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 [email protected] Read more of his columns and features.

More from Risk & Insurance

More from Risk & Insurance

Property

Insurers Take to the Skies

This year’s hurricane season sees the use of drones and other aerial intelligence gathering systems as insurers seek to estimate claims costs.
By: | November 1, 2017 • 6 min read

For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.

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Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.

Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.

“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”

 According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.

No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.

Claims Response

At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.

“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry

“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.

Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.

Duncan Ellis, U.S. property practice leader, Marsh

One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.

Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.

“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.

“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”

Insurance Applications

Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.

However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.

“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.

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“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.

In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.

This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.

“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.

VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.

Chris Luck, national practice leader of Advocacy, JLT Specialty USA

“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.

“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”

Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.

“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.

“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”

Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.

Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.

Risk Improvement

There is no doubt, however, that VIS use will increase among insurers.

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“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.

In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.

“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.

The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.

Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]