When Select Staffing's newly hired consultant submitted his50-page report in 2001, showing how the outsourcing firm couldemploy risk management to overcome the fact that it had overshotits workers' compensation loss projection by $20 million, he wastold by the CEO at the time: "Sounds like you're trying to build anempire. We're not that big of a company."

Seven years later, with 400,000 employees on call and about130,000 on assignment each week via 300 branches across the UnitedStates, Select pitches itself as the country's largest privatelyheld staffing company, and the sixth-biggest overall, rising from$180 million in revenue in 2001 to a projected $1.7 billion thisyear.

Yet the firm might not have survived had its former consultant,Fred O. Pach?n, not gone on to build a risk management "empire,"with workers' comp loss control and safety as its coreprinciples.

The way Mr. Pach?n--now the firm's full-time vice president ofrisk management--and his vastly expanded staff turned around thecompany's loss experience and corporate culture made SelectStaffing one of three winners in the 2008 National Underwriter"Award for Excellence in Workers' Compensation Risk Management"program, earning the firm an Honorable Mention.

A summer job as a claims adjuster at Industrial Indemnity brokeMr. Pach?n into the industry. By the time Select asked him to comeaboard full time, he noted, "I had dreams of building my ownfirm--something large and respectable."

But after some coaxing--along with a company car and Los Angelesoffice--Mr. Pach?n agreed to work for Select full time for a setperiod. "I said, 'I will give you two years, because it will takethat long to get [these ideas] off the ground,'" he recalled. "It'sbeen seven years and I'm still here. They had some doubts about mysuggestions, but I knew they would work."

Recently, Select's largest workers' comp carrier, ACE USA,released a stewardship report stating that Select was their bestperforming client, surpassing state averages, noted Mr. Pach?n.

But not too many years ago, performance wasn't anything to bragabout when it came to managing workers' comp at Select.

Indeed, back in 2000, Select's poor claims history had causedtheir insurance premiums to triple, meaning they could no longerafford third-party workers' comp coverage--forcing them toself-insure and pay all claims out of pocket.

With less than three full-time equivalents in its riskmanagement department, Select opted for a $250,000 self-insuredretention program. Loss control became a keen priority, as firmslike Select--which makes its living by hiring people who aretechnically on Select's payroll, but who then work for Select'sclient companies--cannot remain competitive if their workers' comppremiums and loss costs are far higher than industrybenchmarks.

"It's a fragmented industry," said Mr. Pach?n. "The top 10staffing companies combined total 25 percent of the total market."That means any staffing firm carrying a higher-than-averageworkers' comp cost is not likely to survive, let alone prosper, henoted.

"Unlike other businesses out there, the staffing industry hastwo expense drivers that control its destiny--one being payroll,and the second being workers' compensation insurance," Mr. Pach?nwrote in his award essay.

"Our product is people. However, if our product 'fails'--meaningour people get injured--then production is affected and losses eatour profits," wrote Mr. Pach?n, who does double-duty as the firm'sgeneral manager of Select's construction division.

Select's clients hire the firm to find workers to fill variousblue- and white-collar positions. For example, one Selectclient--Matel--asks for seasonal workers because they are most busyaround Christmas and cannot afford to employ all employees on afull-time basis year-round.

Matel states their pay rate, how many people they need, and inwhat locations they are needed. Select then checks its pool ofavailable workers, or conducts a screening process for newones.

Their on-call workforce includes light industrial (such asdistribution centers and warehouses), construction, trucking,clerical, administrative, technical and executive positions (CFO,CEO and other top posts), and the medical field. Besides Matel,Select's client list includes Countrywide, Costco, Trader Joes,Toyota, Union Bank, Walgreens and Wet Seal.

Approximately 10 percent of the positions filled are considered"high risk," according to Mr. Pach?n. "In this industry," he said,"most of the risk walks through the main door of one of ourbranches. That is the applicant."

Mr. Pach?n couldn't turn around the situation alone, expandingSelect's risk management department from three to 62 full-timemembers. The staff includes underwriters to assess risks at clientwork sites, nurses and specialists to handle safety, adjusters tosettle claims, investigators for fraud prevention, and auditors tomonitor claim progress and outcome.

But the "empire" extends even further, with the full-time riskmanagement team at Select supplemented by over 300 designatedworkers' comp coordinators to serve each branch, 20 insuranceadjusters at the various third-party administrators, threeprofessional consulting firms, and 1,200 associates trained insafety to keep an eye on most client sites.

Mr. Pach?n also implemented a claims management system thatlowered the cost per claim by 75 percent. A unit of 24 claimsprofessionals is solely dedicated to overseeing Select's TPA andinsurance processing. The system's focused initiatives include:

o Reducing adjuster case loads from 175 to 125 per adjuster.

o Designing and implementing comprehensive TPA accountinstructions.

o Establishing guidelines in regard to reserve settlements andattorney referrals.

o Conducting monthly and quarterly file assessments andaudits.

Select's system also includes a custom-designed application thattracks claims and risk management-oriented audit performance inreal time. This "dashboard" influences management reviews and theprices those managers can charge their customers, Mr. Pach?nnoted.

Also foreign to the company at the time he came aboard weresafety incentive programs. Mr. Pach?n suggested these be initiatedon sites with a history of high frequency and severity of losses.Originally allotted a $100,000 budget, today $2.4 million is spenton incentive programs.

At the most difficult sites, where risk is "inherited," a payrate increase is awarded for each hour a worker goes without anaccident. "The logic is that we force the individual to think ofsafety every hour of the day," explained Mr. Pach?n.

Another loss control program is as simple as giving out a phonecard. If a safety manager sees a worker doing their job in a safemanner, or doing anything related to proper safety precautions,he'll introduce himself as a Select staff member, indicate hisreasons for his approach and give the worker a 100-minuteinternational phone card as a prize.

Select also takes into account cultural diversity. For example,given that 90 percent of its industrial workforce isSpanish-speaking, in order to activate the calling card, the workermust listen to a safety message in Spanish and English.

Select is responsible for the work environment into which theyplace their associates, yet the agency doesn't have 100 percentcontrol over the actual workplace--a prescription for disaster inworkers' comp. "If [our clients] are not properly screened,underwritten and reviewed, then they can become a liability," saidMr. Pach?n.

This is why proper risk management is so crucial, and it is whatprompted Select to introduce an underwriting approach--assessingthe potential risks at a client's work site just as any workers'comp insurer would when quoting a premium.

As a result, Select is "a staffing company that really operateslike an insurance company," according to Mr. Pach?n, who said thata client's safety history is factored into price-quoting. Aless-safe shop gets a higher quote--if Select chooses to dobusiness with them at all.

The company began ranking clients by frequency of claims, anddeveloped a prohibited task list to protect all employees.

As a result of its risk management efforts, Select saw itsinjury rate drop dramatically--from eight per 200,000 worked hoursin 2001, to a little over three this year--while its cost perindemnity claim fell from $14,450 in 2006-2007 (on 721 claims), to$8,308 in 2007-2008 (on 446 claims)--both well below nationalaverages for the employee staffing field.

As a marketing bonus, the risk management department'sachievements are used as a selling tool to show clients that peopleplaced by Select remain healthier on the job and return to workfaster if injured--which translates into better productivity andless retraining for the client.

If a Select worker is hurt on the job, Mr. Pach?n and his teamhave prepared everything but homemade chicken soup to get them backto work as quickly as possible. An injured worker is offered 60days of modified duty, engaging only in activity permitted by thetreating doctor.

A Select medical case manager interviews the injured worker andsends them a medical questionnaire designed to guarantee the bestcare possible. As part of the close-knit environment Select seeksto create, the worker also receives a get-well letter and a box ofchocolates.

The medical case manager and utilization review program offeredby Select's TPA controls medical costs and conducts periodic feereviews. The company also has five claims investigators and workswith two California insurance department investigators to protectagainst fraud.

In contrast to the insurance industry's standard 65-dayinvestigation cited by Mr. Pach?n, he said Select's claiminvestigations are normally completed within three days.

Select also works alongside Los Angeles District Attorney AlMcKenzie, according to Mr. Pach?n, who said Select has financiallybacked the prosecution of two California medical mills and put fivepeople in jail for workers' comp fraud.

Select has indeed made risk management a cooperative effort.Safety programs are tailored for each client, and performance ismeasured monthly and adjusted as needed.

Spreading the accountability and reward across the board, eachclient gets a set of benchmarks that determine where they are asfar as frequency and severity of losses. If progress is noted, theclient is rewarded with cash rebates for helping to managelosses.

Moving up the totem pole, every Select branch manager is given amonthly cash reward, depending on their performance against safetyincentive benchmarks. These branch managers report to regional vicepresidents, who also get a cash bonus if their branches meet theirrespective goals.

Safety performance for each branch is graded by letter, and thebetter the grade, the less the in-house share-of-insurance quote isallocated to that unit.

While insurance is the highest expense each branch faces, Mr.Pach?n's risk management program has reduced the cost of retainedrisk by 60-to-80 percent. "Not paying a lot for insurance allowsyou to be more competitive," he noted.

In 2001, Select experienced $30 million in workers' complosses--which came out to $8.50 per $100 of annual payroll. Sevenyears later, with losses now at $2.35 per $100 of payroll, andrevenue projected to reach $1.7 billion, Select's expected workers'comp loss costs are still $30 million.

"Based on the trend that we were going, we should be at $120million in workers' comp losses by now," had it not been for allthe risk management and loss control programs implemented along theway, said Mr. Pach?n.

Adding to the workers' comp challenge is the fact that therapidly growing firm has bought 77 companies in the past fiveyears--many of which were in distress because of workers' compwoes, according to Mr. Pach?n. That is, until Select and its riskmanagement team stepped in and put their loss control and safetyprograms in place.

"That is what has allowed our company to grow on a 35 percentbasis every year," he said.

For Mr. Pach?n, the secret of Select's success is simple: "Thereis no question that enterprise risk management is part of Select'sculture," he wrote in his award essay. "Its risk control program isso embedded into the company that it is now being used as one ofthe primary selling tools and distinguishing factors from the restof the industry."

He added that his risk management program's "integration withthe operational model of the company has reached the highest levelsand plays a defining role in every important decision."

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