How can a company maintain a successful workers' compensation risk management program in a competitive environment when battling an economic downturn and while digesting an acquisition of a firm larger than the corporate parent?

A big part of the equation for success is making sure that local site managers feel the impact of comp claims on their own bottom lines, says the risk manager of Flextronics.

But establishing accountability at the point of loss was just one of the challenges overcome by Flextronics–which helped earn the organization an Honorable Mention as one of three winners in the fourth annual National Underwriter Award for Excellence in Workers' Compensation Risk Management program, sponsored by NCCI.

Flextronics is a global electronics manufacturing company, whose products range from automotive, lighting and interior, power controls, computing, industrial, aerospace and defense, self-service solutions, solar, medical equipment and many others industries.

The Singapore-based corporation employs more than 150,000 people globally–approximately 11,700 of them in the United States, working in every state except Alaska. Such a broad base of locations and manufacturing operations in the United States translates into a very difficult risk management environment when it comes to addressing state-based workers' comp issues.

“Due to our diverse structure and expansive marketplace, we need to support an employee-focused and highly cost-effective workers' compensation program,” Roy Lee Manns, workers' comp risk manager at Flextronics, noted in his award essay.

Mr. Manns said Flextronics prides itself on being a “purpose-driven, aggressively results-oriented and trustworthy corporation.” It underscores this commitment through its Corporate Social and Environmental Responsibility program, called “FLEXpledge,” which he said is “interwoven into the key values” of the company.

FLEXpledge, he explained, has four cornerstones–people, environment, ethics and governance, and community partnerships–that drive the company's “innovative and proactive solutions.”

It also reflects the serious commitment Flextronics takes toward employees, and is why the firm has obligated itself to the creation of policies and standards prescribed by the Electronic Industry Citizenship Coalition, of which Flextronics is a founding–and still active–member.

When he came aboard in 2001, Flextronics was “a beehive of activity,” recalled Mr. Manns, with a nationwide count of 16,000 employees at more than 100 locations. At its San Jose, Calif., campus, the company ran three shifts in 12 buildings.

As Flextronics expanded through acquisitions, it had to deal with absorbing diverse workplace cultures, local management approaches, and a variety of workers' comp processes and programs.

“Our top priority was abundantly apparent,” he said. “We needed a consistent and immediate approach to communicating our claims philosophy and protocols to the field and a central location that took overall enterprise responsibility for results.”

Doing this meant understanding the losses, he said, telling NU it was imperative to “get accurate data that was intelligent and beneficial for all concerned.”

The driving force behind this was Flextronics' move from a loss-cost guarantee plan to a deductible program that stands at $500,000 today. The company did not pay much attention to its workers' comp claims in the past, but once Flextronics began paying claims out of its deductible, key people started to take notice, he said.

Mr. Mann related that the first challenge was to understand the nature of comp claims and where they were coming from. Accomplishing this meant reviewing claims and establishing protocols that would systematize reporting and evaluation.

With this information in hand, he took more than 800 claims and sat down with the company's insurance broker and insurer to make sure reserves were adequately set, to share information, and to make sure all were on the same page moving forward.

“We have built off this system since then,” he said. The results are impressive.

In 2000, Flextronics had a claims frequency rate of 1.858 per $1 million in payroll, and claims severity of 1.784 per $100 of payroll. By 2009, those numbers were reduced to a claim frequency of 0.217 per $1 million of payroll, while claim severity fell to 0.087 per $100 of payroll.

The initial improvement in the firm's loss history was in part a product of the stock market implosion as the dot.com bubble burst. Down-sizing at Flextronics soon ensued, which prompted employees facing layoffs to file workers' comp claims.

But during this period the company also identified trends and patterns where over-treatment was being practiced by some chiropractic practitioners, while other claimants were prescribed addictive drugs and not carefully monitored.

Once these expense-drivers were brought under control, the company turned its attention to making management more cognizant of good loss control practices by allocating the costs of injuries back to the profit-and-loss accounting for a worksite, explained Mr. Manns.

The company first allocated the cost of treatment back to the originating worksite, a process which saved Flextronics 35-to-40 percent on first-aid claims, while also saving the cost of setting up the claim on a “medical-only” basis with their carrier.

Next came non-first-aid claims, with Flextronics allocating “the premium and broker costs to all sites based on head count, and only allocating the 'paid' cost of the claims back to the sites where the accident/incident occurred.”

“This was a huge turning point for our claims, associated costs and safety record,” wrote Mr. Manns. “We now had the attention of the site general managers.”

Flextronics also made sure to invest in risk management, setting aside a pre-funded safety/loss control reserve that Mr. Manns can “use on a discretionary basis when I see a problem or pattern developing.”

“I knew that if the sites had to pay for industrial hygiene services, ergonomic evaluations or safety on their own, that these dollars would be competing with additional local requests for funds,” he explained. “We wanted to control the costs but have ample dollars for safety improvement that would not impact the local budgets.”

The next workers' comp challenge came in 2007, when Flextronic's U.S. work force base jumped from 5,000 to 14,000, thanks to the acquisition of Solectron. After the acquisition, the comp claim count jumped from 153 in 2006 to 356 in 2007.

One advantage to this deal was that the merging firms shared the same comp carrier, making combining the risk concerns of the pair easier, since both the underwriter and loss control personnel had first-hand knowledge of both companies, according to Mr. Manns, who noted that the deal also brought a talented loss control person at Solectron to Flextronics.

The company also inherited a formal return-to-work plan, where only an informal policy was in place prior to the deal.

While acknowledging that attention needs to be paid to placing individuals in jobs they are capable of handling, the idea is to accommodate them and bring them back as promptly as possible, since 95 percent of those out on workers' comp for six months or longer never return to work, he explained.

The program is formally in practice only in the United States, but the rest of the Flextronics family can share in the U.S. success with access to the company manual or insurance information through the firm's intranet site. “You try to improve yourself and take bits and pieces from everybody to improve yourself,” noted Mr. Manns. “At the end of the day, you have to improve and prevent accidents.”

In two years, with the help of the company's broker (BB&T-Tanner Insurance Services) and workers' comp insurer (Travelers), Flextronics has cut the 149 claims it inherited from Solectron to 36, while reducing the outstanding reserve by 42 percent. This was accomplished through a combination of claims settlements (80 in the first year) and capitalizing on the combined company's back-to-work program.

“The faster you can close claims, the more you can save the company,” he noted.

“During the last nine years, we have managed many acquisitions and mergers–including one larger than ourselves,” Mr. Manns highlighted in his essay. “We have experienced the ups and downs of the stock market and the economy. We have weathered changes in the workers' compensation marketplace and kept pace with regulatory changes in 49 states.”

Yet, “through it all,” he added, “our company and all employees have embraced change. We have learned from our employees and from our partners. Today, we are providing a safer environment with a more streamlined and transparent risk management process. We are no longer at the beginning or our story, but we are far from the end.”

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