People Determine the Outcome

Despite the Economy, Obesity, an Aging Workforce, and Other Challenges, Manufacturing Facilities Don’t Have to Be Hostage to Increasing Workers’ Comp Costs

Workers’ compensation costs are a critical concern for manufacturers in any economy—and often exacerbated during economic downturn. Workers’ compensation lost time claims increased three percent in 2010, the first increase in such claims in over 20 years. But that doesn’t mean companies are powerless to control the cost of workers’ comp in their manufacturing facilities.

Kennametal, Inc. is a case in point. In its 2008 fiscal year, the Pennsylvania-based company set a two-year goal to slash in half what at the time totaled $2.8 million in annual workers’ comp costs. The company exceeded that goal in less than 18 months, according to Michael P. Murphy, manager of global property and casualty insurance at the $2.4 billion specialty materials manufacturer. Today, the company has reduced workers’ comp claims by 57 percent—and slashed total workers' compensation costs by a whopping 60 percent.

Kennametal’s cost-reduction success underscores the importance of proactively addressing the challenge of workers comp costs — widely considered a “loss leader” for manufacturing businesses. In a recent PropertyCasualty360 web seminar sponsored by Zurich, risk management experts and practitioners explored the strategies and tactics companies such as Kennametal have implemented to improve processes, increase awareness, reduce risk, and thwart fraud.

The stakes are not inconsiderable, pointed out Calvin Beyer, head of the manufacturing customer industry segment at Zurich North America Commercial. For most manufacturing facilities, workers’ compensation represents the leading premium expense, the most frequent type of claim, and the leading cost driver thanks to severity of claim costs.

“Workers’ compensation costs amount to 40 to 45 percent of guaranteed cost insurance premiums and more than 60% of total insurance claim costs for manufacturers,” said Beyer, who set the stage for an in-depth, 75-minute webinar discussion moderated by Bryant Rousseau, editor-in-chief of National Underwriter Property & Casualty.

Furthermore, current cost trends sound a warning for complacent manufacturers in what the National Council on Compensation Insurance describes as a deteriorating worker’s compensation market. Workers’ comp combined ratio leapt five points to 115 percent in 2010. What’s to blame? Poor underwriting results. Healthcare reform uncertainty. And, as noted, increasing claim frequency for the first time since 1997. (Reflecting an aging workforce, sprain injuries far and away lead the pack, accounting for more than a third of all workers’ comp claims and nearly half of all associated costs.) In addition, manufacturing currently accounts for more than 30 percent of all private industry occupational illness cases, Beyer added. Then there are the continued impacts of medical cost inflation and obesity — factors explored extensively by the webinar panelists who followed Beyer’s introduction.

Even an economic uptick can be problematic, the experts said: workers bolstered with a greater sense of job confidence are more likely to proceed with postponed claims, while new hires tend to have higher claim frequency over long-term workers. Still, smart strategies can prevail in blunting most cost drivers, Beyer emphasized. Training and better workplace practices — these can be as simple as coordinated pre-work stretching — help reduce stress injuries, while an array of absence, health, and productivity services can broadly address both direct and indirect drivers of workplace injury cost and losses. And last but not least, Beyer noted, technology can help “level the playing field” with tools ranging from predictive analytics and fleet telematics to social media scanning.

Focusing on ‘the People Aspect’

Still, it’s probably not surprising that processes, training, and communications that motivate behavioral change — engaging people, in short — lie at the core of many successful initiatives to contain workers compensation costs. Jeffrey Seibert, national technical director, casualty and critical incidents, for the Willis Strategic Outcomes Practice, emphasized in his presentation that “people influence the outcome.”

Siebert cited a plethora of parties potentially influencing the outcome of any given claim: the injured employee and his or her family members; healthcare professionals; fellow employees and managers at all levels; and the experts involved in risk and claims management, managed care, human resources, legal, and other related arenas.

Murphy reiterated the importance of people in his recap of Kennametal’s program. “People determine the outcome — so there’s been a lot of focus on the people aspect at Kennametal … a lot of time and effort spent on increasing awareness,” noted Murphy, who added that “I personally have visited literally every Kennametal manufacturing location in the United States” in the process of educating the workforce and cultivating cost containment leadership on the factory floor.

The Workforce: Older — and 20 Pounds Heavier

Prior to Murphy’s presentation of the Kennametal story, Siebert pointed out literally dozens of potentially bad links in the chain of misfortune leading to increased worker’s comp claims and costs. Siebert organized these broken links into a more manageable but still daunting set of categories ranging from failures in human resources, safety and prevention, information management, and organizational effectiveness to a variety of poor practices in medical, claims, and disability management.

Siebert then outlined a dozen “administrative elements” involved in taming this jungle of potent risk factors, including a variety of injury and claims process protocols, training, analysis, oversight, and feedback loops. He also talked about the importance, role and types of metrics used to track progress towards injury and cost reduction— including primary outcome metrics, secondary metrics, diagnostic metrics, indirect metrics, and metrics for goals and objectives.

Siebert then delved more deeply into two inescapable factors on the factory floor: an aging workforce that’s also increasingly obese— 20 pounds heavier on average than in 1990.

Workforce aging is of course a mixed bag. On the plus side, Siebert pointed out, older workers have less frequent claims—and those who have seniority in a workplace are less prone to file claims in any case. On the other hand, aging workers are prone to higher severity of claims—thanks in part to such risks as increased falls, longer healing times, and a tendency towards more severe musculoskeletal disorders. Risk- and cost reduction recommendations include careful evaluation of tasks that older workers do, making accommodations for an older workforce’s capabilities, and aggressive measures to contain medical costs.

As for obesity, data are stark indicators of how growing waistlines translate into growing risks. Siebert presented data from two studies. Duke University Medical Center found, for instance, found double the claims and an eye-blinking 13 times the number of days taken off work thanks to obesity. In addition to cost containment, Siebert said that wellness programs may be a viable option for companies—and their employees—who are grappling with the myriad workers’ compensation and personal health risks associated with obesity.

The good news: while not every company may enjoy the breathtaking results that occurred at Kennametal, a variety of low-cost strategies can help. Proactive efforts to curtail risk while increasing efficiency of claims processing often offer fast, high returns—and today are more crucial than ever for safer, less costly manufacturing facilities.

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