Risk Insider: Allen Melton

Are You Ready For the Big One?

By: | April 30, 2014 • 2 min read
Allen Melton is a partner and the leader of Ernst & Young LLP Insurance & Federal Claims Services Practice. He has 20+ years of experience working for both policyholders and insurers in the claims process. He can be reached at [email protected]

On March 10, 2014, a 5.1 earthquake rattled the Los Angeles area – with a 4.1 aftershock following the next day – reminding state residents of the ever-looming “big one” that California has been anticipating for many years. The quake likely caused senior management of more than a few companies to see what earthquake coverage they had in place.

It has been two decades since the Northridge earthquake shook Los Angeles, registering a 6.7 on the Richter scale and causing an estimated $42 billion in damage, and Californians are more unsettled than the ground beneath them. The most recent tremors have prompted many questions. What has changed since 1994, and how would companies and insurance markets react if another 6.7-plus earthquake struck the West Coast? According to the U.S. Geological Survey, there is a 99% chance it will happen in the next 30 years.

Learning from the past

If we have learned anything from events such as the 2013 Japanese earthquake and Superstorm Sandy, it’s that they clearly can have a significant, if not catastrophic, effect on companies well outside the “danger zone.” Over the past 20 years, markets, industries and companies have become increasingly interconnected and interdependent. The components manufacturer in Asia, for example, affects the technology company in California, which in turn affects the retailer on the East Coast.

The mega events of the past decade and a half have opened the eyes of global organizations to the need to recognize and plan contingencies for catastrophic events – even the need for a backup plan for their backup plans. In response, companies have become more sophisticated in understanding and developing their supply chains and crafting continuity plans to mitigate some of the inherent risk of operating interdependently with others in these high-hazard areas. As the world economy continues to shrink, with companies expanding globally via partnerships, joint ventures and operating agreements, the level of operating specialization and interdependency has dramatically increased, and the need for a safety net for these risks has increased in importance.

Enter the insurance carriers

The eyes – and pockets – of the insurance markets have also been opened as a result of the last 20 years of catastrophic events. This is evidenced by changes in insurance policies and endorsements available in, or eliminated from, the market.

Billions in losses resulting from storm surges after hurricanes resulted in more expansive flood exclusions. Massive earthquakes that result in large contingent losses drive more restrictive sublimits on contingent business interruption coverage. From terrorism exclusions to limits on asbestos claims, the list goes on. As insurers experience more complex losses, they become wary about the risks they take on, which affects their willingness to underwrite.

Planning for recovery

Ultimately, events like the one in Los Angeles highlight the importance of preparedness – and not just operational preparedness. It is also crucial to understand that as a business changes, expands, acquires or divests, the risks of catastrophic loss change with it. Financial recovery is a critical element of the disaster recovery plan, and one that is not always considered until after it is too late. An otherwise well-crafted plan that fails to consider the liquidity needed to implement, is not a “recovery” plan at all. Are you ready for the big one?

The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP. This material has been prepared for general information only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

Read all of Allen Melton’s Risk Insider contributions.

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]