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

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]