In-Depth Series: Workers' Comp

TCOR as Problem Solver

An accurate picture of total cost of risk emboldens different management layers to work together to seek solutions.
By: | November 1, 2017 • 6 min read

Vague return-to-work instructions from doctors can frustrate an employer’s need to clearly define the roles returning employees can play following a disabling workplace injury. For example, a doctor’s instructions may say the worker cannot lift more than 15 pounds.

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That saddles employer return-to-work efforts with the onerous responsibility of matching the doctor’s scant instructions with actual allowable work site tasks, explained Judie Tsanopoulos, system director workers’ compensation and risk control at Providence St. Joseph Health.

“A big struggle for an employer is the sometimes vague and ambiguous restrictions the physician community provides when it comes to returning people back to work,” Tsanopoulos said.

“They are not specific and [their restrictions] are not unique to that individual’s position.”

Tsanopoulos credits a total cost of risk analysis for alleviating that problem. It helped her win upper management’s support for a job function matching, analysis and testing program that substantially reduced lost work days.

Several other strategic advantages flow from calculating a workers’ comp program’s total cost of risk, or TCOR.

Know Your TCOR

A TCOR analysis, for instance, can help risk managers confirm that implementing a seemingly counterintuitive strategy ultimately proved the appropriate measure, said Barry D. Bloom, managing principal at The bdb Group.

Barry D. Bloom, managing principal, The bdb Group

As an example, a risk management department may consistently fail to resolve contested claims when claimants’ attorneys decline low settlement offers.

But then the risk management department shifts strategies, more frequently offering greater settlement amounts to close claims full and final.

In that scenario, the risk management department initially would incur greater cash-flow expenses but ultimately reduce loss development factors and administration costs by closing more claims earlier.

The risk management department would not realize the ultimate cost reduction resulting from its shift in strategy until it conducted a TCOR evaluation, Bloom said.

“You are using TCOR to justify a practice, philosophy or policy, and the TCOR provides the proof that the counterintuitive solution is the right one,” he elaborated.

While there are various applications for a TCOR analysis, savvy risk managers cite winning upper management’s engagement as one of the most significant benefits. TCOR is a powerful tool for winning support for an array of programs known to mitigate workers’ comp exposures, they note.

Engagement is a primary benefit resulting from tracking the TCOR for Albertsons Companies, said Matt Peters, finance director of risk management for the national retailer with more than 2,300 stores.

“Our total cost of risk was the most advantageous item we could share to truly engage senior leadership,” said Peters.

Once a TCOR analysis detailed the organization’s workers’ comp spending, management asked how those costs could be reduced, Peters said. The inquiry into reducing TCOR opened the door to winning backing for a plan to drive safety awareness throughout the company.

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“That instantly brought engagement once they truly understood our total exposure and what it is costing us as an organization,” Peters said.

“Then we took that information and inquiry from senior leadership and leveraged it into an incentive-based program to assist in our reduction of expense and exposure.”

The incentive-based program holds Albertsons’ business-unit managers accountable for their areas’ workers’ comp losses.

Albertsons is self-insured with a risk management department that operates like an insurance company. It charges decentralized business units premiums for their risk exposures.

The incentive-based program for reducing worker-injury losses has both carrot and stick elements to encourage safety education and training, Peters explained. Putting that in place required senior leadership’s commitment to fund and back it as a company directive.

“You are using TCOR to justify a practice, philosophy or policy, and the TCOR provides the proof that the counterintuitive solution is the right one.” — Barry Bloom, managing principal, The bdb Group

“If [the business units] contribute and reduce their accidents, they are rewarded through rebate of their premiums.” Peters said.

“We used TCOR to engage and sell that approach to and through senior leadership.”

As a counter balance, increased losses result in passing related costs on to business units. Yet Albertsons’ risk management department understands accidents still occur even when managers pay serious attention to safety.

So, a unit experiencing an accident can still avoid the penalties by, say, prioritizing return-to-work efforts.

“Because we want you to engage with employees, and we want you to bring them back to work,” Peters said.

“We want you to accommodate them as much as possible.”

Sandra Little, director enterprise risk at Bar-S Foods Co. agrees that a TCOR analysis helps improve claims outcomes by serving as a persuasive tool for convincing senior managers to support risk management initiatives.

Sandra Little, director enterprise risk, Bar-S Foods Co.

She joined Bar-S in December 2013, when the company lacked a sophisticated risk management program.

Early efforts to change that required providing education while gathering information to help her and senior leaders comprehend the company’s total exposure.

A TCOR analysis helped her show management the company’s risk profile, which included an aging employee population working in a manufacturing environment and experiencing issues such as repetitive motion injuries.

The TCOR analysis highlighted those loss characteristics and helped gain support for mitigation measures such as focused safety training, nurse case management and the assistance of a return-to-work services provider.

In short, the TCOR analysis shared with management helped make a cultural change.

It was an eye-opener for managers. “It was something they hadn’t experienced before,” Little said.

St. Joseph’s program for eliminating physicians’ vague return-to-work instructions required winning upper management’s support for hiring a licensed physical therapist trained in job-function matching and for the purchase of $1,500 worth of equipment.

“You have to finance the [program] so how do you sell it to your C suite?” Tsanopoulos asked.

“You look comprehensively at total cost of risk.”

The physical therapist analyzes and catalogues the physical demands of typical jobs performed for St. Joseph.

An injured worker’s treating physician can order a test that the physical therapist conducts to scientifically establish a worker’s physical capabilities for when they are potentially able to return to work.

“You have to finance the [program] so how do you sell it to your C suite? You look comprehensively at total cost of risk.” — Judie Tsanopoulos, system director, workers’ compensation and risk control, Providence St. Joseph Health

The physical therapist supervises the test in a clinical setting, carefully meeting Americans with Disabilities Act mandates, while simulating the essential functions and physical demands of the worker’s job.

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Sharing the results with injured workers helps them gain confidence that they are capable of performing specific duties, Tsanopoulos said.

It helps doctors take the guess work out of determining which tasks a returning worker is capable of performing. The doctor may learn, for example, that the worker is capable of performing seven of the 10 essential functions of the job.

“That is a very tangible description to return somebody back to work with,” Tsanopoulos said. “It’s not vague. It’s not ambiguous. It’s specific.”

Supervisors also benefit by knowing the precise work their returning subordinates may perform.

The arrangement provides more than a mere return-to-work program, Tsanopoulos explained. It has an injury prevention aspect as part of a post-offer employment testing component.

St. Joseph first launched the program in 2006 at a work site with 5,000 employees. Those workers previously tabulated 3,600 lost days per year due to industrial accidents. That number dropped to 2,600 days after a year, and 630 days after 24 months.

“It came out of frustration with vague and ambiguous work restrictions,” Tsanopoulos said.

“It was unrealistic to expect the physicians to know what every occupation is and what every physical demand is.” &

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at rceniceros@lrp.com. Read more of his columns and features.

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at riskletters@lrp.com.