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2015 Teddy Award Winner

Revamped Program Takes Flight

The American Airlines and U.S. Airways merger meant integrating workers’ compensation programs for a massive workforce. The results are stellar. 
By: | November 2, 2015 • 8 min read

When the merger of American Airlines and U.S. Airways was completed on Dec. 9, 2013, creating the world’s largest airline, the task of integrating 100,000 employees covered by workers’ compensation looked like Mission Impossible.

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But newly named director of American Airlines workers’ compensation Jennifer Saddy, who formerly was director of workers’ compensation at U.S. Airways, seized the bull by the horns, and in short order, a complete overhaul of the massive workers’ comp program was on its way.

“We basically started an entirely new workers’ comp program,” said Saddy. “We put together a new workers’ comp team and redefined the roles of that team. We selected almost all new service vendors.

“So from my perspective, we were doing all this and at the same time working with our front-line operations folks to get this accomplished while they were involved in very different aspects of the mergers and integrations,” said Saddy, who also holds the title of director of corporate insurance and risk management.

Known as an enthusiastic, highly focused team leader, one of the first initiatives Saddy undertook was to realign her team’s goals and put a plan in place to resolve the 5,874 American Airlines legacy claims.

Pulling the Team Together

Saddy and her brokers at Willis held weekly calls with the adjusting team to discuss the most costly claims and to ensure the team had a plan to reach a resolution.

Jennifer Saddy, director of workers’ compensation, director of corporate insurance and risk management, American Airlines

Jennifer Saddy, director of workers’ compensation, director of corporate insurance and risk management, American Airlines

The combined forces achieved a consequential 20 percent reduction in overall open claims, and a 29 percent reduction in aged pending (claims more than two years or older) in under one year.

“We started the closing push at the end of January 2014 and results are through year ending Dec. 31, 2014. In fact, as of Dec. 31, 2014, the combined airline had less open claims than pre-merger American Airlines stand-alone.”

Right from the start, Saddy was determined to move out on as many fronts as possible.

She quickly reached out to the new airline’s four big unions.

“I meet with the unions on a quarterly basis,” said Saddy. “But for the most part, our union contracts don’t have a lot of information about workers’ comp. So some of the most common complaints from the unions have been customer service-oriented and the employees feeling they are not being supported and getting phone calls returned. If the adjuster is not returning a phone call, I need to hear that real-time.”

“We basically started an entirely new workers’ comp program. We put together a new workers’ comp team and redefined the roles of that team.” — Jennifer Saddy, director of workers’ compensation, director of corporate insurance and risk management, American Airlines

As part of her plan to roll out the new workers’ compensation plan as seamlessly as possible, Saddy called a two-day, all-hands-on-deck summit that included her team and all vendors.

“We discussed the merger of the two airlines as well as outlining goals and expectations,” said Saddy.

“However, to make it not only interesting but fun, we did a ‘rock star’ theme. Only rock stars were invited to come as a part of the new program.”

Her rock stars included the 19 members of her workers’ compensation team, newly chosen TPA Sedgwick, Willis, and various other vendors.

“We are now planning for our second annual summit,” Saddy said. “And instead of a rock star theme, in this one we are all superheroes.”

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Another aggressive, vital step Saddy took early on was to hire Sedgwick as the combined company’s TPA. An RFP was issued in early April 2014, and Sedgwick was hired on May 23 of that year.

Sedgwick has 79 adjusters working on the American account: 54 adjusters who are entirely assigned to the account, with 25 adjusters that are “designated” (they also handle claims for other accounts).

“The Sedgwick team has worked incredibly hard this past year to make our workers’ comp program a success,” said Saddy. “As we have undergone significant change due to the integration, they have proven themselves to be a flexible partner and embraced our new culture.

“They were quick to adopt the realignment of our workers’ comp goals, while delivering immediate results,” Saddy added.

Changes in Claims Management

Tied into the new agreement with Sedgwick was a revamp of the account instructions an adjuster must follow. Some examples of the changes include:

  • The adjuster must receive approval from Saddy’s team prior to assigning defense counsel.
  • The adjuster must receive settlement authority from Saddy’s team to engage in settlement discussions with the employee/attorney.
  • The adjuster reserve authority limit was reduced.

Another very successful initiative has been the significant expansion of the company’s nurse case management program. Saddy and her team selected three vendors, with more than 30 nurses overall assigned to the program.

“One of the things that I think has been very helpful in moving a claim forward, reducing the duration and getting the employee back to work sooner is that we’ve assigned nurses to basically every claim where the employee is not performing their regular job duty, or where they’re working with some kind of restriction,” said Saddy.

The role of the nurses is to be a medical advocate and communicate with the employee. They also provide return-to-work information to the front-line managers as well as coordinate with the medical team involved.

“The nurses’ goal is to be the liaison between all three of these parties to get information to where it needs to go,” said Saddy.

Saddy also moved the responsibility of communicating with an injured employee from her team to the local supervisor or manager. This provided more personal outreach, Saddy said.

This transition also enabled the corporate workers’ comp team to better manage the overall claims process, including oversight of service partners.

On another new front, at the end of last year, Saddy and her team called a summit meeting of all the attorneys who handle claims for American.

The team presented a litigation performance scorecard that outlined how attorneys’ progress would be managed and how their results would be measured.

Safety and Training

Training is a hallmark of Saddy’s program. Claims adjusters, nurses, doctors and union members who are involved in the workers’ comp program are regularly given training in the airport environment and maintenance facilities, as well as at the same on-site facility where flight attendants train.

“We have the adjusters push and pull a 250-to-300 pound beverage cart,” said Saddy. “We also have them open up the aircraft door on every airplane type we use. We also have them train on the baggage ramps, where many of our serious injuries occur.

“This gives them a better sense of how airline employees work on the job.”

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Another innovative injury prevention program that Saddy and her team have been involved with is the expansion of on-site athletic trainers through Fit Matters. American has provided fitness equipment for use by its employees.

The result, Saddy said, has been an 11 percent reduction in soft tissue/musculoskeletal injuries, which represent the majority of the company’s injuries.

These athletic trainers work with employees to develop proper lifting techniques and emphasize the importance of stretching before shifts.

Measurable Improvements

Saddy and her team also established two pharmacy providers, using Helios as its pharmacy benefits manager and Prium to review pharmacy data. Based on a variety of triggers and warning signs, they perform physician-to-physician discussions to ensure appropriate prescriptions.

“By partnering with these two vendors and staying focused on early intervention, we have seen success in reducing the risk to our employees from over-prescribing while reducing pharmacy spending to approximately 7 percent of total medical spending, compared to the industry average, which is approximately 15 percent of medical spending,” Saddy said.

Since Saddy and her team have swung into action, all of the workers’ comp metrics have improved — and all of the reductions are significantly better than industry averages.

Among the most impressive achievements was a 22 percent reduction in collateral requirements from its carrier, based on the airline’s improved financial condition and the new workers’ compensation approach and processes.

“It’s this type of partnership that helps us reduce workplace injuries, and in turn, means a healthier, safer workplace.” — Paul Morell, vice president of safety, security and environment, American Airlines

In addition, total incurred costs decreased by 12 percent, or $80 million, and total outstanding reserves were reduced by 10 percent, or $27 million, in the past year. The current year closing ratio (current year defined as claims that open and close within the same year) increased to 72 percent, compared to the prior year’s closing ratio of 60 percent.

Not only was Saddy’s team able to close more current year claims than in years past, but they also closed them more quickly while reducing costs.

Paul Morell, vice president of safety, security and environment, American Airlines

Paul Morell, vice president of safety, security and environment, American Airlines

“This illustrates that the employee is receiving more timely information and appropriate care while allowing the employee to recover and not only return to work sooner but to return to their family as well,” Saddy said.

Paul Morell, AA’s vice president of safety, security and environment, said, “Part of being an industry leader in safe and reliable airline operations is making sure our safety programs are reflective of the need and risk of our operations. By working together with our workers’ comp team, we are able to develop programs that address any issues immediately.

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“It’s this type of partnership that helps us reduce workplace injuries, and in turn, means a healthier, safer workplace,” he said.

For Saddy, workers’ compensation is about helping an employee during a difficult time.

“Workers’ compensation can be complex, challenging and confusing, but it doesn’t need to be,” she said.

“At the end of the day, it’s about engaging our employees and providing the best medical care available, allowing our employees to return to work as soon as possible and as safely as possible.”

_______________________________________________________

Read more about all of the 2015 Teddy Award winners:

AA LAX TuesdayRevamped Program Takes Flight: The American Airlines and U.S. Airways merger meant integrating workers’ compensation programs for a massive workforce. The results are stellar.

 

112015_03_stater 150X150Checking Out Solutions: From celebrating safety success to aggressively rooting out fraud and abuse, Stater Bros. Markets is making workers’ comp risk management gains on multiple fronts.

 

112015_04_columbus 150X150Revitalizing the Program: In three years, the Columbus Consolidated Government was able to substantially reduce workers’ compensation claims costs, revamp return-to-work and enhance safety training.

 

112015_05_barnabas 150X150Spreading Success: Barnabas Health wins a Teddy Award for pushing one hospital’s success in workers’ comp systemwide.

 

Steve Yahn was a freelance writer based in New York. He had more than 40 years of financial reporting and editing experience. Comments can be directed to [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.