Roberto Ceniceros

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

Column: Workers' Comp

Risk Complexity Breeds Stress

By: | May 24, 2016 • 2 min read
Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

Risk managers are straining under a workload beset by increasingly complex exposures and limited resources to ensure they are adequately addressing them.


“There is this absolute grind of increasing complexity,” the treasurer overseeing risk management at a nationwide retailer agreed when I mentioned the growing stress placed on risk managers.

He can no longer afford the time to take calls from service providers vying for his business, he added. In years past, he said, meeting with new providers gave him the opportunity to learn about risk-management trends and service options.

It’s easy to understand why risk managers have had to make such adjustments.

Current corporate profitability levels are placing risk management department expenses under pressure.

The complexity of traditional risks, like workers’ compensation, has grown substantially, demanding more time to manage. No longer does mitigating that risk just require reducing accident frequency and establishing a relatively straightforward return-to-work program for injuries that do occur.

There are now more regulatory considerations, like how the RTW efforts mesh with Americans with Disabilities Act mandates, for example.

Additionally, workers’ health conditions coupled with the rising cost of emerging drugs and medical treatments require more specialized expertise and services to manage their appropriate use. The rise of predictive analytics, case management and drug-utilization monitoring come to mind.

So while the workers’ comp manager and risk manager have more service providers touching their workers’ comp claims, they have less time to converse with competing service vendors to help ensure they are tapping the best options.

Then there are the new, emerging risks.

Corporate boards have taken a direct interest in their companies’ preparations for cyber exposures. So the risk manager must respond, taking his attention away from those growing workers’ comp challenges to devote additional resources to evaluate cyber risk preparations.

Yet according to Aon’s “Global Risk Management Survey 2015,” risk management department staffing levels have held constant since 2009. That is the year the “Great Recession” ended.

Current corporate profitability levels are placing risk management department expenses under pressure. So it’s growing common for companies to cut risk management program expenses — that might produce short-term savings, but result in additional long-term costs, several sources told me.

Risk managers who know better can’t feel good about making such decisions.

“I am seeing stress,” said Mark Noonan, managing principal, casualty at broker Integro USA Inc.


“You have to cut here to cover there. It’s the stress of, ‘Did I do enough with what I have? Am I making the best financial decisions that result in the coverage I need to let my company continue to grow and prosper?’ And that is very stressful.”

It would be less stressful if risk managers and workers’ comp managers were the kind of people who didn’t make their work responsibilities a high priority.

But the risk managers I have met over the years are smart, hard-working individuals interested in being the best at what they do. They care about their responsibilities and want to contribute to their organizations’ success.

But facing more regulations,more risks and an “absolute grind of increasing complexity,” they could use more support. &

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Workers' Comp Premiums

New Wage and OT Laws May Increase WC Premiums

A higher payroll may mean an increase in premiums. Claims costs may increase as well.
By: | May 23, 2016 • 4 min read
Calculator and payroll

The U.S. Labor Department’s new rule expected to make 4.2 million more workers eligible for overtime pay could increase the premiums some employers’ pay for workers’ compensation insurance.


Many factors remain in play, however, including whether employers shift their hiring practices or adjust their pay structures and how underwriters react, making it difficult to say for now precisely how the rule finalized on May 18, 2016 will impact workers’ compensation premiums.

But there is a potential for some premium increases, especially for small employers, due to the rule’s impact on payroll amounts policyholders typically report to their workers’ comp insurers, brokers said.

Meanwhile, state and federal efforts to increase the minimum wage would have a more certain effect, increasing employer insurance expense, and self-insured company costs.

That would occur as minimum wage hikes directly increase the risk exposure. The greater exposure would follow from claims payers having to provide more indemnity benefits to match workers’ new earning capacity.

“It’s a genuine change in exposure because the injured worker now will have a higher benefit threshold in many cases when they are injured,” said Pamela F. Ferrandino, EVP and senior principal national casualty at Willis Towers Watson.

Sharon Brainard, executive managing director and national casualty practice leader leader at brokerage Beecher Carlson agreed.

Sharon Brainard, executive managing director and national casualty practice leader leader, Beecher Carlson

Sharon Brainard, executive managing director and national casualty practice leader leader, Beecher Carlson

“That obviously is going to have a direct impact,” Brainard said “It is going to increase the premiums and ultimate claims costs.”

Increases in overtime pay and minimum wages would both cause an employer’s gross payroll to expand. Underwriters typically calculate workers’ comp premium amounts applying a formula that includes an insured’s business type or employee classification, an experience modification, and the employer’s gross payroll.

The greater the payroll, the greater the premium paid. In most states, though, any overtime related premium increase is calculated by including only the regular hourly wage paid for overtime hours worked, not the additional amount a worker earns for each hour of labor conducted during overtime hours.

For example, for a worker regularly earning $10 per hour and time and a half, or $15 for overtime hours, underwriters apply only the $10 per hour, even for overtime hours worked, when factoring employer payroll impact on premiums charged.

The Labor Department’s new rule takes effect December 1, 2016. It increases the threshold at which employees are exempt from overtime pay from $23,660 to $47,470. Qualifying employees will be eligible for time-and-a-half pay for each hour worked beyond 40 hours per week.

While the amount of payroll employers report to their workers’ comp underwriters may increase due to more overtime pay, the actual risk exposure is not really growing if employees were already working overtime hours beyond 40 a week before the new rule goes into effect, but they were receiving a salary and not compensated for the  overtime.

How insurers will react to that remains to be seen, especially regarding larger employers that maintain large deductibles and enjoy negotiating clout when purchasing insurance, sources said.

Mark Noonan, managing principal, Integro

Mark Noonan, managing principal, Integro

Brokers will want to help clients capture payroll information to gauge whether their payroll expands due to more overtime pay, but the exposure does not correspondingly grow because employees are really working no more hours than they did before the rule takes effect, Ferrandino said.

“That is the thing as brokers that we are focusing on,” Ferrandino said. “Identifying the impact for the organization and communicating that to the carriers so there is not an inflated premium resulting from no change in exposure.”

In contrast, smaller employers purchasing first-dollar coverage because they need greater expense predictability or have less negotiating clout are more likely to feel the impact, said Mark Noonan, managing principal at Integro.


“Where there is first dollar coverage in a guaranteed cost program every change in payroll impacts the ultimate cost,” Noonan said. It could be very impactful to a small employer who then suddenly finds out that there are going to be payroll changes and their fixed costs are going up by a percentage they were not contemplating.”

Depending on when employers renew their coverage, any premium increase could come during end-of-policy period audits. But employers may also react to the new rule by increasing employee wages so they do not qualify for the new overtime threshold. Or, they may mandate that employees not work overtime, or they could hire additional workers rather than pay overtime.

The new rule is intended to stimulate such actions, which would also impact an employer’s premium calculations.

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.
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Workers' Comp

Managing Service Providers

Quality assurance audits help risk managers, insurers and TPAs counteract weaknesses in delivery of services.
By: | April 28, 2016 • 5 min read

Uncovering inconsistencies in an insurer’s or third party administrator’s service performance can ultimately strengthen an employer’s partnerships with the organizations managing injured-worker claims.


Advocates of independent reviews maintain that vendor management quality assurance audits conducted by independent reviewers can reveal weaknesses that impact an employer’s workers’ compensation program.

Yet other observers argue that independent quality assurance audits are becoming a thing of the past and their value diminishing.

Still, about 25 percent of self-insured employers and those with large deductibles seek the audits, said Dan Marshall, chief claims officer U.S. at Aon.

“It is only the most sophisticated buyers that want to look under the hood, so to speak, and get a gauge of the performance of claims service providers,” he said.

Insurers and third party administrators, meanwhile, employ their own teams to conduct highly structured quality assurance, or QA, reviews of their internal claims operations.

Jenny Killgore, VP, insurance services, Athenium Inc.

Jenny Killgore, VP, insurance services, Athenium Inc.

They test whether their employees adhere to internally mandated standards and whether their claims managers comply with negotiated service levels. They also evaluate the performance of external claims service providers.

“TPAs [and insurers] do a significant amount of internal quality assurance before a work product goes out,” said Jenny Killgore, VP of insurance services at Athenium Inc., which provides insurers with quality assurance systems for evaluating claims, underwriting processes and vendor-management practices.

Whether insurers and TPAs use internal resources or contract with outside companies for nurse case management, legal defense, MSA compliance, surveillance and other claims management services, QA reviews can reveal whether services are optimally deployed.

Reviews conducted by a TPA’s or insurer’s internal QA team also help those organizations strengthen their employee training programs and learn whether service inconsistencies exist among widely dispersed regional offices.

They also help retain customers as competitive market pressures and QA practices have pushed insurers and TPAs to improve their services over the years, several experts agreed.


But an independent review can help reveal whether employers are indeed well served by the internal QA processes of the claims management organizations they contract with, said Jim Kremer, senior manager, insurance and actuarial advisory services at Ernst & Young LLP.

Independent reviews can help confirm that an employer’s claims-management instructions and service agreements are consistently met and whether the company’s dollars are wisely spent.

“Leading practice would be a focus on claims management quality overall, especially outcomes.” — Jim Kremer, senior manager, insurance and actuarial advisory services, Ernst & Young LLP

“You have standards that are in place at every carrier and third party administrator,” Kremer said. But, he asked, “Are those front-line adjusters, and frankly their supervisors, adhering to those standards?”

QA reviews can assess timely claim intervention, reserving, pharmacy management and medical data management, among others.  Audits should evaluate adherence to leading claims-management practices and impact on claims outcomes, Kremer said.

“Large employers have performance guarantees in place, hence requiring audits,” Kremer said. “Leading practice would be a focus on claims management quality overall, especially outcomes.”

An independent review might find, for example, that workloads unintentionally encourage a TPA’s adjusters to relinquish control of claim files to specialists more often than optimal. That can cause employers to pay for nurses or attorneys to complete tasks adjusters are capable of handling.

“There is a cost to that and you certainly don’t want to assign routine tasks that an adjuster should be doing to a nurse case manager or to an attorney,” Kremer said. “That is very expensive and produces what we call ‘expense leakage.’ We see it quite often when we are out auditing in the marketplace.”

Other common findings include inadequate supervision of adjusters and failures to optimally reserve for specific claims, brokers said.

Darrell Brown, chief claims officer, Sedgwick Claims Management Services

Darrell Brown, chief claims officer, Sedgwick Claims Management Services

One opportunity for improvement commonly found during Sedgwick Claims Management Services Inc.’s internal audits involves the inability of adjusters to connect with injured employees during attempted follow-up telephone calls, said Darrell Brown, Sedgwick’s chief claims officer.

Observers say that has become an industry-wide problem, especially with the increased use of cell phones.

That inability to connect slows claim management decisions and can result in the increased use of investigations when adjusters don’t receive responses to their queries or when claimants believe they are not being properly cared for, Brown said.

“You can’t have a good outcome if the injured employee is having a bad experience,” Brown said.

During the request for proposal process, when employers shop for new TPA partners, it’s common to ask to see results of the TPAs’ internal QA reviews, said Thomas Ryan, research leader for Marsh’s workers’ compensation center of excellence.

“Sometimes they will sanitize the results [of internal QA audits] and share those with us,” Ryan said. “Others are a little reluctant to do so. But they will at least give us some high-level findings.”

Once a TPA is selected, contract language provides employers with the ability to conduct audits.

Thing of the Past?

Not everyone agrees, however, on the value of QA audits.

Automated claims-handling systems with embedded quality assurance components make independent reviews less necessary today, said Jerry Poole, president and CEO of Acrometis, which provides automated adjuster desktops.

“The quality assurance audit will be a thing of the past,” Poole said.

He said that when making claims decisions, Acrometis’ adjuster systems conduct QA in real time, while audits provide a retrospective review.

Bill Zachry, group VP, risk management, Albertsons Safeway

Bill Zachry, group VP, risk management, Albertsons Safeway

Real-time QA provides beneficial data about certain adjuster tasks, such as whether specific claims actions are completed within certain timeframes, Kremer said.

But the systems still cannot sufficiently evaluate certain factors, like the intensity of a claim investigation, he said.

Internal risk management staff at Albertsons Safeway constantly monitor the performance of the TPAs servicing the grocery chain’s workers’ comp claims, and medical outcomes are continually measured, said Bill Zachry, group VP of risk management.

Yet Albertsons Safeway also obtains an independent audit every four or five years, Zachry added.

The Hartford, meanwhile, relies on an internal team, comprised mostly of nurses, to conduct evaluations of the business partners that provide workers’ comp services.


Those services include utilization review, field nurse case management, vocational rehab, pharmacy benefit management, transportation, interpretation, physical therapy and medical provider networks.

QA evaluations are conducted before contracting with such partners, said Dr. Marcos Iglesias, VP and medical director for the insurer. Then each is trained on The Hartford’s QA expectations with follow-up audits. &

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.
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