In Depth: Workers' Compensation

Capturing the Best Data

Determining total cost of risk has value; getting your hands on the right data set is the challenge.
By: | October 12, 2017 • 7 min read

For a well-organized risk management department, collecting the array of expense data needed to calculate the total cost of risk for its workers’ compensation program should be fairly straightforward.

But aggregating all the desired data is often challenging for employers, particularly when it must be collected from various workers’ comp service providers who may use different formats for tracking the information.

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Expense information maintained within the risk management department might also be tabulated in different ways, depending on factors such as whether contracts call for paying flat fees or per-claim charges, further complicating matters.

“Some self-insureds and some insureds with large deductibles will have significantly different sources, or places, where the data might be kept in terms of what can be included in the total cost of risk number for workers’ comp,” said Bill Zachry, a longtime risk manager and senior fellow at the Sedgwick Institute.

“It’s one of the challenges in doing it well,” he added.

Other risk managers evaluating their total cost of risk, or TCOR, for workers’ comp, however, don’t find a need to seek data from many sources, depending on their goals and program structures.

Carolyn Snow, director of risk management at Humana Inc. and the 2014 Risk and Insurance Management Society Inc. president, relies on a TCOR analysis to help allocate workers’ comp expenses — insured through a captive — to company business units.

Information used to calculate her TCOR includes excess insurer premiums, third party administration claims-management expenses and the cost of time spent conducting claims reviews.

Bill Zachry, senior fellow, Sedgwick Institute

She obtains other TCOR input data from Humana’s business units and considers the cost of lost productivity when workers are absent due to workplace injuries. But that leaves little need to collect information from other sources.

“We don’t use a lot of outside information” to calculate TCOR, she said.

Regardless of the degree of the challenge in collecting data, a TCOR analysis is a powerful tool for a workers’ comp program and well worth the effort required to uncover it, veteran risk managers and other observers agree.

They encourage other risk and workers’ comp managers to gain a deeper understanding and better ability to manage the real cost drivers behind their workers’ comp spending by conducting a TCOR analysis — even when some expense information needed for a solid analysis must be based on estimations.

“I always felt that it was very valuable as a risk manager to understand what my TCOR was,” Zachry said.

Digging Deep

Many workers’ comp claims payers, however, focus only on learning their insurance and claims adjudication costs, forgoing the opportunity to examine how all the pieces of their program truly impact costs and claims outcomes, TCOR proponents argue.

“It doesn’t happen nearly as often as we would like it to,” Patrick Walsh, executive VP and chief claims officer at York Risk Services Group, responded when asked how often risk managers request York’s help to obtain information needed for a TCOR analysis.

“Full disclosure, [a TCOR analysis is] not an easy exercise to do right.” — Patrick Walsh, executive VP and chief claims officer, York Risk Services Group

But when risk managers dig beneath the surface of their workers’ comp program to really understand their total cost of risk, they can discern how to optimize their role and improve program elements, Walsh said. They can learn, for example, what practices really motivate employees to want to return to work as soon as possible following an injury.

“When you do get someone to the table and have the discussion about total cost of risk and really focus on outcomes and what processes will get you those outcomes, it can actually be a fun discussion,” Walsh said.

“You start talking about things that really matter and the roles an employer can play in the claims process.”

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TCOR is a key measurement for decreasing workers’ comp variable claims expenses, explained George Pallis, director of marketing and analytics for the national accounts division of Travelers.

“Some customers focus too much on the fixed cost component,” of their program, Pallis said.

But fixed costs, or insurance purchasing expenses, typically amount to 20 to 30 percent of a program’s overall expense with the remainder of overall costs variable.

“The real opportunity to improve the overall cost of risk is the variable loss component,” or claims expense, Pallis said.

“We try to get [customers] to focus on the variable loss component because that is where we can bring our claims handling expertise and risk control practices … and really impact that total cost of risk number.”

Focusing on reducing TCOR in that fashion is not only good for the customer, it also contributes to Travelers workers’ comp book of business, achieving a combined ratio that beats the average for its industry by 11 percent, Pallis said.

Accessing the Data

But Walsh said he knows also that uncovering an accurate TCOR may be challenging for employers, especially for those purchasing multiple workers’ comp services “unbundled” from a variety of vendors.

“Full disclosure, [a TCOR analysis is] not an easy exercise to do right,” Walsh said.

“It does require a lot of effort to pull the data in from the [disparate] pieces of the puzzle. Some of it is relatively easy. The claims data should be easy to get. Some of the service data, especially if it is bundled, will be easy to get.

“If it is unbundled, it might be a bit of a struggle to get it in a way that you can pull it all together easily.”

Pallis also noted that employers unbundling a variety of claims services might find a TCOR analysis more challenging.

“You have to go to different places, and it might be difficult to quantify total cost of risk,” he said.

Patrick Walsh, executive VP and chief claims officer, York Risk Services Group

In some cases, though, calculating a workers’ comp program’s TCOR may not be difficult when information such as loss data, actuarial reports and departmental budgets are readily available in an organized format, said Joe Picone, casualty claims practice leader at Willis Towers Watson.

“It’s difficult if your protocols for storage of costs and budget [data] are not well defined,” Picone added.

“A well-organized risk management department will have access to most of their costs.  If your organization isn’t capturing TCOR inputs on a regular basis in a centralized manner, it could be cumbersome.”

The fewer components included in a TCOR analysis, the easier the computation task may be.

But that also increases the likelihood that a less-than-optimal final analysis will encourage program changes that don’t improve costs or claims outcomes, observers said.

Productivity Losses

Potential TCOR components are significant expense considerations, yet are very difficult to precisely measure.

One tough item to calculate are the productivity losses employers suffer when injured workers miss work.

Despite the difficulty of attributing a precise number to productivity losses, experts say it is valuable to include it in a TCOR analysis, even if it’s an estimation.

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“That is where you are going to reach a point where you are willing to make some assumptions reasonably based on data you do have,” Walsh said. “But I think ignoring that is a mistake.”

Snow, the director of risk management at Humana, agrees. While she does not have precise measurements for productivity losses, she does consider the cost when thinking of her company’s TCOR for workers’ comp.

To overcome the challenges, Walsh suggests an honest evaluation of what matters to an employer, what they want to accomplish and make assumptions where necessary.

But document those assumptions so that they can be replaced with data as it becomes available, he said.

Also collaborate with both broker and TPA, as each may have a role in implementing improvements suggested by a TCOR analysis.

“The moment one of those parties [is not included] is the moment you are going to have a problem accomplishing your goal,” he said.

“Because if you decide after your analysis that the goal is to get one party to do something faster or better, it is still incumbent on the other parties to help them reach that.” &

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

More from Risk & Insurance

More from Risk & Insurance

2017 Teddy Awards

The Era of Engagement

The very best workers’ compensation programs are the ones where workers aren’t just the subject of the program, they’re a part of it.
By: | November 1, 2017 • 5 min read

Employee engagement, employee advocacy, employee participation — these are common threads running through the programs we honor this year in the 2017 Theodore Roosevelt Workers’ Compensation and Disability Management Awards, sponsored by PMA Companies.

A panel of judges — including workers’ comp executives who actively engage their own employees — selected this year’s winners on the basis of performance, sustainability, innovation and teamwork. The winners hail from different industries and regions, but all make people part of the solution to unique challenges.

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Valley Health System is all-too keenly aware of the risk of violence in health care settings, running the gamut from disruptive patients to grieving, overwrought family members to mentally unstable active shooters.

Valley Health employs a proactive and comprehensive plan to respond to violent scenarios, involving its Code Atlas Team — 50 members of the clinical staff and security departments who undergo specialized training. Valley Health drills regularly, including intense annual active shooter drills that involve participation from local law enforcement.

The drills are unnerving for many, but the program is making a difference — the health system cut its workplace violence injuries in half in the course of just one year.

“We’re looking at patient safety and employee safety like never before,” said Barbara Schultz, director of employee health and wellness.

At Rochester Regional Health’s five hospitals and six long-term care facilities, a key loss driver was slips and falls. The system’s mandatory safety shoe program saw only moderate take-up, but the reason wasn’t clear.

Rather than force managers to write up non-compliant employees, senior manager of workers’ compensation and employee safety Monica Manske got proactive, using a survey as well as one-on-one communication to suss out the obstacles. After making changes based on the feedback, shoe compliance shot up from 35 percent to 85 percent, contributing to a 42 percent reduction in lost-time claims and a 46 percent reduction in injuries.

For the shoe program, as well as every RRH safety initiative, Manske’s team takes the same approach: engaging employees to teach and encourage safe behaviors rather than punishing them for lapses.

For some of this year’s Teddy winners, success was born of the company’s willingness to make dramatic program changes.

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Delta Air Lines made two ambitious program changes since 2013. First it adopted an employee advocacy model for its disability and leave of absence programs. After tasting success, the company transitioned all lines including workers’ compensation to an integrated absence management program bundled under a single TPA.

While skeptics assume “employee advocacy” means more claims and higher costs, Delta answers with a reality that’s quite the opposite. A year after the transition, Delta reduced open claims from 3,479 to 1,367, with its total incurred amount decreased by $50.1 million — head and shoulders above its projected goals.

For the Massachusetts Port Authority, change meant ending the era of having a self-administered program and partnering with a TPA. It also meant switching from a guaranteed cost program to a self-insured program for a significant segment of its workforce.

Massport’s results make a great argument for embracing change: The organization saved $21 million over the past six years. Freeing up resources allowed Massport to increase focus on safety as well as medical management and chopped its medical costs per claim in half — even while allowing employees to choose their own health care providers.

Risk & Insurance® congratulates the 2017 Teddy Award winners and holds them in high esteem for their tireless commitment to a safe workforce that’s fully engaged in its own care. &

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More coverage of the 2017 Teddy Award Winners and Honorable Mentions:

Advocacy Takes Off: At Delta Air Lines, putting employees first is the right thing to do, for employees and employer alike.

 

Proactive Approach to Employee SafetyThe Valley Health System shifted its philosophy on workers’ compensation, putting employee and patient safety at the forefront.

 

Getting It Right: Better coordination of workers’ compensation risk management spelled success for the Massachusetts Port Authority.

 

Carrots: Not SticksAt Rochester Regional Health, the workers’ comp and safety team champion employee engagement and positive reinforcement.

 

Fit for Duty: Recognizing parallels between athletes and public safety officials, the city of Denver made tailored fitness training part of its safety plan.

 

Triage, Transparency and TeamworkWhen the City of Surprise, Ariz. got proactive about reining in its claims, it also took steps to get employees engaged in making things better for everyone.

A Lesson in Leadership: Shared responsibility, data analysis and a commitment to employees are the hallmarks of Benco Dental’s workers’ comp program.

 

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]