It's a safe bet that the employees of Rolls-Royce North America can guess the name of the man who oversees the company's workers' compensation program. Indeed, the firm's ongoing effort to improve worker safety and cut comp losses--led by Rob Osha, director of risk management--would certainly make the folks at the Occupational Safety and Health Administration happy.

The loss control program also earned RRNA an Honorable Mention in the inaugural National Underwriter "Award For Excellence In Workers' Compensation Risk Management."

The initiative to better manage workers' comp risks was no small undertaking for the company, which nearly doubled in size after a series of acquisitions in the late 1990s brought significantly different operations under the high-profile Rolls-Royce brand.

While the name Rolls-Royce may be most commonly associated with top-of-the-line automobiles, in actuality the multinational company grew via a different mode of transportation. At the time of the acquisitions, "we primarily did aerospace work," explained Mr. Osha, who noted that the North American branch consisted of three parts:

o Rolls-Royce Canada--which repaired and overhauled aircraft engines.

o Rolls-Royce Corp.--which manufactured small aerospace engines.

o Rolls-Royce Gear systems--which produced aviation gears.

Mr. Osha said Rolls-Royce was looking to "better balance the business" and expand into new industries to better "ride the ups and downs by not being beholden to the aerospace market."

That objective was achieved through four acquisitions in roughly 18 months, turning RRNA from primarily an aerospace company into what Mr. Osha describes as a "power systems company."

"By the autumn of 1999, RRNA had acquired four new businesses in the aero, marine and energy sectors, adding 10 locations and approximately 4,000 new employees" to its workforce of roughly 5,000, Mr. Osha said. "RRNA had almost doubled in a little over a year's time."

The expansion also meant an enormous change in workers' comp risk. "These businesses--especially marine and energy--brought a myriad of challenges stemming from the new risk profiles," Mr. Osha said.

"For example, RRNA had previously not dealt with U.S. Longshore & Harbor exposures and construction risks--on and off-shore," he noted. "Each business had a unique culture and a different approach to worker safety, loss prevention, and workers' compensation injury and claims management."

Suddenly, he added, "we had a lot of field service reps going to places"--like oil rigs and refineries, to work onsite with their clients. "It's a totally different risk than the guys assembling turbines in the factories."

Further complicating the issue from an insurance standpoint, Mr. Osha said, "they were all doing their own thing" for workers' comp coverage. "We didn't have a blueprint to apply" to the new business units as RRNA grew into new sectors, he explained.

In addition, Rolls-Royce saw that the larger, aggregated company should manage its risks differently than a group of smaller units might do individually, and began to consolidate coverage. "We understood that given the growing size of the business, it did not make financial sense to trade dollars with insurers to pay losses, as the acquired businesses had done on an individual basis," said Mr. Osha.

"As a larger group with an aggregated program, we needed to adjust our deductible level to be more in line with our risk philosophy--which is to insure for the catastrophic event and not events that are predictable in nature, frequently occurring and relatively small in amount," he said.

The firm began building a new workers' comp program from the ground up. "Our ultimate goal was to embed a best practice workers' compensation management approach into each business," Mr. Osha noted. "We needed to thoroughly understand where each business was coming from--its culture, policies and procedures--if we were to create and manage the necessary changes. Concurrently, we needed to analyze losses to determine the best risk-financing strategy and to target opportunities to reduce losses."

To evaluate what was going on at each of the individual businesses, Rolls-Royce took a four-step approach that involved:

o Reviewing management practices at key business units to define their policies, operational practices and staff behaviors that could be driving workers' comp costs.

o Facilitating action-planning at those facilities to help management focus on high-impact activities.

o Distributing quarterly risk reports to management at those facilities to provide management with the information they need to actively manage costs.

o Providing consulting support to the business units when necessary.

A big part of that process was to talk with the people at the business units themselves. Input from the front lines is "absolutely vital," according to Mr. Osha. "The businesses own that risk--it's their risk," and they have a better understanding of the challenges facing them, he explained.

Once RRNA assessed the risks at the various business units, it distributed a written report to each unit with prioritized recommendations for controlling workers' comp exposures.

"The local management teams used the reports and recommendations to develop action plans for reducing their workers' comp costs," Mr. Osha said in his entry. "The safety managers at each facility were responsible for implementing and tracking the action plans, and monthly progress reports were given to management."

It's also important to keep those in the business units involved, he said, to ensure they understand the importance of any changes made. RRNA provides its business units with loss data showing how much workers' comp risks cost them.

"We took it out to management, and said, 'Here are the numbers,'" he noted, with the information RRNA provides talking about roles and responsibilities for the business units, and providing metrics the units can assess for themselves--including total claims and costs, and average cost per claim.

Additionally, he said the company provides a comparison for business units against the companywide average in areas such as claims per employee, cost per claim, average claim costs and number of claims involving 10 or more lost workdays.

"The cost-of-risk reports gave site managers a better understanding of the impact that workers' compensation had on the bottom line, and the knowledge necessary to justify and evaluate change," he noted. "As a result, they took greater interest in claim costs and became more active and involved in claim-closure activities."

While the action plans were being implemented at the various sites, RRNA was also working to craft a broader guidance in the form of the company's Workers' Compensation Best Practices manual.

"The manual was intended to provide guidance to the business units on all aspects of managing claims and injured employees--from incident reporting to closing the claims," Mr. Osha noted. "The best practices provide concrete examples of claims management and injury management challenges and effective approaches."

While creating and implementing a system to better manage workers' comp was a major task, RRNA's experience has convinced the firm it was worth it.

"Significant amounts of time and effort were invested to manage our workers' comp costs over the past five years, and we achieved an impressive return on this investment," said Mr. Osha.

For example, the company's facility in Oakland, Calif.--which had previously experienced losses that "far exceeded" much larger properties--saw its workers' comp costs fall 95 percent in the first half of 2005 after dropping 41 percent in 2004. "Oakland now has the lowest workers' compensation cost per employee within RRNA," he noted.

Meanwhile, the Mt. Vernon, Ohio, facility won the Governor's Excellence in Workers' Compensation Award after cutting comp costs 44 percent in 2005.

With a system in place to better manage workers' comp risks at its facilities, RRNA looked at exposures facing employees in the field. The firm took a similar approach by first examining and assessing risk through the use of consultants, as well as interviews and surveys with business-unit management, field supervisors and field technicians.

"These risk assessments were found to be quite valuable as a number of uncontrolled, high-severity risks were identified through this process," Mr. Osha noted. "This enabled the business units to take actions to manage these risks before a costly and catastrophic loss occurred."

Going forward, RRNA will look to continue the process of implementing and maintaining best practices through a process the firm characterizes as "Define, Measure, Analyze, Improve and Control."

Additionally, Mr. Osha said the company would like to continue to keep individual business units very much a part of the process by internally creating a "community of practice" for workers' comp.

"Other than working with the Risk Management Department, facilities typically do not reach outside of their business for support regarding workers' comp issues," Mr. Osha noted. "At the same time, the people on the front lines in the businesses, who work with the program daily, have great experiences to share with their peers."

He added that "we would like to create a community of practice whereby one business can reach out to, and pose problems and questions to the larger group for support, guidance and advice. Such a group would be invaluable in embedding the best practices across the company for the long term. It would also serve to create more in-house capability by leveraging the collective knowledge of the group."

Mr. Osha said while he will continue to work toward best practices, he expects the goal to always be just beyond reach. "In my view, when you go to best practice, you'll never get to the destination," he said. "It's always a journey."

Special Reports /

Rolls-Royce Boosts Safety, Limits Claims By Emphasizing Unit WC Accountability

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