “experimental or investigational reviews”.
The same service is named as non-reimbursable overhead in one line of business and as recoverable claim expense in another. If you operate both a self-funded health plan and a self-insured comp program, that asymmetry is worth understanding before you build a single vendor arrangement across both.
Nobody prices for it
There is an oddity in how excess workers’ compensation gets rated that makes the ALAE clause more negotiable than it looks.
NCCI’s excess loss development research uses case-incurred indemnity and medical “without loss adjustment expenses”. A Casualty Actuarial Society paper on excess workers’ compensation ratemaking states directly that its methodology did not consider the impact of allocated loss adjustment expense, and notes that incurred ALAE as a percentage of incurred losses appears negatively correlated to the size of loss.
On a $5 million claim, ALAE is a small percentage and a large absolute number. It is also largely unpriced. Carriers negotiate the clause rather than rate for it, which means the clause is available to negotiate.
Questions worth asking at renewal
Whether your form includes ALAE in Loss is the first question, and a surprising number of risk managers do not know the answer without pulling the policy.
If it does, ask whether allocated expense erodes the limit as well as the retention, because a form that includes expense inside the limit can exhaust coverage faster on a long-tail file.
Ask which vendor categories your carrier treats as excluded administration, and get the answer in writing before you contract with a vendor rather than after you submit the first reimbursement request.
Ask whether the carrier requires pre-approval for expense vendors. Some do, and on the group health side Great American states that savings-fee vendors “should be approved in advance”. The comp forms are quieter about it, which is not the same as permissive.
The part that is easy to fix
Most self-insured employers I have seen inherit their vendor billing structure from whatever the TPA proposed, and never revisit it.
Reviewing the ALAE clause takes twenty minutes. Restructuring a vendor invoice from a monthly retainer to per-claim billing takes one conversation. On a program with a $500,000 retention and a handful of severe files a year, the difference is not trivial, and it recurs annually.
The carrier is not going to raise it with you. The carrier’s interest runs the other way.
CUBEXLE invoices per claim, against your claim number, with the deliverable attached, so the charge presents as allocated investigation expense where your policy permits recovery. We make no representation about what any carrier will reimburse, and you should confirm treatment with your own broker.