Risk managers who have worked hard to meet their workplace safety goals and keep workers' comp claims on a downward trend might find the threat of budget cuts and massive layoffs in a faltering economy making it that much harder to prevent injuries and control their exposures, one expert in the field warns.

The good news is that companies that made long-term, strategic risk management decisions when their company bottom lines were booming are unlikely to abandon safety programs despite a down economy, according to Mark Touhey, senior vice president of Loss Control Advisory Services with Liberty Mutual in Boston.

The bad news, of course, is that with most companies seeing revenue in decline, the pressure is on for budget cuts--and risk management might not be spared. Plus changes in the size and makeup of a firm's workforce could change the workplace safety outlook in a hurry, he noted.

"We don't have a crystal ball, but you have a couple of things going on. One is an industry's response to any type of transition," he said. "A response to a sharp downturn in the economy is no exception."

He added that changes in the business environment can be expected in a down cycle, "where you have made your layoffs, sales aren't growing, you're not expanding, you're competing and treading water, and expenses are being managed tightly."

The first response by employers in these troubled times has been to shed workers, he noted, which by itself should prompt risk managers to rethink their loss control programs. With layoffs being announced daily across the corporate world, Mr. Touhey said, "it's a widespread issue, and [job loss estimates] probably didn't even include the smaller employers."

The immediate challenge, he said, is that companies are most likely stretching the capacity of a reduced workforce after layoffs, which can mean more overtime for employees. "From a safety perspective," he warned, "people are working a longer day and working under fatigued conditions."

These changes also could mean a shift to part-time or temporary workers, which would introduce a new component as to how their production and safety environment are managed.

"How do you train a new employee, or an employee that you may have for two weeks, to meet a production goal and then not see them for two more weeks--and keep your safety culture instilled in them, impacting their behavior when they return?" he asked.

Mr. Touhey also observed that many of those being laid off are managers, meaning that those who remain would be stretched to supervise a greater number of employees, which could also have an impact on safety.

Another scenario, he said, is that some companies may be stretched beyond the core competency zone of what they traditionally have produced in a thriving economy, just to maintain a certain scale of operation.

"They might be doing different work, so you have issues of training as well," he said, citing some examples:

o A manufacturing company could begin making different products.

o A transportation company could start hauling different types of items, which might be bulkier or heavier, requiring different handoffs and presenting issues with loading and unloading.

o A contractor, formerly a paver, might now expand into street excavation work, introducing a different set of safety risks.

"A time like this presents change to a company, and when you have change you have greater risk--whether from a workplace safety aspect, or the quality of the product," he said. "You have new people on the process and strained operations. There's risk there."

While these changes may not affect quality, he added, it's the company's response to these emerging exposures that will define them as risk managers, "so not everybody will be challenged by the additional risks of a down economy," he observed.

Those companies that traditionally stay on top of their exposures are aware of the steps they may need to take to maintain sound risk management in a down economy.

Risk managers dealing with a reduced workforce certainly could see an impact on their workers' comp costs--both positive and negative, he noted.

"Clearly, the top of the criteria list in considering potential changes would be lower costs [thanks to a smaller exposure base]," he said. "But another [negative] aspect might be reduced experience levels, or an older workforce remaining."

He said that on a job site, where there might previously have been a younger person carrying items while an older employee had other responsibilities, now maybe the older person with more tenure--less in shape but more experienced--is the person doing the carrying and lifting.

"Risk managers need to be aware of the consequences of having fewer workers, or temporary workers, on the risks their business takes on," he said, suggesting that they need to identify what changes in loss control and safety have to be made to account for such emerging exposures.

Being aware of the ramifications of economic changes is a critical aspect of risk management, he said, that falls squarely on the resources the company uses to manage exposures--whether it's a dedicated risk management department, a safety department within the company, or their insurance brokers and agents.

Companies in which risk management is part of the corporate culture are more likely to consider potential exposures when making layoffs, Mr. Touhey noted. "This is business cycle-neutral--you have the same decisions forced upon you when you are growing like crazy as you do when your business is declining," he explained.

The best companies in a growing environment did the right thing, were aware of the impact of their changes in terms of safety, and worked with their risk management partners--both internally, or externally through their brokers and agents, he said. "They developed systems to compensate for those risks and they provided a better working environment in the aggregate for their people, a better product for their customers and a better reputation in the marketplace."

If the down economy did prompt the adoption of a larger temporary workforce, Mr. Touhey noted that while temps would be covered under a workers' comp policy, many temp agencies also carry the coverage.

"A risk manager partnering with a temp agency would want to make sure there were strong contracts, that they had a process to find quality people fit for the type of work to be done--this is what the best companies would do," he said. "You'd want to make certain [workers' comp] coverage was in place for employees."

In times of economic stress, are risk managers' jobs in jeopardy as well?

"We haven't seen a trend for that," he replied. "But there may be decisions about where a company can get the expertise the risk manager brought to the table. Getting it from a broker or agent is a viable alternative for some organizations."

He noted that the argument also can be made that the risk manager is more important during a period of transition, because they can provide continuity and identify exposures associated with downsizing decisions. "Clearly it will take longer to get someone up to speed on risks, so continuity would be of benefit," he said.

Mr. Touhey said that for two decades, the trend for workplace injuries has been a steep decline in claim frequency. The reason, he added, is that preventing injuries has been a priority for U.S. industry.

While employers on average are seeing fewer workplace accidents, however, those who are injured on the job tend to produce more severe claims in terms of cost--mainly due to the soaring price of health care in general, and drugs in particular.

"That reinforces the need to focus on safety," he said. "But because of medical inflation and other factors, the cost of those fewer accidents is growing."

It's too early to tell whether the massive amount of layoffs and the smaller workforces left behind to cope with an increasing workload will prompt a turnaround in the number of claims filed, according to Mr. Touhey, "but when we look back in history, with the background of that 20-year [frequency] decline, we do see slightly steeper declines in periods of economic decline or leveling off of economic activity."

The cause, he surmised, is the type of worker typically retained. "You could reason that you have greater tenure and experience with the remaining workers, and when you have that kind of stabilization of a workforce, it tends to promote a safer environment."

Special Reports /

Shrinking Budgets, Layoffs Pose Safety Challenges For Risk Managers

Related Stories

Recommended For You