Winning The Workers' Comp Challenge

The three will also join me to discuss their programs at next year's Risk and Insurance Management Society annual conference, May 1, in San Diego.

o Risk management teamwork allows Belk to end silo mentality, slash comp losses. Presented by Gary Nesbit, director of risk management, Belk Inc.

There are no silver bullets, but we did have a very focused approach on what we did at Belk–a regional Southeast department store, which now has some 33,000 employees–up 50 percent from just a few years ago, when we had 22,000. We're in 19 states–roughly 330 stores.

We've done a number of mergers over the last 18 months, which is the reason for our increase in employees. Our exposures have gone up 26 percent on the comp side.

Our risk management staff has been in place for less than three years. The challenge we faced when I got to Belk in 2004 is they had just come off a guaranteed-cost program, so they went from guaranteed cost to a high-deductible program.

Before us, there was no formal risk management department. Basically what the safety department was doing was very strong OSHA compliance. We were seeing increases on the ultimate losses every quarter, and we had a very upset CEO and CFO. They really weren't sure what to do, but they knew they were very unhappy with the current state.

In the middle of 2004, the company gave a commitment to build an actual risk management staff. We had a very engaged senior management. Their philosophy wasn't so much they knew what to do–they just knew that the problem had to be fixed.

We took a very strategic, step-by-step process. We knew we had to rebuild the culture and behaviors within the organization. We needed to move from a reactive program to a very proactive one. We basically wanted to involve, engage and empower all of the associates (our term for employees) all the way from hourly associates on up to the CEO.

We brought in Martha Basco as assistant risk manager who has a very strong workers' comp background. Rather than abandoning the associates, she built a very proactive approach to involve and engage the injured associate.

Our first step was to engage the CFO. He was the one that was extremely upset with the current state of affairs. We realized we needed to start communicating in the language of the CEO and the CFO.

So we built a monthly cost-of-risk report that shows our risk transfer and our internal costs. We also put together an executive summary. The business operates on four divisions, so all of our reports mirror those. I learned real quickly that anything more than a page and you lose peoples' attention.

Ms. Basco also started showing the executives larger claims–those over $10,000–not just from the standpoint of what the cost would have been, but also helping them understand how people were getting hurt, what could be done to prevent it, and why it was important to focus on this.

With the CEO and the COO (which are the two Belk brothers), we noticed when they went out to stores they were given a one-page sheet showing the sales and performance of that store. So we took a small area of that report and gave them risk management information.

Basically, it showed what the frequency rate was, how many charges we were allocating to that store, and their safety committee performance. We also told them the numbers above this store or below it, and what questions to ask that store manager.

That way, they could walk into a store and look at those three bits of data and know exactly what questions to ask that manager–either recognize they were doing better than average, or ask them why their frequency rate was higher.

We put a lot of focus on having that store form a safety committee. That's how we want the store managers to engage and involve their associates.

As a result, Belk is increasing the number of stores that go all year without accidents. Last year, we were a little over 60. We also implemented a formal reward and recognition program.

The next level down from the executive side was our four operating divisions, each with about 80-to-90 stores. We asked to be involved in their sales meetings.

We also go out each quarter and present them with a one-page report card that compares them with the other four divisions. We give them their ratings, and how they're doing this year versus last. We also break it down by regions, so they can see which of their regional managers are doing better.

What we want them to do is follow up with those regional managers and either congratulate them or ask how they plan to turn their results around. It's a very simple principle–if it is important to the region's boss, it's also going to be important to that person.

We are also doing a lot of education with the four divisions. In the past we did a risk management report, where somebody sat down, talked to them, walked them through and explained the regional report and what information was important.

When we got there, they were getting a 20-page report every month. It's one of those reports that was put on the shelf and never looked at. So again, we put all the information down to one page.

We also talked to them about the impact of their claims on the profit-and-loss statement. These are guys that get bonuses based on profitability. We correlated to them when they have a claim that goes over $1,000, we do an allocation of $26,000. (That's the stick. The carrot is that if they stay involved and help us bring that person back to work, they get a credit for $13,000.)

We kept talking to them about how if one of your people is hurt, you just lost a half-million dollars in sales. So if you continue to have claims, you have to keep doing an extra $500,000 in sales per injury because that is the only way we get money to pay for your claims. That was a key turning point to getting them involved–when they realized the impact of their claims on sales.

The next level down is the regional managers. We took a very strong focus with them. We found they are more of our key audience–with 300-plus store managers, it's easier to concentrate on the regional managers.

Again, we spent time educating them on why it is important and how they can measure their safety performance, what they should be looking for, and when they would need to intervene with the store manager. Mark Meek, our safety manager, has done a very focused job on getting out to the stores and doing training.

Over the last 18 months we have trained about 2,400 of our store managers and assistant managers in a three-hour class, including an hour on basic safety training–more focused on how you implement behavior and cultures within the store.

We do another hour on associate accidents–how they impact the associate not just financially, but also from a physical, social and psychological standpoint, and how staying in contact with that associate makes a difference in helping them return to work. (The third hour deals with customer accidents–a general liability issue.)

We also work with them on the safety committees–participation is running in the high-90s. We have them focus on setting objective goals for their store in terms of driving down frequency rates.

We promote this as a great way for a store manager to take an assistant manager and give them some responsibility–give them the opportunity to show some leadership, because they can measure their results very objectively. They can also do a lot from the standpoint of involving and engaging associates, so it is a great management development tool for us.

When we got to Belk, they had these three-ring notebooks on the shelf, and there was no way of trying to keep those up. They were seldom used, so we moved everything onto a Web site. It shows current stats–how the division is doing on comp, updated weekly. It also includes safety and claims information, and hot topics.

We also send out newsletters. Again, what we are trying to do is communicate not only to store managers, but these are also given out to associates. Our CEO especially likes the part showing the stores with zero accidents. He tracks that pretty closely.

We also got involved with Human Resources in their new store manager training. Ms. Basco did a lot on return-to-work training, breaking down what to do for the store managers. What do you do during the first hour? How do you do an instant investigation with the associate? How do you follow up the next day, the first week, every two weeks, and on a monthly basis? How do you work with the adjuster?

We also do a lot as far as rating the stores, using their competitive nature to our advantage. We go out and do store visits. We also send the stores a weekly e-mail showing not just what the losses have been, but also a tutorial safety message they can print out and talk to their associates about during their morning meetings.

Our key goal is to reduce our workers' comp frequency. Right now we're below five accidents per 100 full-time employees–when we got there we were consistently right around 14-to-15.

On the claim side, we expect the store manager to sit down with the injured worker and jointly fill out the incident report, and also talk to that associate about return to work, and going to the designated clinic.

One of the strategies we implemented was moving our closure rate at 120 days from 63 percent up to 75 percent, and that saved us about $1 million.

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o Rolls-Royce boosts safety, limits claims by emphasizing unit WC accountability. Presented by Rob Osha, director of insurance, Rolls-Royce North America.

Rolls-Royce is a leading provider of power systems and services for use on land, at sea and in the air. We operate in four global markets–civil aerospace, defense aerospace, marine and energy.

We utilize a core technology of a gas turbine that we use for our aero-engines, but we can also leverage that across the energy and marine sectors. We can use the turbine for marine propulsion, while on the energy side, we can take a compressor and put it with a turbine for oil and gas-pumping on offshore oil rigs, or put a generator with it and create electricity.

At Rolls-Royce North America, we are almost a $4 billion organization, with about 8,400 employees and 12 principal facilities.

Our workers' comp challenges started about 1998 when Rolls went on a spate of acquisitions, acquiring marine and energy businesses. In North America our operations were still primarily aerospace, so these acquisitions brought new exposures and challenges. We added about 4,000 employees in North America in 10 locations in a very short period of time.

Part of the challenge was dealing with new loss exposures. We understood the aerospace business–there are not a lot of high-hazard activities with assembling gas turbines. Now we had the marine business, where we have a lot of field service representatives actually out on ships and shipyards. With our energy business we had the new exposures of installing, testing and commissioning gas turbines on offshore oil rigs and compressor stations.

We also had new states to deal with–California, for one–as we started to put a best practices program in place, including an aggressive injury management and return-to-work strategy. The monopolistic states like Washington were also new to us, and we had to work to close some coverage gaps. We had our work cut out for us.

Another challenge beyond new locations and employees was new cultures. A lot of these companies were longstanding in their own right, and they had very entrenched cultures and were resistant to change.

To have an effective program of any type, you really have to have it become part of the fabric of the company.

As we were working to understand the new exposures, we realized they were doing things differently across the board with respect to managing workers' comp. Some had good areas of practice and others didn't have much of a program at all. We realized quickly what we needed was a standardized process for all to follow–a Workers' Comp Best Practices Program.

We knew we couldn't implement the program without help. We needed to partner with our businesses, TPAs and brokers. We utilized our brokers quite heavily to help us conduct workers' comp gap analysis to see how everyone was doing against best practices and to help create action plans and ultimately help us put our best practices manual together.

To begin, we had to get buy-in from site management, so we did road shows, and showed the financial impact of how their workers' comp costs would affect their bottom line. We showed them the loss-funding allocation numbers, which focused their attention and helped gain buy-in on the project–especially since we were starting to see increasing losses from the new companies, and the loss-funding allocations were increasing.

It was important to work with our TPA, because they have the checkbook for Rolls-Royce on our large-deductible program, so if we were going to be successful changing our return-to-work programs or injury-management process, they had to participate and do their part as well.

To be successful, the individual business units had to own the risk management program and not think of it as another corporate initiative. The way we could do this was to tie it to two existing, larger objectives of Rolls-Royce.

One objective is called "Functional Excellence," which is a Rolls-Royce objective to minimize waste and take cost out of the business. The second is "Process Excellence," which is creating world-class processes around everything we do and then working to always improve them.

The goal of our workers' comp program was to put a standardized process around this activity and thereby better control costs; so by linking to the larger global objectives we killed two birds with one stone.

The first thing we did once we got senior management buy-in is find out exactly what activities were taking place at the site level regarding workers' comp management. We did gap analysis of all sites and wanted to understand some of the behaviors driving our workers' comp costs–by employees, supervisors, everyone along the chain.

We looked at injury management, claims management, loss prevention, and then opportunities for continual improvement. We also did financial benchmarking and loss analysis so we could define the scope of any loss-reduction opportunities to the site. We then created written reports for those sites, and as a team worked to create action plans they could put into effect.

The action plans focused on high-impact activities, where they could see measurable results and get the momentum rolling. The site safety manager was responsible for putting these plans in place and providing monthly results to management.

Our Oakland facility had some of our most challenging workers' comp issues at one time. As part of their action plan, we worked with our TPA implementing aggressive return-to-work and claim-closure strategies. This work allowed us to close some difficult and expensive legacy claims.

Back then, we weren't very good at communicating with the TPA on what kind of return-to-work jobs were available, and the TPA wasn't very good at putting in place robust closure strategies. We thought if we brought everyone together and communicated around these new processes, we could close some of these claims–and it worked.

In Oakland, we also identified opportunities to reduce cumulative-trauma injuries. We trained an internal ergonomic team–we did not have this prior–to do risk assessments in the manufacturing environment, as well as train and make adjustments to reduce injuries.

We also did the same thing with machine safeguarding. On their own initiative, the site developed and posted safety scorecards with key performance indicators to track their improvement.

To expand our program reach, we turned our attention to the energy and marine employees in the field-service roles–a totally different environment from the factory. A member of my staff, along with our casualty risk consultant, traveled to customer sites in Brazil and the Gulf of Mexico. They went to oil platforms and refineries to see what our people do in the field, but what they quickly learned was our safety systems needed improvement.

In some cases training was lacking, or they didn't have proper gear, or the customer was not letting them institute our safety procedures at the site. So we again created action plans and focused on risk-engineering issues, work practices and administrative control as necessary.

Prior to instituting this best practice program, we didn't do a good job of sharing claims and cost data with the individual sites, and we weren't giving them the information needed to make informed decisions on resource allocations related to safety and claims management. To plug this gap, we developed a quarterly cost-of-risk report to provide metrics to the businesses.

We wanted to make sure we could sustain these changes, so we decided we needed more frequent communication with the safety managers and the workers' comp coordinators. We developed monthly risk management bulletins to continually reinforce the tenants of the program.

We had topics such as: "Effective safety systems require true leadership," "How to run a claims meeting?" and "Do you really need an ergonomics program?" Each month we issued a different topic, and then we put it on our Web site.

We tightened quarterly claim reviews with our TPA. We've become very challenging and study the adjuster's notes before we challenge them on how they would close each claim. What are we going to do to get the employee back to work? We are very hands-on managing that aspect.

We've also created local TPA service instructions with the site so the local claims adjuster knows how they are expected to work with local site people, as far as getting employees back to work. We're also working on putting the TPA on some key-performance metrics so we can better manage their performance.

Looking at our results, from 2002-to-2006, we reduced our claims by about $1.6 million. We sustained that reduction in 2005 and 2006, and our total claims through the period were down about 27 percent.

As for Oakland, now they are our best-performing site. In 2004, they cut costs by 41 percent, and then in the first half of 2005, costs were reduced by 95 percent. We had a similar experience with our Mt. Vernon energy business–they had a 40 percent reduction in claims over a four-year period.

We've tied workers' comp to our Process Excellence initiative, so we are always going to be looking to improve the program. We'll be doing refresher training and continually educating plant supervisors.

Going forward, we would like to create a "Communities of Practice" within Rolls-Royce, as we have a lot of people involved in the process, with a lot of stories to share and advice to give. If we create a community where they feel comfortable talking to fellow practitioners, it will certainly help further embed the program for Rolls-Royce North America.

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o Employee involvement helps transform Kitty Hawk from 'worst' to 'winner.' Presented by Bob Buchanan, director of risk management.

I arrived at Kitty Hawk about five years ago after over 40 years in the insurance business. When I started as risk manager at Kitty Hawk, the company's focus was as a heavy cargo airline. In June 2006, we started and subsequently bought a trucking company, which not only broadened products and services, but our exposures.

Kitty Hawk, in business over 30 years, carries about one million pounds of freight every night–sometimes as high as 1.6 million, depending on time of year. On the new but growing truck network, we operate about 170 trucks every day.

In addition to standard heavy freight shipments, the company specializes in very unusual freight. We have one designated Boeing 727 aircraft that carries 19 race horses every night going to and from its base in Kentucky. Besides the 19 horses and 19 trainers, they carry friends–it is not unusual to also have a lamb or a billy goat along to calm the horses.

Kitty Hawk carries a wide variety of high-value and high-security shipments, such as high-tech cars for the major manufacturers, large live animals (such as seals, lions and tigers), or priceless artwork, jewelry and U.S. currency. You name the freight, we've carried it!

In 2005, the company introduced seven Boeing 737 freighters to its fleet. Planning and safety training started a year in advance of their operation. In addition to regulatory requirements, there was a unique risk management difference between the new and older aircraft being replaced.

The newer aircraft engines were about two feet off the ground and out in the front of the wing, making them particularly susceptible to foreign objects (material laying on the ground, which could be ingested into an idle or operating engine) or equipment damage (during the cargo loading and unloading process).

The previous aircraft–the Boeing 727-200 freighter–hadthree engines mounted on top of the tail, far from any exposure to damage from ground activities. Even before the aircraft arrived, Kitty Hawk developed procedures and training, and practiced ensuring that any loss control or safety issue could be eliminated.

Even after the aircraft started operations, safety teams and training classes continue to stress the benefits of proper risk management and safety of operations.

With respect to workers' comp, prior to my arrival, Kitty Hawk had $1.9 million in claims–a lot for a small company–sovery quickly we made personal safety the number-one priority. We taught everyone–not just the front-line staff–that safety was important, and not only for the company's bottom line, but for their own sake.

We have a safety committee oversee activities at all our locations–they are very active, but controlled by the employees. As risk manager, my job was to teach them what to look for and how to make a safety committee efficient, productive and diligent.

The results speak for themselves. If you look at 2003-to-2004, our modification factor was an unacceptable 1.38–largely because the formula calculating that mod factor reaches back three years, and all the claims and unresolved claims from prior years caught up with us.

In 2005-to-2006, the company had only $24,000 in actual claims. Our retrospective policy return, based upon $1.1 million in premium, is $660,000. For this year, 2006-to-2007, our premium was $860,000–and the return on our retro will be $580,000.

For our renewal this year, our "mod" went down to 0.78, and we got a preferred rate–for 2007-to-2008, our renewal premium is just $373,000. In 2003-to-2004 we had 84 claims, but the next year we cut that to just 16, and so far this year we've had only one claim on the airlines side and two in the truck network.

When we bought the trucking company in 2006, the firm was averaging $700,000 a year in workers' comp losses, but for the first 10 months after the purchase, as we began to integrate operations, we averaged $108,000 in total-year losses. For the first two-and-a-half months this year, we incurred only $8,000 in losses.

One of the keys to risk management is not just planning, training and process–it is also follow-up. The risk manager, local management and even the safety committees are very active in claims management–fully involved in any claim over $5,000.

Another key is senior management support. When I was recruited and arrived at Kitty Hawk in January 2003, I told our president and CEO, Bob Zoller, I needed a letter from him emphasizing how important risk management and safety was from now on. He issued a letter to the board of directors, executive leaders and all team members, indicating that risk management and the protection of customer shipments, staff, equipment and facilities was Priority Number One.

From that day forward our company has been a leader in loss control and safety.

Our board, at the urging of our CEO, has been very active and interested in risk management. I report to the board once a year and to the board's Audit Committee once a quarter–or after any significant event. I always put the workers' comp results and recommendations right up front. It's very important our board is 100 percent behind our safety program and all elements of the risk management program.

It is also critical to have impeccable relationships with your broker and insurer. We have always promoted open and constant communications. We meet with them on a quarterly basis to review whatever claims or policy actions we might have in process or planned.

As an example of this close relationship, the company, through the Human Resource department and safety committees, wrote its own loss control and safety manual–which took almost a year. During its drafting, we conferred with safety engineers and underwriters, and when it was almost finished, we had the legal department from AIG and our broker look it over.

We also have loss control people from our broker and insurance companies visit with our safety committees quarterly to do training, offer suggestions on how to report an industrial loss, or just listen to what is happening at the company. They are very active and we encourage their activism.

We found it helpful to install a modest safety incentive program. We have about 16 different divisions at our largest air and ground hub in Ft. Wayne, Ind., and each division has an opportunity once a quarter to get a different gift based upon not having any losses. We have safety goals and rewards throughout the organization, and we monitor our performance consistently.

As an example, because we had such a great loss experience in 2006, we bought 40 tickets to the Cubs game in Chicago, rented a bus and selected people's names from a pool of team members who did not have an industrial loss that year, and took them to Chicago to see the game. We did the same type of reward program elsewhere. We also provide modest risk management achievement and recognition cash bonuses to outstanding supervisors and staff.

You can't do risk management just sitting behind your desk. You need to get out and see what your staff is up against. I travel to each location at least once a quarter. I live in Maryland, but I'm never home–I travel all the time–but the result of this constant commitment and nurturing is a very, very successful program.

Light duty is a major focus. When I joined Kitty Hawk, I flew to Ft. Wayne and interviewed three hospitals, and brought the doctor and nursing staff to our facility so they knew exactly what our operation was all about and what the inherent risks might be. Then we had an open dialogue about return-to-work and light duty.

With respect to pre-planning or prevention, we are also very active. Federal regulations already require us to do drug and alcohol screenings, but in addition, although not required by regulation, we also do pre-employment physicals for pulling and lifting, because when you are loading or unloading a plane, that's all you do.

Before we will let anyone on an airport ramp, in a warehouse or on a plane, we have intensive training, including a supervisor evaluation and mentoring program. Even after an individual is deemed "qualified," we put staff together with newcomers so a group of peers help break them in, whether for several weeks or even months.

As for coverage programs, I prefer retrospective rating, because it means the participation of the company in the final loss result. When I came to Kitty Hawk, we established a new retro program. We already had a retro in-force, but had to renegotiate because our minimum was 100 percent and our maximum was 200 percent. That meant no matter how good our program, we had to pay more than 100 percent of premium. (We actually had to put a retainer or letter of credit up to cover 100 percent of premium.)

My problem now is that retro will not usually be written unless it's over $500,000 in premium, and my renewal this year was $373,000, so I don't get to participate. However, in a way, that's a good problem–it means we have collectively made tremendous progress in just a few years!

We take our role with the insurer very seriously, and their return of retro this year is about $650,000. That means we were able to pay a renewal premium off the retro adjustment. Next year, we project a retro of $580,000, and for the next two-and-a-half years we can tell our CEO and CFO we have no workers' comp premiums due, when we were forecasted to pay over $1.2 million.

This is all because of the cooperation of our employees. I was just the facilitator. If you can be partners with your employees, carrier and broker in establishing aggressive loss control and safety programs, your impact on the company's bottom line will be dramatic. Going forward, we will strive to continuously improve.