Loss Control Equals Freedom For RMs

Mr. Bennett pointed out that 40-to-60 percent of workers' comp costs involve muscular-skeletal disorders. But he noted that organizations need to look beyond the costs of those injuries.

"I talk specifically about ergonomics, but I think what's helping the status of an organization is typically that safety and health initiatives have an impact on productivity and quality," he said. "When you show that it's not just a $1 savings, but a $3 savings"because of impact on productivity and quality"it becomes a much more powerful message to senior leadership to move it up on a priority scale."

Although certain jobs are spotlighted for high injury rates, he explained that almost any job has the potential to cause injury. "You could go to the call center-office environment and still have the repetitive motion that comes from the use of telephones and computers," he said.

Injuries also can occur in manufacturing environments and production jobs, where employees "lift, twist and use hand tools such as screwdrivers," he said.

Although certain organizations have done a lot to upgrade their ergonomic standards, there is always room for improvement, he said.

Mr. Bennett described one organization with an annual workers' comp cost of $25,000 for one operation alone. "We helped that organization look at different ways of performing that particular task," he said. The organization not only reduced the likelihood of the injury, but it also saved the $25,000 and "improved productivity to the point of $1.2 million per year," he added.

How was this accomplished? By using "behavioral safety" methods, he said. From a behavioral standpoint, "we try to help an organization identify those at-risk behaviors to determine what is a safer behavior," he explained.

Once the behaviors are identified, a system is created to reward safe behaviors and measure their frequency. By using positive incentives, "an environment can be created where positive behavior is increased over time and the likelihood of injuries is reduced," he said.

Kenneth J. Karole, president of Eagle Risk Management Services Inc. in Denville, N.J., said his organization has a broader scope than most that covers not only employee safety, but product liability issues as well.

"We consider loss control any situation where we can proactively avoid or eliminate risk for our clients," he said. "We're a little bit unorthodox here. Our objective is to engineer a client to a point where they can be self-sustaining and be able to assume high levels of risk."

This method, he said, is "the only way" to control costs and deal with fluctuation, as well as respond to "the issue of supply and demand when it comes to insurance coverages in the current market."

One way to control costs, he said, is to buy less insurance and avoid loss. Mr. Karole said he advises clients to "understand that we're going to move them towards programs allowing them to be comfortable in accepting levels of risk."

Writing with large retention limits reduces fixed expenses, he said.

"If you don't have losses, this would end up in a reduction in ultimate cost," he said. "We have certain disciplines here to deal with the various lines of coverage such as product liability, workers' comp and property, where we get our clients to the point of being able to assume large retention limits."

At the same time, programs are implemented to reduce or mitigate losses and expenses within the retention levels, he explained.

As a result, "they are self-insuring, but we still take a conservative approach to their balance sheet to make sure they are reserving or accruing what can reasonably be expected."

Mr. Karole noted that although retail agents and brokers sell retention plans and ultimately a reduction in premium to clients, "what's not taken into account is the fact that you still need to anticipate that some losses will occur."

He cautioned that an accounting responsibility exists when selling a deductible program. Clients need to be advised "of the accounting principles that have to go along with those large retention programs." Clients can be "at tremendous risk internally" because of "exposure to themselves if they under-reserve and overstate value by understating reserves."

He cautioned risk managers against "overreacting and running to captive deals," thinking that "because you'll avoid a 50 percent increase by going to a captive that you have solved your problems."

Mr. Karole said historical data used to evaluate captives is "not credible in a crisis situation."

When insurance demand exceeds supply, he said, group captive programs may see rapid growth, "so what you're buying really is not credible because if that captive experiences 40 percent growth this year, it's an untested captive."

Rating structures, he said, were done on a representative sample "much smaller than what you actually would be involved in."

He added that most middle-market companies are probably not big enough for a wholly-owned captive. "Even with single-cell captives, the savings are not with the risks," he said. "I am more of a traditionalist. I like long-term relationships with insurance companies."

Wayne Salen, a member of the Risk and Insurance Management Society's board of directors, and director of risk management for First Niagra Financial Group Inc., a community savings bank in Lockport, N.Y., said he spends more time justifying loss control efforts to upper management.

"The last thing we need is to come on a hard market and find ourselves pigeon-holed because our losses are increasing dramatically, because we've cut back on those things that keep the constraints on our loss levels, whether it's frequency or severity," he said.

Mr. Salen said his company has "high retentions across the board," but is not fully self-insured.

The organization, he explained, is "in a growth mode," and is considering starting a pure captive. "We're getting ready to choose a domicile," he said. "The alternative marketplace will play a role as we get bigger."

He added that, "We fully expect that our next renewal will come with some additional increases, and we'll hopefully have a captive ready to play its role to try and minimize that impact."

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 12, 2002. Copyright 2002 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.