Cover Story

Data Driven

For Stephen V. Festa, metrics matter for better claims management.
By: | September 15, 2013 • 11 min read

Change is coming in workers’ compensation claims management and Stephen V. Festa is urging his customers to take action.

Festa is the executive vice president and chief operating officer for Employers Holdings Inc., the Reno, Nev.-based carrier that operates in 31 states.

The majority of EMPLOYERS’ customers are small businesses. The carrier once functioned as the State Fund of Nevada, but has grown steadily to the point where it is publicly traded.

In his role, Festa monitors the factors that are shaping claims outcomes in workers’ compensation.  Some companies may know what he knows, but those who don’t would be well advised to listen closely to what he has to say.

The first such factor, although not necessarily the most important, is the economy. The Dow Jones Industrial Average and the S&P 500 were at new highs this summer, but Festa sees lingering claims management concerns due to unemployment or underemployment on the part of many workers.

“The economy is mending but it is still not back to where it was,” Festa said, during an interview with Risk & Insurance® in July, when he was a senior vice president and chief claims officer at EMPLOYERS. His promotion to EVP and COO was announced in August.

“There is clearly an impact that we are seeing at EMPLOYERS and if others aren’t seeing it, they need to be looking for it because it is definitely out there,” he said.

Due to the mediocre job market, EMPLOYERS is seeing a significant uptick in post-termination claims, he said.

“A lot of those claims turn out to be cumulative trauma claims,” Festa said. “A perfect example of what I am referencing is that we will see claims that are reported, six, seven, eight months after the alleged date of injury.”

Some claims have a date of injury that is as much as 18 months earlier. Festa said what the claimants in these cases share is that they were let go from their positions when the economy faltered, and they have not been able to find a job since.

Another identifier in these claims is that many of the claimants that were let go by one company are represented by the same attorney.

“We clearly can link the proliferation of those claims to the economy turning south and we are not done [with this trend],” Festa said.

To counter the trend, Festa advised business owners to be well-versed on termination best practices and to document that they have given their employees written instructions on how to file a timely claim and had the employee sign a copy of those instructions.

“I am optimistic that once the economy is back on its feet, we will see a reduction. But there will be a lag effect,” Festa said.

Another economic factor impacting claims outcomes, he said, is the inability of many smaller companies to focus on return to work, given the sometimes harsh constraints of the new economy.

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“The companies are vested in their own survival, so their ability to accommodate return to work options starts to dissipate, which in many cases clearly is going to prolong the case life of the claim,” he said.

Festa said his team is working proactively with companies and their TPAs to structure effective return to work programs, and to educate small business owners on the fact that their bottom lines will be adversely impacted by the longer tail claims.

“I understand the shift in focus,” Festa said of small business owners whose main goals are to keep their businesses afloat in this new economy.

“But at the end of the day, this does lead to more costly claims,” he said.

Discipline in Data

What Festa draws on in offering his insights into economic trends and their impact on workers’ compensation claims is data, and lots of it, said those in the industry who know him well and have spent some time working with him.

“He is very metrics driven without sounding obsessive about it,” said Marty Welch, CEO of the Hawaii Employers’ Mutual Insurance Co., a workers’ compensation insurer based in Honolulu.

“He just understood that this business of insurance is always some combination of the analytical and the intuitive, if you will,” he said.

“Some will say that claims reserving is an art. But I think it is probably more in line with 30 percent art and 70 percent or so analytics,” said Welch, who served with Festa at EMPLOYERS some years back, as chief underwriting officer and then chief operating officer for the company.

Welch, Festa and a number of other executives were brought on by EMPLOYERS’ CEO Douglas Dirks in 2004, with the goal of turning what was then a mutual into a much larger company.

EMPLOYERS celebrated its 100th anniversary this past July.

“He is relentless in measuring things,” EMPLOYERS’ CEO Douglas Dirks said of Festa.

“Metrics are a very big piece of his operation. He is very good at setting goals and measuring performance and then adjusting the goals, if necessary,” he said.

That metrics driven approach, he said, applies not only to claims management, but to the function of Festa’s department in general.

“Everyone in his organization knows what the goals are. They measure everything. They feel like they actually participate in defining and setting goals, and it creates a very powerful organization,” Dirks said.

Another trait that Dirks said he values highly in Festa is his affinity for collaboration.

“One of the core values for our company is collaboration and obviously Steve is a great team player,” he said.

“While Steve is opinionated, he is always willing to listen,” said Mike Saladino, senior vice president at Aon Risk Services, who worked with Festa when both were at Crawford & Co.

When Dirks and others talk of Festa as a collaborator, they do not mean a person who automatically nods his head “yes” to the statements of other team members.

“Sometimes collaboration is misunderstood as groupthink. Collaboration isn’t groupthink. It is quite the opposite. It is the ability to bring diversity to views, air those views and then come to an agreement about what course of action should be followed,” Dirks said.

It’s Festa’s analytical approach that makes him so valuable in group discussions, according to Wayne Wilson, the executive director of the California Insurance Guarantee Association (CIGA), a fund that pays off the claims of defunct insurers.

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Festa serves as chairman of the board of governors of CIGA.

“He is not a shoot-from-the-hip type of person, but then again he is not a guy that gets bogged down and has problems making a decision,” Wilson said.

Festa does his analysis, he said, and then comes to a conclusion, a trait that Wilson described as a “blessing” sometimes in board discussions.

Perspective on TPAS 

Before Festa came to EMPLOYERS, he gained national experience by serving as an executive vice president at Crawford and Co., from 1998 to 2003. While there, Festa led the company’s TPA division.

As an executive working with a carrier that uses TPA services in some states, and having run a TPA with national operations, Festa offered some pointers on ways to best manage the TPA relationship.

For one, as with many services in the insurance industry, Festa advised that TPAs can have strong operations in one geographic area, and not-so-strong operations in another.

“If I were a buyer in the Southwestern part of the country as opposed to a national buyer, I wouldn’t want to be swayed by the fact that a TPA has a good reputation nationally,” Festa said.

“I would never apply a broad-brush approach to the selection of a TPA. I would be more specific if my needs were more specific,” he said.

Nor would Festa apply a broad-brush approach to auditing a TPA’s performance.

“If we have a concern regarding the Oregon operation, then we focus on that operation,” Festa said.

The TPA referral process is also something risk managers need to pay close attention to, he said.

“The referral process for services is another area that generates revenue for the TPA and is an area that is ripe for conflict of interest,” Festa said.

Strict parameters around what fees should be charged and conducting audits to make sure those parameters are being followed, he said, are key to maintaining a productive relationship with a TPA.

“There may be a referral on an underlying indemnity claim where the adjustor refers that to a field case manager ahead of time,” Festa said. “But the referral itself needs to be an appropriate referral.

“I know there exists, having seen it from both ends, what I will call referrals that are less than appropriate, and not necessary. And being a buyer of TPA services, that is an area that we will look very closely at,” he said.

EMPLOYERS handles the majority of claims in house, but in those states where the volume of claims isn’t large enough to justify a bricks and mortar presence, the company does use TPA services, he said.

Festa worked as an adjuster back at the beginning of his career. He knows how heavy the workload can be.

“If an adjuster can pass off some work to another party and alleviate their workload, human nature being what it is, they may do that and you have to watch out for that. Ultimately, it will be costly,” Festa said.

The Affordable Care Act

The economy and its impact on workers’ compensation is one key factor in workers’ compensation insurance. The federal government and its attempts to mandate health insurance for millions of uncovered citizens is another.

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When fully implemented, estimates are that the Affordable Care Act will add 30 million more people to the health insurance system.  Long-term, there could be some benefits to workers’ compensation carriers and self-insureds in the form of generally healthier populations and reduced co-morbidities.

But in the short term, Festa sees some problems.

One big problem is that wait times to see specialists and other health care providers will increase, he said.  In treating injured workers, it is a given that the sooner the patient can see a doctor, the better the outcome.

“Already today, there are certain geographic areas that it takes longer than it should to get in to see a medical provider and the wait time is certainly going to lengthen,” he said.

“There is a lot of statistical evidence that supports the fact that delaying the appropriate medical treatment has an exponential effect on the overall cost of the claim,” Festa said.

Festa said there is no way the number of new doctors is going to grow fast enough to alleviate the situation.

Again, he’ll be checking the data.

“We will be watching that. We measure case life to see how long claims are staying open,” he said.

Festa also said that as providers are pinched for profits under health care reform, they will shift costs to workers’ compensation payers. Those payers lack leverage, comprising as they do, only 2 percent of overall medical spend.

“I look for the medical provider community to be recovering some of their profit from the comp community as well as other payers, and I expect cost shifting will occur,” Festa said.

The Evolution of a Claims Leader

Festa said he has been blessed to have been a part of the evolution of EMPLOYERS, which took such bold steps to grow from a state fund to a publicly traded company in 2007.

When Festa joined EMPLOYERS in 2004, it was a mutual doing business in a handful of western states. Through acquisitions and organic growth, it now operates in 31 states.

“What attracted me to the job was that the CEO had a vision of taking us to a national footprint,” Festa said.

Dirks said he sought executives who had traits that were reflective of the organization.

He pointed to Festa’s commitment to excellence and accountability.

“Steve has a real drive to do things well and to bring his team along to do the same thing,” Dirks said.

From Festa’s perspective, that means having to make tough decisions sometimes.

“I think it is very critical that you can’t let yourself get complacent,” Festa said.

“I don’t want maintenance managers in our organization,” he said. “I want leaders that are consistently focused on raising the bar and sometimes that is taxing on your thought process.”

Sometimes that focus means letting people go or demoting them.

“You have to make those calls in an objective way to benefit the organization, but the day that they become easy for me is the day that I need to step down. True leaders take these responsibilities very seriously,” Festa said.

Festa’s integrity, drive and devotion to analytics set him apart from the pack.

“I have told other people this,” Welch said. “He is the best claims executive that I have known in a 30-year career.”

“We brought in Steve to run the claims operation,” Dirks said.

“He is successful not just because he is an outstanding claims professional, but because he is an outstanding businessman.”

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.