In Depth: Workers' Compensation

Capturing the Best Data

Determining total cost of risk has value; getting your hands on the right data set is the challenge.
By: | October 12, 2017 • 7 min read

For a well-organized risk management department, collecting the array of expense data needed to calculate the total cost of risk for its workers’ compensation program should be fairly straightforward.

But aggregating all the desired data is often challenging for employers, particularly when it must be collected from various workers’ comp service providers who may use different formats for tracking the information.

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Expense information maintained within the risk management department might also be tabulated in different ways, depending on factors such as whether contracts call for paying flat fees or per-claim charges, further complicating matters.

“Some self-insureds and some insureds with large deductibles will have significantly different sources, or places, where the data might be kept in terms of what can be included in the total cost of risk number for workers’ comp,” said Bill Zachry, a longtime risk manager and senior fellow at the Sedgwick Institute.

“It’s one of the challenges in doing it well,” he added.

Other risk managers evaluating their total cost of risk, or TCOR, for workers’ comp, however, don’t find a need to seek data from many sources, depending on their goals and program structures.

Carolyn Snow, director of risk management at Humana Inc. and the 2014 Risk and Insurance Management Society Inc. president, relies on a TCOR analysis to help allocate workers’ comp expenses — insured through a captive — to company business units.

Information used to calculate her TCOR includes excess insurer premiums, third party administration claims-management expenses and the cost of time spent conducting claims reviews.

Bill Zachry, senior fellow, Sedgwick Institute

She obtains other TCOR input data from Humana’s business units and considers the cost of lost productivity when workers are absent due to workplace injuries. But that leaves little need to collect information from other sources.

“We don’t use a lot of outside information” to calculate TCOR, she said.

Regardless of the degree of the challenge in collecting data, a TCOR analysis is a powerful tool for a workers’ comp program and well worth the effort required to uncover it, veteran risk managers and other observers agree.

They encourage other risk and workers’ comp managers to gain a deeper understanding and better ability to manage the real cost drivers behind their workers’ comp spending by conducting a TCOR analysis — even when some expense information needed for a solid analysis must be based on estimations.

“I always felt that it was very valuable as a risk manager to understand what my TCOR was,” Zachry said.

Digging Deep

Many workers’ comp claims payers, however, focus only on learning their insurance and claims adjudication costs, forgoing the opportunity to examine how all the pieces of their program truly impact costs and claims outcomes, TCOR proponents argue.

“It doesn’t happen nearly as often as we would like it to,” Patrick Walsh, executive VP and chief claims officer at York Risk Services Group, responded when asked how often risk managers request York’s help to obtain information needed for a TCOR analysis.

“Full disclosure, [a TCOR analysis is] not an easy exercise to do right.” — Patrick Walsh, executive VP and chief claims officer, York Risk Services Group

But when risk managers dig beneath the surface of their workers’ comp program to really understand their total cost of risk, they can discern how to optimize their role and improve program elements, Walsh said. They can learn, for example, what practices really motivate employees to want to return to work as soon as possible following an injury.

“When you do get someone to the table and have the discussion about total cost of risk and really focus on outcomes and what processes will get you those outcomes, it can actually be a fun discussion,” Walsh said.

“You start talking about things that really matter and the roles an employer can play in the claims process.”

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TCOR is a key measurement for decreasing workers’ comp variable claims expenses, explained George Pallis, director of marketing and analytics for the national accounts division of Travelers.

“Some customers focus too much on the fixed cost component,” of their program, Pallis said.

But fixed costs, or insurance purchasing expenses, typically amount to 20 to 30 percent of a program’s overall expense with the remainder of overall costs variable.

“The real opportunity to improve the overall cost of risk is the variable loss component,” or claims expense, Pallis said.

“We try to get [customers] to focus on the variable loss component because that is where we can bring our claims handling expertise and risk control practices … and really impact that total cost of risk number.”

Focusing on reducing TCOR in that fashion is not only good for the customer, it also contributes to Travelers workers’ comp book of business, achieving a combined ratio that beats the average for its industry by 11 percent, Pallis said.

Accessing the Data

But Walsh said he knows also that uncovering an accurate TCOR may be challenging for employers, especially for those purchasing multiple workers’ comp services “unbundled” from a variety of vendors.

“Full disclosure, [a TCOR analysis is] not an easy exercise to do right,” Walsh said.

“It does require a lot of effort to pull the data in from the [disparate] pieces of the puzzle. Some of it is relatively easy. The claims data should be easy to get. Some of the service data, especially if it is bundled, will be easy to get.

“If it is unbundled, it might be a bit of a struggle to get it in a way that you can pull it all together easily.”

Pallis also noted that employers unbundling a variety of claims services might find a TCOR analysis more challenging.

“You have to go to different places, and it might be difficult to quantify total cost of risk,” he said.

Patrick Walsh, executive VP and chief claims officer, York Risk Services Group

In some cases, though, calculating a workers’ comp program’s TCOR may not be difficult when information such as loss data, actuarial reports and departmental budgets are readily available in an organized format, said Joe Picone, casualty claims practice leader at Willis Towers Watson.

“It’s difficult if your protocols for storage of costs and budget [data] are not well defined,” Picone added.

“A well-organized risk management department will have access to most of their costs.  If your organization isn’t capturing TCOR inputs on a regular basis in a centralized manner, it could be cumbersome.”

The fewer components included in a TCOR analysis, the easier the computation task may be.

But that also increases the likelihood that a less-than-optimal final analysis will encourage program changes that don’t improve costs or claims outcomes, observers said.

Productivity Losses

Potential TCOR components are significant expense considerations, yet are very difficult to precisely measure.

One tough item to calculate are the productivity losses employers suffer when injured workers miss work.

Despite the difficulty of attributing a precise number to productivity losses, experts say it is valuable to include it in a TCOR analysis, even if it’s an estimation.

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“That is where you are going to reach a point where you are willing to make some assumptions reasonably based on data you do have,” Walsh said. “But I think ignoring that is a mistake.”

Snow, the director of risk management at Humana, agrees. While she does not have precise measurements for productivity losses, she does consider the cost when thinking of her company’s TCOR for workers’ comp.

To overcome the challenges, Walsh suggests an honest evaluation of what matters to an employer, what they want to accomplish and make assumptions where necessary.

But document those assumptions so that they can be replaced with data as it becomes available, he said.

Also collaborate with both broker and TPA, as each may have a role in implementing improvements suggested by a TCOR analysis.

“The moment one of those parties [is not included] is the moment you are going to have a problem accomplishing your goal,” he said.

“Because if you decide after your analysis that the goal is to get one party to do something faster or better, it is still incumbent on the other parties to help them reach that.” &

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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]