NU Online News Service, Feb. 1, 3:06 p.m. EST

The public risk management sector, hit hard by the economic downturn, will see belt-tightening a while longer as positive changes in the economy take hold, according to a workers’ compensation and risk management expert.

The public sector will start to turn around, but there is a lag time, said Mark Walls, assistant vice president, claims with Safety National, an insurance carrier based in St. Louis, Mo. Once jobs are created, more people are working and taxes begin to flow, he said, and “eventually there is more money for the municipalities, but all these other things have to happen first.”

For many public entities so far, he said “the situation hasn’t improved that much. You still have states that are struggling financially.”

To get the most for their money when buying insurance, some municipalities pool their workers’ compensation coverage. While in many states large municipal risk sharing pools help keep costs down, “they have gotten the prices about as low as they are going to go” for workers’ comp, he observed.

While many factors are driving workers’ comp costs higher, the number one cost-driver is medical expenses, Mr. Walls said. He noted that this is a trend that “isn’t going anywhere any time soon.” In fact, he said, about 60 percent of all workers’ comp dollars are medical.

“Medical inflation is higher than general inflation and that seems to be even higher in the workers’ comp environment,” he said. “That’s an aspect that is very difficult for the average employer to make an impact on.”

While keeping injuries down is key, he said it’s also important, in states where the employer has medical control, to select the best possible physicians to treat their workers, to get the best possible results and outcomes on claims.

For risk managers, while they may need to prepare for the eventuality of higher prices, they “can’t lose sight of loss control/injury prevention,” Mr. Walls warned. “The biggest part of controlling claims costs that risk managers can do is [to] prevent the claims from happening in the first place. They have to keep that focus and not lose track of it.”

Unfortunately, however, when the economy is tough and “everybody starts cutting back,” it’s not uncommon to see risk management—in both public and private sectors—be one of the areas to get cut.

“It’s not producing income, so they sometimes combine HR and risk management, which limits the focus on the risk management piece,” Mr. Walls said.

He said risk managers should make their case and let their employers know their value. Organizations, public and private, “definitely need to invest in risk management and loss prevention,” Mr. Walls said. “I hope that as the economy starts to rebound we will see an increased focus on risk management from employers. We did see some layoffs in that sector over the last few years.”

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