Best of the Best: NU’s Excellence in Workers’ Compensation Risk Management Award

Presented by the Workers' Compensation Institute, WCEC is the largest gathering of its kind in the nation and offers discipline-specific programs and breakout sessions from hundreds of national speakers.

Here we share the stories of what makes these programs so exceptional—replete with valuable lessons for anyone who endeavors to control Workers' Comp expenditures.

Culture of Caring

American Infrastructure weaves a thread of safety into all of its operations

When it comes to managing worker safety in the construction business, there's compliance, and then there's genuinely caring about your people.

American Infrastructure is focused on the latter.

With more than 1,800 employees in six states, AI operates in the heavy civil construction industry and boasts $500 million in companywide revenue. Bridges, roads, treatment plants and pipelines span the spectrum of its projects, most of them large and each posing unique challenges and potential safety hazards.

For Risk Manager Bryan Schwartz, fostering a culture of safety—exemplified by its "Home Safe Tonight" initiative—isn't fueled by a desire to simply comply with safety regulations and hopefully contain Workers' Comp costs in the process: It's woven into the very fabric of the company. It's a philosophy that starts at the top and filters down to the boots on the ground.  

"It is inconceivable for any of us to believe that a commitment to any other standard of operation is acceptable," says Schwartz. AI's intolerance for incidents or injuries and a basic caring for every employee, he adds, "bleeds through in everything we do."

On its job sites, safety professionals are aligned with project teams, notes Bob Herbein, senior VP of corporate services. At the start of each shift there's a huddle among workers during which daily "safety flash" messages are provided to the entire crew, including information about "near misses" and other prior incidents—including, for example, attention to sunscreen use and hydration.

Yet to separate the "safety professionals" from those who operate a crane or a concrete mixer would mischaracterize the commitment of AI's entire workforce to a safe work environment. Its workers are entirely safety-focused, constantly looking out for one another; that sensibility is core to the company's aesthetic. At all of its project sites, "Home Safe Tonight" posters serve to remind employees, sub-contractors and customers of the company's commitment.

"Becoming incident- and injury-free begins with a culture of genuine care, concern and respect for our workers so that they all go home safely to their families each night," says Schwartz. "We believe that all injuries and occupational injuries are entirely preventable."

The proof is in the results: A reduction in the injury rate by over 50 percent in just four years, and a drastic reduction in Workers' Comp loss rate per $100 of payroll in the past six years.

A Safety-Focused Commitment

While it has engendered a culture of respect for its employees since it was founded in 1939, AI made a conscious effort to move toward a behavior-based safety program in 2005. Its senior management team implemented a root-cause analysis review of all on-the-job injuries or incidents; it focused on management-level of accountability for losses; and action plans were developed to shift management and employee behaviors to even greater safety-focused approach. AI's new-hire orientation program was revamped to provide better guidance and establish from day one an ingrained sense of responsibility for worker safety and the well-being of co-workers.

In 2008 AI enlisted the services of consultancy JMJ Associates, which helped to establish further protocols designed to keep safety top-of-mind. All company leaders, including foremen, superintendents, project managers, construction managers and vice presidents were provided a two-day commitment workshop designed to strengthen their personal commitment to safety and better define what an incident- and injury-free (IIF) culture at AI could look like. Focused action plans were developed for the leadership teams. Major focus was put on how leaders and management communicate with the workforce; they were trained on how to properly address and show care and concern for employees engaged in at-risk behavior.

"JMJ brought to us the approach of caring and relationships. It's about policies and training, but comes from a place of caring and concern," says Schwartz. "That's the essence of it."

Several changes were adopted. A "STOP WORK" card was given to employees to be used if they ever observe a work operation they believe can lead to a serious incident or injury. A continuously updated safe-production playbook of illustrated diagrams, shared with employees at every level on the site, would now be used for planning the day's work. The practice of providing the daily "safety flash" message was instilled. Safety leadership teams were formed in each business unit led by the vice president, and meetings would now be held with sub-contractors to communicate the IIF expectation on all projects. 

AI CEO Ross Myers (whom Schwartz calls the company's "chief risk officer") began extending communications related to work-safety matters to employees' family members via e-mail and in its quarterly mailed newsletter. The extension of such practices to employees' personal lives is not surprising, given that one of the company's key points in its corporate vision of "leaving footprints in the industry." This guiding value is evident in CEO Myers' participation with 17 other CEOs of world-class companies to drive the IIF culture throughout the construction business.

High Risk, Great Reward

AI maintains a high deductible with its WC insurer, Liberty Mutual, which keeps the company highly cognizant of its cost-containment efforts on the Workers' Comp side.

"We've built up our confidence that we can control the risk over time, and put our money where our mouth is," says Herbein. "It creates a financial repercussion that keeps us on our toes."

For AI, the biggest surprise since implementing a culture of extreme care at multiple levels has been how well it has been received and put in practice by its people. Safety protocols are fine, says Herbein, but once you get employees to realize that you truly care about their well being, they begin to wholeheartedly embrace the idea of looking out for each other on the job.

"I didn't start out in early 2008 believing that would be as successful as it has," says Herbein. "When I hear stories from our employees that their family doesn't want them to get hurt, that that message has gotten through and their family is in the game—that gives me a lot of satisfaction.

"It's not about compliance," he adds. "It's about a genuine concern for each other personally. That's huge."

Recipe for Success

ARAMARK strengthens its efforts in containing WC costs and reducing incidents

 Every business depends on its employees, but none more so than companies in the service sector. With more than 250,000 staff members worldwide, ARAMARK Corp. has built its business on providing professional services, including facilities management, food preparation, and uniform and career apparel.

However, by the early 2000s, ARAMARK was dealing with a Workers' Comp incident rate of nearly 12, taking employees off the job and affecting the service they could provide. The company was also contending with other costs associated with claims-management problems.

"Historically, our safety and claims functions were decentralized. As a result, there was little understanding of the risk drivers and no common strategy for loss prevention or claims management," says Senior Vice President, Global Risk Management Debbie Rodgers.

"It wasn't unusual for us to face penalties because our TPA couldn't get information from us to handle claims in a timely manner," adds Carla Wynn, Associate Vice President, Strategic Claims Management. "We also had claims that should have been medical-only become lost-time incidents because we weren't handling them promptly."

Following a company-wide initiative to address the issue in 2004, a senior-level task force asked ARAMARK's risk management function to become the center of excellence for risk control and claims management. "It wasn't just that our incident rate was extremely high, it was the realization that each of those incidents represented an injured co-worker," says Wynn. "We committed to making sure that first and foremost our employees were safe."

Nine years later, the company has undergone a cultural transformation that has vastly improved worker safety, halved the incident rate and slashed claims costs. ARAMARK's initiative combined a new safety focus—involving both employees and partners—with new claims processes, including both workflow and technology.

Single Point of Focus

ARAMARK recognized that visibility into Workers' Comp claims was impeded by a historically decentralized process, where claims-management duties were often add-ons to the responsibilities of safety professionals and department supervisors.

The company created an Internal Workers' Compensation Team (ICT) located in three offices: its Philadelphia headquarters, Downers Grove, Ill., and Burbank, Calif. The ICT's role spans the spectrum of claim management: from oversight of individual claims and working with ARAMARK's managed care provider and TPA to providing education and information on Workers' Comp to employees.

"Previously, our TPA had to obtain information on claims from a hodgepodge of sources across the company. That made it difficult for them to obtain wage information, employment information, even simple information like phone numbers," says Wynn.

Today, the ICT provides a single, common point of contact for ARAMARK's employees, management and TPA on claims. "The ICT is a facilitator to the entire program," Wynn says. "It's not just having a second set of eyes on the claim; it's having the ability to provide the right information at the right time to the right people to achieve better claim outcomes."

ARAMARK also created a new Decision Support & Analytics Team (DSA), armed with a new, internally developed Decision Metrics & Monitoring System (DMM) to analyze the impact of investments on claim results and shape future investment in loss prevention.

New Processes, Technology

ARAMARK targeted three areas of processes and workflow to improve WC results and return injured workers to health and get them back on the job. First, the company utilized predictive modeling, based on analytics from the DMM, to identify injuries that warranted nurse involvement from the outset: Those claims are transmitted immediately to ARAMARK's managed care provider. "This process ensures that managed care services are provided quickly and at the outset, but only to those claims requiring such services," Wynn notes.

Second, each new claim is now triaged by the ICT to ensure that due diligence is done from the first notice of loss to claim closure, consistently and according to ARAMARK's preferences and practices. That includes identifying return-to-work opportunities and subrogation potential.

Lastly, ARAMARK has focused on increasing the utilization of care providers in its preferred provider networks. Recognizing that every one percent increase in network usage equates to $250,000 in medical program savings, ARAMARK has charged the ICT with the responsibility of directing workers to network providers in states where such direction is allowed (see graph above: "EE" states are those in which the employee can utilize a medical provider of his or her choice to treat following a work-related injury. In contrast, the "ER" states are those in which the employer can direct care to facilities of their choosing that specialize in occupational injury claims.)

Supporting these process changes is technology, including the new DMM as well as the company's existing claims management and risk management platforms. Because accurate, timely data is essential for effective analysis, ARAMARK has established near-real-time data exchanges with its TPA and managed care provider.

"Centralized risk control and claims functions as well as our strong analytics capability have given us strong credibility both with our internal stakeholders as well as external stakeholders, including underwriters," says Rodgers.

'No One Gets Hurt'

Since its safety campaign began in 2004, ARAMARK has cut its incident rate nearly in half. Over the past three years, indemnity claims are down 13 percent, and the average incurred loss has dropped 4 percent. The company also recoups nearly $1.5 million in managed care savings annually.

The hard-dollar impact of reduced frequency and severity on ARAMARK's Workers' Comp premium is a savings of $200 million over the last seven years. But perhaps most important, the number of employees out of work due to injury has dropped over 30% during the last three years alone, an achievement that affects everyone who depends on the company and the service it provides. The injury reduction also reflects the goal of the company's SAFE (Safety Assurance in Food & Environments) program: "No One Gets Hurt."

"Today, our incident rate and loss costs are going down even though our payroll is going up," Wynn says. "We're able to reinvest savings from improved safety and loss control back in our business."

"I am extremely proud of the accomplishments of the Global Risk Management team," adds Rodgers. "Through the development of strong partnerships internally and externally, analytics that direct our activities, and tools, training and improved processes, more ARAMARK employees return home safely from their jobs each day."

School's in Session

Miami-Dade County Public Schools Tightens Loopholes on Prepackaged Prescriptions and Puts Needed Funds Back Where They Belong

"For every dollar we're not spending on managing a Workers' Compensation claim, that's a dollar that can be put back into the classroom through teachers' pay and school supplies," says Scott Clark, Risk and Benefits officer at the Office of Risk and Benefit Management for Miami-Dade County Public Schools (M-DCPS).

It's a philosophy the former RIMS president employs in every decision made in managing the risks for the fourth-largest school district in the U.S., comprised of 392 schools and more than 50,000 full- and part-time employees. In addition to educators, the district employs food-service workers, janitors, painters and carpenters, bus drivers and mechanics, its own police force and medical professionals.

The Workers' Compensation exposures among these personnel are vast and varied, and when accidents do happen, he says, "the ultimate goal is to bring everyone back in some capacity."

Slips, trips and falls and exertion (as in lifting) account for some 68% of the school district's claim frequency. When an employee is injured on the job, they can receive up to 13 weeks of employer-paid salary continuation, while they are eligible for temporary total disability benefits. But the goal is to help the employee return to their pre-injury position.

However, if the employee is unable to return to their pre-injury job but can work in some capacity, they receive a portion of their pre-injury salary while going through its Workers' Education Rehabilitation and Compensation (WERC) program."We think it's important for employees to not have to worry about being able to pay their bills," says Clark. "We want them to focus on getting better."

The focus of the M-DCPS Workers' Compensation program is threefold, including loss prevention; medical management of employee claims; and indemnity functions, including returning/keeping the injured employee at work.

As part of its Loss Prevention Program, M-DCPS contracts for a full-time medical professional who educates employees in safety, awareness, and prevention. The Loss Prevention Program also promotes change in workplace conditions through health and safety education, as well as analysis of individual incident reports and collateral data.

After M-DCPS lost its three-person loss control/prevention unit in 2008 due to budget cuts, Clark worked with his broker and carrier partners to secure on-site staff dedicated to loss control and safety training.

A variety of changes were also implemented to the program to improve loss experience, including:

Implementing benchmarking procedures to compare results by regional centers comprised of schools across the county

• Implementing risk treatment strategies to address high-frequency claim causes and locations
• Providing Workers' Compensation loss trending to each department and the top 15 loss-cost locations
• Assigning a full-time loss control rep to risk management for the purposes of loss analysis, accident investigation and safety training
• Implementing a comprehensive Safety Awareness Campaign
• Customizing CD Training Modules for schools
• Running Management Claims Analytics

Although Clark's programs have effectively reduced lost-time days and associated costs, in the few years prior to 2007 claims expenditures had been averaging about $30 million per year. Clark and his team launched additional initiatives to manage workplace safety, setting a course to re-engage physicians to take ownership of the treatment of injured workers while charging the Workers' Comp adjuster with the responsibility for all aspects of the injured employee's file.

Another major issue Clark has tackled in trying to contain WC costs is dealing with physicians' expenses for prepackaged pharmaceuticals.

"In 2008 and 2009 I realized how expensive prepackaged prescriptions were," Clark says—and he knew he had to do something about it.

Third-party vendors will supply physicians with prepackaged medications that doctors, in turn, can dispense to patients in their care—those who may be of low income or have no transportation to a pharmacy. But billing these as medical rather than pharmaceutical expenses translated to an extreme markup.

"We felt that paying 300, 400, up to 500 percent markups on these prescriptions was not in the taxpayer's best interest," says Clark, "but we didn't want to necessarily stop the process of having physicians dispense the medicines for those who need it."

Third-party administrator Gallagher Bassett and M-DCPS contacted the physicians with which it had relationships to let them know how these third-party prepackaged vendors were hurting that relationship. The TPA also informed partner physicians that the reimbursement for the prepackaged prescriptions would be at the same reimbursement levels as pharmaceuticals dispensed at a retail establishment.

The district and its TPA then supported state legislation to close this loophole and prevent the fee-schedule switch from occurring in the first place. On July 1, a bill went into effect that caps the reimbursement of pre-packed pharmaceuticals at 113.5 percent of the manufacturer's average wholesale price.

Adds Clark, "As of the end of 2012, we have $3 million in documented savings of changing the way we reimburse for those pharmaceuticals. We believe the new legislation will provide an effective means to partner with physicians and third-party billers to provide a valuable service of supplying pre-packed pharmaceuticals to injured workers at a cost structure that makes sense for all involved."

Other Key Accomplishments of Scott Clark's Program:

• An overall reduction of new WC claims in spite of significant and announced layoffs
• 64% reduction of new liability claims since 2007
• $7.5 million in WC cash-flow savings (2007-2012)
• 30% reduction in lost-time days since 7/1/06
• Total WC recoveries, including Second Injury Fund, excess coverage and subrogation, of $31.5 million (2007-12)

Better Days Ahead for Workers' Comp?

After several challenging years, the recent performance of the Workers' Compensation insurance industry offers several reasons to be encouraged. Consider the following 2012 highlights:

• The combined ratio improved for the first time since 2006
• Premium grew for the second consecutive year 
• Claim frequency declined significantly for the first time since 2009
• Claim severity increases remained modest.

Yet even with these improvements, Workers' Compensation continues to face ongoing challenges:

• At 109, the combined ratio is still too high
• Slow growth in employment is impeding stronger premium growth
• The industry's reserve position continues to deteriorate.

In a perfect world, all of the news on the Workers' Comp line would be positive. While that's not currently the case, we still think that the reasons for optimism outweigh the negatives—at least for now.

Combined Ratio Too High, But Investment Returns Strong

As noted above, the Workers' Comp calendar year combined ratio for private carriers in 2012 was 109. This is a 6-point decrease from 2011 and the first decrease since 2006. Although a combined ratio of 109 is far from a satisfactory result, the decline was welcome. And the accident-year results experienced a similar 6-point improvement. The National Council on Compensation Insurance estimates that the accident-year combined ratio for 2012 is 108, down from 114 in 2011.

The investment gain associated with Workers' Comp insurance transactions dropped slightly, to 14 percent of premium. This result, combined with tighter underwriting, produced a WC pretax operating gain of 5 percent for 2012. This is the first gain following three consecutive years of near-zero operating results, and is near the long-term average gain of 5.2 percent.

However, it's important to note that the pretax operating gain ratio needs to be 7 to 10 percent to allow the industry to earn a reasonable return on the capital supporting the Workers' Compensation insurance business.

We should also note that we do not expect those strong investment results to continue. They are due, in part, to the industry continuing to realize capital gains from repositioning its bond portfolio. This phenomenon is likely temporary in nature. Eventually, the investment gains associated with Workers' Comp insurance transactions will fall as the embedded yields in the industry's current bond portfolio are replaced with the lower yields available in today's investment environment.

Improved Premium Results

Turning to premium results, Workers' Comp premium for private carriers increased 9 percent in 2012. This is a slightly larger increase than the 8 percent experienced in 2011. The premium increase in 2012 can be attributed to several factors: For one, the improving economy has aided the growth in premiums through increased payrolls and additional audit premiums. Prices have increased due to changes in bureau-filed rates and loss costs a well as changes in carrier discounting.

The impact on premium of changes to bureau loss cost/rate filings was about 1 percent in NCCI states for 2012. In the last filing cycle, NCCI filed 25 increases and 13 decreases, mostly for effective dates in 2013. 

In addition to the positive news on premiums is a continued decline in claims frequency. In fact, lost-time claim frequency improved significantly in 2012—declining 5 percent on average in NCCI states. The 5 percent decline is even larger than our long-term annual estimate of a decline of 2 percent–4 percent per year—very positive news.

Indemnity and Medical Costs Largely Controlled

The changes in the average costs of lost-time claims continue to be reasonably well-behaved, as they have since 2009.

In NCCI states, the average indemnity cost per lost-time claim increased a modest 1 percent in 2012, after increasing 2 percent in 2011 and declining 3 percent in 2010.

The average medical cost per lost-time claim increased by 3 percent in 2012 after increasing 4 percent in 2011 and increasing 1 percent in 2010. Combined, the total lost-time claim cost increased about 2 percent in 2012, which is about the same rate as the change in average wages.

One important note: Over the past few years, it appears that the rate of growth in Workers' Comp medical costs has slowed significantly. Some of the reasons for the slowdown include increase use of fee schedules, improved techniques to track and reduce utilization, and better injury management. While the results may prove to be tenuous, any reduction in overall medical costs is a very positive indicator for the industry.

Reserves, Residual Markets Bear Watching

Of some concern, the private-carrier reserve position continued its modest deterioration in 2012 for the fifth consecutive year. NCCI's estimate of the reserve position for the private carriers as of year-end 2012 is a $13 billion deficiency.

After allowing for the permissible discounting of the indemnity reserves for lifetime pension cases, the inadequacy is about $7.5 billion, which represents about 6.5 percent of the carried reserves of more than $116 billion.

The WC residual market experienced significant growth in 2012. Premiums grew by more than 50 percent, and the average market share in the residual market increased from 5 percent to 7 percent. The pace of growth is continuing into the first quarter of 2013.

Although the volume of business in the residual market is growing as the market tightens, the combined ratio actually improved from 117 in Policy Year 2011 to 112 in 2012. The total underwriting loss in the residual market pools serviced by NCCI was $99 million for Policy Year 2012, up slightly from the $85 million in 2011. While growing, the residual markets remain both well-managed and well-controlled.

Looking Forward

While the Workers' Comp insurance industry showed unquestionable signs of improvement in 2012, significant challenges persist. For almost every positive development there remains a lingering concern behind the reported result.

For example, the growth in written premium provides support that the economy is improving, but at a slower rate than previous recoveries. While industry combined ratios fell, they remain at unsustainably high levels. And investment returns remain strong—but not strong enough to generate operating returns near the cost of capital.

Changes in lost-time claim severity have remained modest, at least partly due to an increase in the number of smaller lost-time claims reported in the last few years. This must be viewed with caution, however, as the low severity increases may not necessarily reflect an underlying change in medical and indemnity cost drivers. And while the industry is well-capitalized, reserve adequacy continues to slip.

One indisputably positive result is the fact that WC claim frequency declined for the second year in a row. That decline indicates that frequency is returning to its long-term downward trend as the economy continues to show signs of improving.