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

Emerging Risks

Stadium Safety

Soft targets, such as sports stadiums, must increase measures to protect lives and their business.
By: | January 10, 2018 • 8 min read

Acts of violence and terror can break out in even the unlikeliest of places.

Look at the 2013 Boston Marathon, where two bombs went off, killing three and injuring dozens of others in a terrorist attack. Or consider the Orlando Pulse nightclub, where 49 people were killed and 58 wounded. Most recently in Las Vegas, a gunman killed 58 and injured hundreds of others.

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The world is not inherently evil, but these evil acts still find a way into places like churches, schools, concerts and stadiums.

“We didn’t see these kinds of attacks 20 years ago,” said Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services.

As a society, we have advanced through technology, he said. Technology’s platform has enabled the message of terror to spread further faster.

“But it’s not just with technology. Our cultures, our personal grievances, have brought people out of their comfort zones.”

Chavious said that people still had these grievances 20 years ago but were less likely to act out. Tech has linked people around the globe to other like-minded individuals, allowing for others to join in on messages of terror.

“The progression of terrorist acts over the last 10 years has very much been central to the emergence of ‘lone wolf’ actors. As was the case in both Manchester and Las Vegas, the ‘lone wolf’ dynamic presents an altogether unique set of challenges for law enforcement and event service professionals,” said John

Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services

Tomlinson, senior vice president, head of entertainment, Lockton.

As more violent outbreaks take place in public spaces, risk managers learn from and better understand what attackers want. Each new event enables risk managers to see what works and what can be improved upon to better protect people and places.

But the fact remains that the nature and pattern of attacks are changing.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility, in terms of behavioral patterns or threat recognition, thus making it virtually impossible to maintain any elements of anticipation by security officials,” said Tomlinson.

With vehicles driving into crowds, active shooters and the random nature of attacks, it’s hard to gauge what might come next, said Warren Harper, global sports & events practice leader, Marsh.

Public spaces like sporting arenas are particularly vulnerable because they are considered ‘soft targets.’ They are areas where people gather in large numbers for recreation. They are welcoming to their patrons and visitors, much like a hospital, and the crowds that attend come in droves.

NFL football stadiums, for example, can hold anywhere from 25,000 to 93,000 people at maximum capacity — and that number doesn’t include workers, players or other behind-the-scenes personnel.

“Attacks are a big risk management issue,” said Chavious. “Insurance is the last resort we want to rely upon. We’d rather be preventing it to avoid such events.”

Preparing for Danger

The second half of 2017 proved a trying few months for the insurance industry, facing hurricanes, earthquakes, wildfires and — unfortunately — multiple mass shootings.

The industry was estimated to take a more than $1 billion hit from the Las Vegas massacre in October 2017. A few years back, the Boston Marathon bombings cost businesses around $333 million each day the city was shut down following the attack. Officials were on a manhunt for the suspects in question, and Boston was on lockdown.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility.” — John Tomlinson, senior vice president, head of entertainment, Lockton

“Fortunately, we have not had a complete stadium go down,” said Harper. But a mass casualty event at a stadium can lead to the death or injury of athletes, spectators and guests; psychological trauma; potential workers’ comp claims from injured employees; lawsuits; significant reputational damage; property damage and prolonged business interruption losses.

The physical damage, said Harper, might be something risk managers can gauge beforehand, but loss of life is immeasurable.

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The best practice then, said Chavious, is awareness and education.

“A lot of preparedness comes from education. [Stadiums] need a risk management plan.”

First and foremost, Chavious said, stadiums need to perform a security risk assessment. Find out where vulnerable spots are, decide where education can be improved upon and develop other safety measures over time.

Areas outside the stadium are soft targets, said Harper. The parking lot, the ticketing and access areas and even the metro transit areas where guests mingle before and after a game are targeted more often than inside.

Last year, for example, a stadium in Manchester was the target of a bomb, which detonated outside the venue as concert-goers left. In 2015, the Stade de France in Paris was the target of suicide bombers and active shooters, who struck the outside of the stadium while a soccer match was held inside.

Security, therefore, needs to be ready to react both inside and outside the vicinity. Reviewing past events and seeing what works has helped risk mangers improve safety strategies.

“A lot of places are getting into table-top exercises” to make sure their people are really trained, added Harper.

In these exercises, employees from various departments come together to brainstorm and work through a hypothetical terrorist situation.

A facilitator will propose the scenario — an active shooter has been spotted right before the game begins, someone has called in a bomb threat, a driver has fled on foot after driving into a crowd — and the stadium’s staff is asked how they should respond.

“People tend to act on assumptions, which may be wrong, but this is a great setting for them to brainstorm and learn,” said Harper.

Technology and Safety

In addition to education, stadiums are ahead of the game, implementing high-tech security cameras and closed-circuit TV monitoring, requiring game-day audiences to use clear/see-through bags when entering the arena, upping employee training on safety protocols and utilizing vapor wake dogs.

Drones are also adding a protective layer.

John Tomlinson, senior vice president, head of entertainment, Lockton

“Drones are helpful in surveying an area and can alert security to any potential threat,” said Chavious.

“Many stadiums have an area between a city’s metro and the stadium itself. If there’s a disturbance there, and you don’t have a camera in that area, you could use the drone instead of moving physical assets.”

Chavious added that “the overhead view will pick up potential crowd concentration, see if there are too many people in one crowd, or drones can fly overhead and be used to assess situations like a vehicle that’s in a place it shouldn’t be.”

But like with all new technology, drones too have their downsides. There’s the expense of owning, maintaining and operating the drone. Weather conditions can affect how and when a drone is used, so it isn’t a reliable source. And what if that drone gets hacked?

“The evolution of venue security protocols most certainly includes the increased usage of unmanned aerial systems (UAS), including drones, as the scope and territorial vastness provided by UAS, from a monitoring perspective, is much more expansive than ground-based apparatus,” said Tomlinson.

“That said,” he continued, “there have been many documented instances in which the intrusion of unauthorized drones at live events have posed major security concerns and have actually heightened the risk of injury to participants and attendees.”

Still, many experts, including Tomlinson, see drones playing a significant role in safety at stadiums moving forward.

“I believe the utilization of drones will continue to be on the forefront of risk mitigation innovation in the live event space, albeit with some very tight operating controls,” he said.

The SAFETY Act

In response to the terrorist attacks on Sept. 11, 2001, U.S. Homeland Security enacted the Support Anti-Terrorism by Fostering Effective

Warren Harper, global sports & events practice leader, Marsh

Technologies Act (SAFETY Act).

The primary purpose of the SAFETY Act was to encourage potential manufacturers or sellers of anti-terrorism technologies to continue to develop and commercialize these technologies (like video monitoring or drones).

There was a worry that the threat of liability in such an event would deter and prevent sellers from pursing these technologies, which are aimed at saving lives. Instead, the SAFETY Act provides incentive by adding a system of risk and litigation management.

“[The SAFETY Act] is geared toward claims arising out of acts of terrorism,” said Harper.

Bottom line: It’s added financial protection. Businesses both large and small can apply for the SAFETY designation — in fact, many NFL teams push for the designation. So far, four have reached SAFETY certification: Lambeau Field, MetLife Stadium, University of Phoenix Stadium and Gillette Stadium.

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To become certified, reviewers with the SAFETY Act assess stadiums for their compliance with the most up-to-date terrorism products. They look at their built-in emergency response plans, cyber security measures, hiring and training of employees, among other criteria.

The process can take over a year, but once certified, stadiums benefit because liability for an event is lessened. One thing to remember, however, is that the added SAFETY Act protection only holds weight when a catastrophic event is classified as an act of terrorism.

“Generally speaking, I think the SAFETY Act has been instrumental in paving the way for an accelerated development of anti-terrorism products and services,” said Tomlinson.

“The benefit of gaining elements of impunity from third-party liability related matters has served as a catalyst for developers to continue to push the envelope, so to speak, in terms of ideas and innovation.”

So while attackers are changing their methods and trying to stay ahead of safety protocols at stadiums, the SAFETY Act, as well as risk managers and stadium owners, keep stadiums investing in newer, more secure safety measures. &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]