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

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]