Focus On Bottom Line, RMs Urged

To make necessary advances for worker safety and to reduce workers compensation costs, risk managers need to redirect their focus from regulatory requirements to the bottom line, one loss control expert contends.

“If we continue to look at safety and loss control in the traditional way and think about [Occupational Safety and Health Administration] compliance, were nuts,” said Steven Anderson, portfolio executive, risk engineering at Zurich North America Services in Dallas. “Its not about OSHA, its not even about safety. Its about profit.”

Mr. Anderson has first-hand knowledge of why traditional approaches should be altered. “The first half of my career, in manufacturing, was spent waving the OSHA flag,” he explained during a seminar at the Self-Insurance Institute of America's annual conference in Chicago. “Id go into staff meetings telling management what OSHA said we had to do, and Id come out with a bloody nose.”

The reason, he said, was that he was financially pitted against the competing demands of production (including quality), costs, labor and human resources.

“When I learned how to measure these in terms of financial performance and show the return on investment from a sound safety and loss prevention program, then I got my budget, I got my staff, and all I had to do was perform,” he said.

Mr. Anderson, a former paramedic, drove home his point about the importance of the bottom line with an example. Recently, he said, he “went after a new piece of business with a restaurant chain” whose stock was outperforming the rest of the restaurant market. An online quarterly report filed by the CEO and CFO revealed that their challenges included “an unpredictable energy market, increases in minimum wage, and an expected increase in workers comp,” he said.

But he was “astonished” when he finally met with the company face-to-face to discuss their workers comp coverage. “I expected the administrator, risk manager or comptroller. But who showed up for the meeting was the CFO,” he said.

More CFOs and CEOs are stepping in to address insurance issues because its “on their radar for the very first time,” he explained. “Workers comp is part of their strategic planning because of its cost.”

Meeting with the CFO “really brought home the message that the cost of insurance is now so significant that its got their attention.”

At that point, he said, “my role became very clear to him. I said, Please understand, its not about OSHA, its not about compliance. I have only one objective–to make sure that never again do you have to mention workers comp to your investors.”

Mr. Anderson said that no organization can afford guaranteed costs–where the insured pays the premium and the carrier pays all the losses.

Similar to a deductible on car insurance, many employers have a $10,000 deductible per claim on their workers comp, he said. From a risk-transfer perspective, “thats not much different from being self-insured,” except that the self-insured risk manager is more involved in every aspect of their risk program, he explained.

Risk managers wishing to renew their coverage for next year will find costs “through the roof,” he said. “I think self-insurance programs are going to gain in popularity dramatically next year.”

Self-insurance programs, however, can only be effective for companies “with a handle on their losses,” he added.

Todays risk manager cannot afford the costs associated with a conservative approach to risk management, Mr. Anderson said. He explained that insurers might appear to be “dealing with conventional loss control,” but today “theres nothing conventional about how we approach loss control.”

The difference between a self-insured and “the clients I normally work with on a daily basis” is very little, he said. “Today everyone must assume their own risk–the carriers function is to cover catastrophic loss.”

The way to keep costs low is to prevent the losses in the first place, he emphasized. “Once a claim has occurred, youve already had the loss. Now youre stuck in the role of trying to mitigate or manage that loss and minimize the amount youre going to lose.” Preventing the loss to begin with “is so much easier,” he said.

Injuries to employees hurt a company in many ways, Mr. Anderson explained. On top of financial losses are losses to productivity, quality and the employees value to the organization.

He explained that for every $1 of incurred loss is another $4-to-$6 in hidden costs incurred from hiring and training another worker, loss productivity, overtime and the cost of a supervisors time to investigate the accident.

“The books teach 6-to-1, but even if you apply a 4-to-1 model, of a $500,000 incurred loss you now have a $2 million indirect loss,” he explained. “If you add those two together youre at $2.5 million of impact against your profitability.”

The question, he said, becomes “how much do we have to sell in order to cover that loss?” A profit margin of 10 percent would require $25 million in sales. A hospital, for example, would be looking at “$30 million worth of patient care just to cover $500,000 of incurred losses,” he said.

Controlling losses by preventing injuries to workers means listening to employees, he said. “I dont care how you fund your program, you win or lose with line supervision,” he said, adding that line supervisors are “closest to the employees who are getting hurt on the job.”

Mr. Anderson said that problems can be minimized by going to “the lowest possible level of an organization” where problems occur. “If you appeal to the line workers, they will answer for you, if youll just listen,” he said.

The same approach needs to be taken with safety, he said. Line managers need to be held accountable and to “understand the financial impact” of accidents. Managers need to enlist the participation of line managers to improve loss performance, he added.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Focus On Bottom Line, RMs Urged

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