It isn’t easy being a risk manager in the middle of one of the worst economic downturns since The Great Depression, particularly if you are trying to control workers’ compensation costs.

With massive layoffs come smaller staffs doing more work, often handling jobs they are not accustomed to doing. Those fearful of being laid off might be tempted to either work through an injury or file a claim for a non-work-related ailment to assure medical care and an income should they lose their job.

At the same time, with companies eager to cut expenses, investments in loss control and safety are under pressure. Risk managers need to demonstrate results to keep their people in place and their programs intact.

To spotlight examples of outstanding loss control, safety and return to work programs, the fourth annual National Underwriter “Awards For Excellence In Workers’ Compensation Risk Management”–sponsored by the National Council on Compensation Insurance–were presented to a trio of innovative organizations this summer: American Electric Power Company (this year’s award program Champion), along with Nissan North America and Flextronics (both of which received an Honorable Mention).

The risk managers from all three award winners shared the secrets of their success in company profiles appearing in NU‘s Aug. 16/23 edition (also available online at http://bit.ly/9OAq7b).

However, the three risk managers also took part in a Roundtable discussion at the Workers’ Compensation Educational Conference in Orlando on Aug. 17. The panel was part of the National Trends Program put together by NU in conjunction with the conference organizer, the Florida Workers’ Compensation Institute, with former NU Editor Sam Friedman, now Insurance Leader with Deloitte Research, moderating.

The following is an edited transcript of their respective takes on the biggest challenges facing risk managers in workers’ comp today.

Sam Friedman

To set the stage for this discussion, we’ve asked Jeff Eddinger, rate-making practice leader and senior actuary at NCCI–sponsor of the award program–to outline what risk managers are up against in dealing with workers’ comp exposures.

Jeff Eddinger
Rate-Making Practice Leader, Senior Actuary
NCCI

The workers’ comp line has its challenges, ranging from poor results to uncertainty surrounding medical costs. Those challenges include:

o The impact of national health care reform is uncertain, from the new taxes, to changes in Medicare reimbursements, to the strain on the medical care system from the newly insured.

o The current combined ratio, together with low investment yields, is not close to providing an adequate return on the industry’s capital. Even with some modest increase in investment yields, the combined ratio will need to be reduced substantially to earn a reasonable return on capital.

o If enacted, an increasing number of legislative proposals in many states resulting from the changed political climate since the 2008 election may put upward pressure on indemnity costs.

o The political situation in Washington, D.C., with the potential to change the nation’s financial regulatory system, makes for a continued period of uncertainty for workers’ compensation insurers.

o The underwriting cycle could be nearing an inflection point, but the early signs are still faint.

Sam Friedman:

Could you all please summarize what your respective firms do?

Loyd A. Hudson, 2010 Champion
Integrated Disability Manager
American Electric Power Company

AEP is one of the largest U.S. electric companies. With 36,000 megawatts of generating capacity and service to over five million customers in 11 Midwest states, AEP has a large customer base and an equally large service territory.

AEP owns and operates 62 generating facilities, 39,000 circuit miles of transmission lines, and 210,000 circuit miles of distribution lines. It operates a fleet of 10,600 vehicles, three airplanes, 53 tug boats, 2,300 barges, controls more than 7,000 rail cars, and owns and operates its own rail care maintenance facility.

With over 100 years in operation, AEP’s 22,000 employees work in a variety of occupations, geographical areas and climate zones.

Kerry Dove, 2010 Honorable Mention
Senior Manager
Safety & Medical Management
Nissan North America

NNA operations include automotive styling, design, engineering, consumer and corporate financing, sales and marketing, distribution and manufacturing.

Headquartered in Franklin, Tenn., NNA has manufacturing locations in Smyrna, Tenn., Decherd, Tenn., and Canton, Miss. The company has about 14,000 employees.

Roy Lee Manns, 2010 Honorable Mention
Risk Manager, Workers’ Comp
Flextronics

Flextronics is a leading electronics manufacturing services provider focused on delivering complete design, engineering and manufacturing services to automotive, computing, consumer, industrial, infrastructure, medical and mobile original equipment manufacturers.

Flextronics helps customers design, build, ship and service electronics products through a network of facilities in 30 countries on four continents. This global presence provides design and engineering solutions that are combined with core electronics manufacturing and logistics services, and vertically integrated with components technologies, to optimize customer operations by lowering costs and reducing time to market.

The Singapore-based corporation employs more than 150,000 people globally–approximately 12,000-to-14,000 of them in the United States, working in every state except Alaska. Annual revenues are in excess of $20 billion.

Sam Friedman:

What are the unique exposures you face in your respective industries? What keeps you up at night?

Kerry Dove, Nissan North America

The primary workers’ comp risks are due to the manufacturing and assembly of autos at production facilities. Assembly workers (production technicians) are responsible for assembly and quality assurance of automobiles at NNA’s manufacturing facilities. The primary job tasks performed by production technicians include installing interior and exterior components on the vehicle carriage positioned on a high-speed assembly line.

Automobile assembly is performed via highly repetitive workloads. As a result, strains and sprains account for the majority of NNA’s injuries/illnesses.

Roy Lee Manns, Flextronics

In addition to the normal ergonomic exposures, sprain/strains, occasional slips/trips one would expect from a large manufacturing company, we have an enormous amount of personnel constantly traveling to other countries. The risks of car accidents, sickness from foods, political risks and the possibility of an aircraft incident often weigh heavily on my mind.

We have had personnel from other countries need medical assistance here, and we have had U.S. citizens in car accidents, suffer heart ailments and suffer from minor injuries while traveling. We once had an infection from a cat scratch from an employee visiting China.

Loyd A. Hudson, AEP

The size of the company, the geographic spread of our organization and the changes that occur on a regular frequency add to the challenge of managing our programs.

AEP has responsibility for 12 self-insured states, an insurance program covering 20 additional states, and Longshore and Jones Act concerns for vessel operations. Our black lung claims have increased significantly since the presumption written into the new health care plan passed this year.

Other issues that are on our radar are the ever-increasing costs of medical treatment and the pharmacy increases we see in our claim files.

Sam Friedman:

What are your basic philosophies about workers’ comp risk management? What makes your programs unique?

Roy Lee Manns, Flextronics

I believe when an employee has a legitimate work-related incident, it is our responsibility to make every effort to ensure the worker receives the best care and return them to being a productive employee as soon as possible.

I believe what makes a difference with our program is our capability to have some control over the claim, the claim costs and the medical portion of the claim.

Working with the adjuster, if we believe additional ancillary services may be in the best interest of the employee, we discuss it and develop a plan for the best outcome of the injured employee. That could mean counseling from traumatic injury, possible plastic surgery for severe facial scars, or special needs such as a hospital bed, a wheelchair, nursing services, etc.

We also have an integrated disability program using an outside vendor, who assists us in monitoring all disabilities and leaves of absence. However, what makes our program work well is our relationship with our adjusters, the broker, our underwriter, loss control and our various sites working toward multiple goals. These include safety and using our safety committees to have a safer workplace.

Having dedicated claims adjusters is critical on our account. We believe it is critical to have outstanding site human resources and employee health and safety personnel working in unison to return the injured worker as soon as feasible and within their restrictions. We certainly do not want to return them before they are healed and take a chance of re-injury.

Loyd A. Hudson, AEP

Our integrated benefit approach makes us unique and different. We look at the employee and injury, to focus on diagnosis, treatment and return-to-work rather than the payment mechanism.

It does not matter if an employee breaks a leg at work or at home, our processes remain the same–the only change is how the employee gets paid.

By focusing on the employee and injury, AEP eliminates duplication, eliminates silos and enhances communication. It provides a one-stop shop for employees, supervisors and managers to get answers and advice on any disability-related issue. By centralizing the process, it provides consistency and compliance through our entire organization.

Kerry Dove, Nissan North America

Nissan’s philosophy on workers’ comp risk management is: 1) Never compromise the quality of appropriate medical care for any reason. 2) Manage every detail of a case intentionally, to return the employee to sustainable, optimal health and place them back to work appropriately for long-term success. 3) Measure and manage all business and cost drivers of every case.

We incorporated a number of activities over the most recent years to improve our performance, including:

o Installing a data-driven approach for improvement emphasizing analytics. We have implemented/deployed two internal analysts to focus on identifying opportunities for improvement. Our broker uses scorecard metrics to assist in this evaluation.

o Restructured the internal safety organization so that one unit is directing results at both the manufacturing and non-manufacturing facilities. This is generating a consistent focus on safety throughout the organization.

o Incorporated a newly formed Bermuda captive into the program structure to better formalize our retained risk and reduce our overall cost.

o Upgraded our service partners through the selection of a new broker and new management teams at our on-site health care and claims providers.

We are continuing to seek improvements, including using tech-driven predictive analytics to proactively review all claims within the first week of reporting to determine the best course of action in managing medical treatment and cases.

Sam Friedman:

Please detail your loss control and safety programs.

Loyd A. Hudson, AEP

Zero harm is our objective and focus. Our CEO has placed safety as a direct report to him to insure that safety has a predominant place within our organization and in our day-to-day work.

Safety initiatives and incentives are developed for each business unit manager and employee throughout our company.

Safety is not a process in our operations. Safety is how we do our work!

Kerry Dove, Nissan North America

The loss control and risk management team focuses on providing a safe work environment for employees by identifying and eliminating hazards in the workplace and empowering our employees to make safety contacts to recognize safe behaviors and stop unsafe behaviors.

All employees participate in safety teams, and management is actively auditing work practices to continually improve NNA’s work environment. In the event that an injury or illness occurs, significant focus and resources are deployed to provide top-quality medical care for the injured worker and reduce costs via performance-based medicine. The outcome of these efforts is a focused utilization of resources and realization of true benefits.

Our direction and decisions are data-driven. Over the past 10 years, Nissan has gone through a rigorous process of benchmarking against both industry competitors and the manufacturing industry as a whole.

The result of these efforts was Safety One, which incorporates all of the company’s core values and is demonstrated on a daily basis throughout all of Nissan’s manufacturing operations. The process is not “owned” by any one department but by all of Nissan’s manufacturing operations.

Safety One is designed to be task specific, technical and sustainable. Our mindset is that all incidents are unacceptable and preventable. We train all levels of management and employees in various entities of the company.

Roy Lee Manns, Flextronics

Flextronics works very closely with our carrier, Travelers, in relation to loss control, ergonomics and industrial hygiene. At the beginning of a new policy period, we develop loss control strategies based on the past years’ losses and we discuss the sites’ specific needs with their employee health and safety personnel. We have Coffee Talks and webinars nationally and globally.

To help facilitate our safety process, each site has a dedicated EH&S (Environment, Health & Safety) person who manages the specific site’s safety efforts. If I see trends develop based on our metrics, I contact the site to determine how I may assist them to bring their losses back under control.

Sam Friedman

What is your approach when it comes to return-to-work initiatives?

Kerry Dove, Nissan North America

At Nissan, return to work is referred to as the “Stay at Work Process”–a fully integrated safety, medical and claims management process.

Years ago, the mindset for manufacturing was that an employee had to be able to perform 100 percent of their job to be able to return to work from a work-related injury. Nissan took this challenge and analyzed the opportunities in pursuit of reducing costs and time away for injured and recovering employees.

Research and benchmarking indicated that injured employees recover faster when provided restricted duty that adds value and are more likely to progress to full duty.

The program also has served to maintain higher morale for injured employees and co-workers as well as lower turnover, given the indication of job security and value as a contributor to the overall success of Nissan.

Nissan designed and piloted a transitional duty program. Following the pilot, we took this program to our medical providers and educated them regarding our “stay at work” and “return to work” initiatives. Most physicians noted that employees in the program were motivated to get better sooner and made for better patients.

As a result of that feedback and cooperation from the caregivers, Nissan adopted the practice that we will not accept “Off Work” restrictions. The attending physicians understand they are to provide finite qualitative/quantitative medical restrictions when appropriate, so that job placement can be evaluated on a case by case basis. Nissan focuses on what the employee can do, and not on what the employee cannot do.

Therefore, policies were developed based on the philosophy that an employee can contribute at less than 100 percent productivity and provide value when returned to work with temporary restrictions.

Nissan’s program has produced significant cost avoidance results by reducing the amount of temporary total disability payments and reducing the absenteeism headcount needed for our production facilities to operate.

Since 2000, Nissan has experienced an 85 percent improvement in lost-time claims as a rate based on man-hour exposure.

Roy Lee Manns, Flextronics

All return to work is coordinated with the injured worker’s manager, HR person and EH&S personnel. We make every effort, based on the injured worker’s current restrictions, to return them when feasible.

Sometimes we are not able to return them based on their current restrictions, and sometimes because their position may have been eliminated or modified to meet current production needs.

Loyd A. Hudson, AEP

Light duty is a big focus within our company. Our push and education campaign increased our restricted duty by 68 percent.

Our transitional progression plan works an employee through the stages of their injury to increase their ability to work as the condition will allow.

By taking proactive measures to develop plans before getting restrictions, that allows us to take written plans to physicians and secure releases that may never have occurred without our proactive approach to restricted duty.

Sam Friedman

How do you secure buy-in from senior management on your risk management initiatives?

Loyd A. Hudson, AEP

Our strategy is to provide meaningful data in a format that is useful to the company leaders and that will break down costs, claims and return-to-work data to each and every location within the organization.

These measurements and dashboards are tracked over time to see what locations are performing well and which ones need more attention.

Measuring cost and productivity helps to place a focus on our return-to-work and safety initiatives and provide accountability though out the organization.

Roy Lee Manns, Flextronics

At first this was not an easy process. The sites and plant management began to take notice when we started allocating the “paid” costs of the claim back to the cost center of each site or department where the injury/illness occurred.

With each site now responsible for their profit or loss, they inquired how to stop or minimize the associated losses.

As for finance, once they began calculating the possible “developed losses,” they understood that by settling the claims sooner we could save money and come in under the “developed” loss estimate.

From this point we were able to work with site managers, EH&S personnel, HR and the injured worker to manage their claim and return them to work sooner.

Kerry Dove, Nissan North America

In efforts to support and maintain the Safety One training and education process, an ongoing commitment is essential by senior management. “What gets measured, get’s done” is the underlying theme of our continuous improvement process in manufacturing. Therefore, all of our Safety One process activities are put into the “language” of manufacturing operations.

We use data and analytics to enable data- driven decisions, which is key to our presentation of proposals to senior management.

Sam Friedman

How about middle managers and line managers? How is accountability for safety and comp losses maintained? Are these factors part of incentive compensation plans?

Loyd A. Hudson, AEP

Middle management is the hardest group to impact. We have several ways of changing the culture within our middle management.

Our involvement with all absences provides us the opportunity to contact first-line supervisors. Our contact provides real-time information and coaching that promotes a partnership.

By providing reports and data to senior management that compare middle managers’ statistics, we provide a mechanism that motivates underperforming middle management to improve.

All employees have incentives based upon safety performance.

Kerry Dove, Nissan North America

We focus on the managers performing their mandatory safety audits and reviews established in Safety One. Issues or opportunities identified during these activities are recorded and tracked through resolution in an audit database and reported on a frequent basis.

Roy Lee Manns, Flextronics

At Flextronics, this is not a part of our compensation plans. However, one of the areas everyone is judged on is “FLEXpledge,” which is our Corporate Social Environmental Program.

FLEXpledge embodies the spirit of our corporate commitment to build a sustainable framework for social, economic and environmental activities that are integral to, and consistent with Flextronics’ purpose and values.

The goal of FLEXpledge–which includes our people, environment, ethics and governance, and community partnership–is to position Flextronics as the partner of choice, investment of choice and employer of choice. Each site must meet the requirement by 100 percent to be certified.

Sam Friedman

How do you manage medical care costs for injured workers?

Kerry Dove, Nissan North America

Our approach to managing our medical care expenses is based on one factor: the quality of care to our employees. Nissan utilizes a results-based performance outcome evaluation process to determine the effectiveness of care.

The process in which this is administered consists of establishment of an early care plan. By establishing the severity and acuity of the injury up front, we can use a continuum-of-care algorithm that illustrates the progression of the claim in multiple directions.

We also use best practices management and measurement benchmarks, clearly communicate everyone’s roles and responsibilities, and take a common-sense approach to utilization and cost containment. The team has been empowered to escalate issues to Nissan management related to utilization of medical treatment and protocols to ensure that they are in the best interest of the employee and their recovery.

Nissan also stresses early medical intervention and catastrophic injury management; top-quality medical care through physician selection; and collaborative care planning with the employee, case manager and physician.

Roy Lee Manns, Flextronics

For first-aid claims we work with Corvel to review and process all claims. This results in about a 30-to-40 percent savings.

For all non-first-air claims we use the Travelers system for cost savings, which is a part of our overall program.

Loyd A. Hudson, AEP

Managing medical costs can be difficult. Diagnosis and testing is part of AEP’s philosophy. You cannot deny diagnostic testing and think that the employee’s condition will be cured without the correct treatment. Timely approving of appropriate treatment reduces the time off work.

Managing pharmacy usage is important. Obtaining reports that identify utilization, costs and medications that may not be approved for the diagnosis are some of the keys to controlling costs.

Sam Friedman

What kind of impact in real numbers have your risk management efforts produced?

Loyd A. Hudson, AEP

In the last 10 years, the AEP Recovery Center has helped to reduce the yearly payout of workers’ comp from $16.5 million down to $9.2 million–a 44.5 percent reduction in costs.

In 2000, we had 3,236 claims, and currently we have 1,482 claims in pay status, which resulted in a 54.2 percent reduction in open claims.

While our employee headcount was increasing, we continued to reduce costs and claims. Additionally, our lost-time days decreased, adding more productivity to the company.

Kerry Dove, Nissan North America

The results of our commitment and efforts are illustrated in the following statistics:

o Our incurred amount per units produced has decreased by 37 percent. We’ve seen a 55 percent decrease in the incurred amount and a 67 percent decrease in the number of lost work days valued at 12 months.

o We’ve had a 37 percent decrease in the number of claims per 100 employees, and our loss projections for the upcoming year have fallen from $33 million in 2004 to under $12 million for 2010.

Roy Lee Manns, Flextronics

Claim frequency has decreased by 19 percent from 2007 to 2009. In that same period, our indemnity claim frequency rate is down over 49 percent, while our average lost-time days are down from 72 to 25.

Sam Friedman

To wrap up, what advice do you have for your fellow risk managers grappling with rising workers’ comp costs?

Loyd A. Hudson, AEP

There is no magic bullet. Hard work, good processes, excellent claims management and communication are the only way to control costs.

Roy Lee Manns, Flextronics

Communication with your broker and carrier on an ongoing basis–not just at renewal–is critical.

So is communication with your injured worker on a regular basis. This communication should be from you as well as your adjuster. Ensure that your adjusters have some compassion, and have them explain exactly what will happen to the injured worker in regards to their claim, their pay while out on a claim, how long before the carrier begins paying them, their options in regards to medical care, and who to contact if they have a problem or are not happy with their care.

Communication with the injured worker’s manager is also very important to ensure they understand their part in communicating with their employee and returning them to their previous position whenever possible.

Also know who your government officials are and communicate with them. Be involved in workers’ comp associations that support your cause in controlling comp costs.

Kerry Dove, Nissan North America

The easy answer, but difficult to achieve, is to eliminate the possibility for workers to be injured. However, in the event that cannot be accomplished, I offer the following to address workers’ comp costs.

One, be absolutely focused on continuous improvement. Two, assemble a team of impassioned experts for analysis, claims handling and medical process. Engage those who are smart, analytical and intuitive, and empower them to turn over every rock looking for opportunities for improvement.

Three, have the team initially work on identifying what elements of the program are driving costs, making certain the hypothesis of the cost-drivers is fully substantiated with credible data analysis and establishes exactly where your costs are as a benchmark for tracking changes and measuring improvement.

Four, following the identification of the key cost-drivers, develop a plan of attack–including the roles and responsibilities of your team members–to address issues that you know you can impact.

Five, track and measure the changes to process, policy and programs and the results achieved to determine cause and effect of your efforts.

Otherwise, do the following:

  • Adopt the philosophy of: Do not compromise appropriate quality medical care for any reason!
  • Establish protocol for every process within the workers’ comp management operations. When executed properly, world-class processes will result in world-class performance!
  • Establish expectations and maintain accountability of those performing claims handling and medical management of worker’s injuries.
  • Keep the team focused on following process and continuous process improvement.
  • Every activity should have value towards accomplishing those goals.
  • Measure and track performance.
  • Celebrate success, continue to address opportunities.