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

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Risk Management

The Profession

Maila Aganon is the personification of the American dream. The vice president of treasury and risk for Caesars Entertainment Corp. immigrated from the Philippines and worked her way to the top.
By: | October 12, 2017 • 4 min read


R&I: What was your first job?

I actually had three first jobs at the same time at the age of 16. I worked as a cashier in a fast-food restaurant, a bank teller and a debt collector for an immigration law firm.

R&I: Who is your mentor and why?

I have a few. The first one would be the first risk manager I reported to. He taught me the technical part of the job, risk financing, captives and insurance. I am also privileged to be mentored by Lori Goltermann (CEO of U.S. Retail for Aon Risk Solutions).  From her I learned to be resilient and optimize life/work balance. Then of course I also have a circle of ladies at work who I lean in to!

R&I: How did you come to work in this industry?

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I was once a bank teller and had a client who was an insurance agent. He would come in every day to make deposits. One day, he offered me a job. He said, “How would you like to have your own desk, your own phone and your own computer?” And I said, “When do I start?” I worked for this personal lines insurance company for six years.

R&I: Did you take to it immediately?

Yes, I did sales, claims and insurance accounting. I left for a couple years and that is when AAA came calling, which was my first introduction to risk management. I didn’t know there was such a thing as commercial insurance. They called me and the pitch was “how would you like to run a captive insurance company?”

R&I: What have you accomplished that you are proudest of?

It is not so much the job but I say that I am the true product of the American Dream. I came to the U.S. when I was 16. I worked three jobs because I didn’t want to go to high school (She’d already graduated high school in the Philippines.) I spoke very little English, and due to hard work, grit and a great smile I’m now here working with all of you!

R&I: What is your favorite book or movie?

In movies, it is a toss-up between Gone with the Wind and Big Daddy.

R&I: What is your favorite drink?

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I like anything sweet. If you liquify a dessert that’s my perfect drink.

R&I: What is the most unusual/interesting place you have ever visited?

This is easy because I just got back from Barcelona on a side trip. I visited the Montserrat Monastery, which is a thousand-year old monastery. It was raining and foggy. I hiked for three hours and I didn’t see a single soul. It was a very peaceful place.

R&I: What is the riskiest activity you ever engaged in?

This is going back to working at a fast food chain when I was young. I worked in a very undesirable location in San Francisco. At 16 I used to negotiate with gang members so they wouldn’t rob me during my shift. I had to give them chicken so they wouldn’t rob me.

Maila Aganon, VP, Treasury and Risk, Caesars Entertainment Corp.

R&I: If the world has a modern hero, who is it and why? 

I can’t say me. They have to be my kids Kyle and Hailey. They can make me laugh and cry within a half-minute of each other. Kyle is 10, a perfect Mama’s boy. Hailey is seven going on 18.

R&I: What about this work do you find the most fulfilling or rewarding?

I think the most fulfilling part is how you build relationships with people and then after a while they become your friends.

R&I: What is the risk management community doing right?

Risk managers do a great job of networking. They are number one. Which is not a surprise because the pillar of our work is building a relationship with underwriters, clients and brokers.

R&I: What could the risk management community be doing a better job of? 

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I am experiencing that right now; talent.  We need to a better job in attracting and retaining talent. Nobody knows about what we do. You tell someone ‘I’m as risk manager’ and they give you a blank look. What does that mean?

We’re great marketers and we should use this skill set in attracting talent. We should engage our universities, our communities, even our yoga groups and talk to them about the exciting world of risk. It is an exciting career because there is nothing like it.

R&I: What emerging commercial risk most concerns you? 

It would have to be the increasing cyber risk and the interdependency of systems.

R&I: What does your family think you do? 

I took my seven year old daughter once to an insurance event that had live music, dancing and drinks. She thinks that whenever I go to an insurance meeting, I’m heading to a party.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]