Risk Insider: Jason Beans

Workers’ Comp: Like a Nasty Divorce

By: | April 17, 2015 • 4 min read
Jason Beans is the Founder and Chief Executive Officer of Rising Medical Solutions, a medical cost management firm. He has over 20 years of industry experience. He can be reached at Jason.Beans@risingms.com.

I have followed the ProPublica/NPR article series on “The Demolition of Workers’ Comp,” and the subsequent reactions with interest. From the implication that the system is being decimated at the expense of American workers, to various points of disagreement from industry parties, I have found a lot to consider.

ProPublica ignited a debate that is still alive, and one that I felt it prudent to give considerable thought to before weighing in.

One major realization I’ve come to is that workers’ comp cases can be a lot like a nasty divorce.

In the aftermath, there are two households to support and both sides believe the other is “screwing” them. One spouse is certain they are “right” and the other is clearly “wrong.” But the truth, as it so often does, lies in shades of gray.

I think this is where we find ourselves in the ProPublica debate.

In workers’ comp, employers often have to cover massive costs, typically for a person who is no longer working or producing. The injured worker does not have the same earning power or quality of life.

Nothing the insurer can do will take away the fact that someone has lost a limb or is a quadriplegic. The story is a sad one, no matter what the outcome.

If we can help 10 injured workers have a better life, but cost thousands of U.S. jobs, have we done a good or bad thing for society?

To be frank, when I began reading the ProPublica report, my initial reaction was that it likely amounted to sensationalism masquerading as journalism. There are some well-founded points, though we do everyone a disservice — injured workers, employers, and insurers alike — if we do not look past the anecdotes to the tough questions.

As in a nasty divorce, it is tempting to point fingers and place blame. But if we want to truly understand the realities of workers’ comp today, we must resist the urge to oversimplify.

If you’ve been following all of the punches and counter-punches, then you know significant attention has been given to ProPublica’s use or misuse of statistics. So instead I will touch on some of the other issues raised but in a much broader context.

The Costs of Competition

Workers’ comp does not function in a vacuum, it operates in a national and global free market system. The cost of labor is a major factor in this system and determines where companies hire and expand.

In a global economy, every state and country compete to see if the job can be done better, faster, cheaper. Additionally, labor markets are increasingly competing with robotics and automation.

That means every action has a reaction, and that includes consequences for every increase in workers’ compensation costs and benefits.

If we can help 10 injured workers have a better life, but cost thousands of U.S. jobs, have we done a good or bad thing for society? We have to consider the larger price we may pay for the decisions we make today.

Consider, too, that if employers and insurers cease to turn a profit, they cease to exist.

The ProPublica article contends that worker’s comp reforms are being driven by employers seeking to increase profits. Any dubious math aside, it is important to understand that in insurance, some measure of profitability has more to do with market forces than with work comp laws. Massive amounts of capital are needed to underwrite insurance, and the majority of that capital rests with reinsurers.

Reinsurers invest wherever the risk is lowest and the returns are highest. Higher risk/lower return investments (such as workers’ compensation in U.S. states) will see less capital, subsequently driving prices up, while low risk/high return markets will see a flood of capital that drives prices down.

Overall, insurance profitability must match the market’s profitability or we will have no insurance. What then?

Don’t Oversimplify … or Overcomplicate … Comp

We face tough decisions with no perfect answers in workers’ comp. For example, when a carrier underwrites workers’ compensation, their liability is unknown. Cases from the 1950’s are still open.

There is no way to predict medical improvements. A prosthesis might have been all that was available when a carrier wrote a policy fifty years ago. Now they are expected to cover a robotic limb that can cost hundreds of thousands of dollars. Is that fair? It’s not a simple issue.

Overall, insurance profitability must match the market’s profitability or we will have no insurance. What then?

We as an industry can also complicate matters by tripping over dollars to save pennies. This is devastating to workers and, over time, the payers’ bottom line.

The best payers I have seen jump to take care of injured employees. When you do everything possible to help workers get to pre-injury status or maximum improvement, it’s pretty easy to identify the frauds.

Really, there are two choices in claims management. Distrust everyone until they prove they are legitimate, or assume they are legitimate until they prove otherwise — the latter produces better results.

Despite ProPublica’s implications to the contrary, the vast majority of people I know in workers’ comp are well-intentioned, want the best for injured workers, and want a system that supports them. But we face challenges, and how we address these difficult issues will have far-reaching, even global, ripple effects for employees, employment rates, employers and carriers alike.

We have to approach the tough questions — and answers — we face with the understanding that things are never simply black or white, and reaching solutions often lies in the shades of gray.

Kind of like a good marriage.

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Insurance Industry

Insurers Flying High

Four insurance companies have received approval to use drones for claims and risk management purposes.
By: | April 16, 2015 • 3 min read
drones

Four insurers are among 125-some pioneering companies to receive approval from the Federal Aviation Administration to test drones for various commercial purposes in the U.S.

The FAA agreed to allow the insurers to test the use of unmanned aerial vehicles (UAVs) to survey everything from damaged roofs and flooded areas to tornadoes, hurricanes and other natural disasters.

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The insurers are American International Group Inc. (AIG), Erie Insurance Group, State Farm Mutual Automotive Insurance Co., and United Services Automobile Association (USAA).

In March, State Farm became the first insurer to receive FAA approval to test drones for commercial use. State Farm plans to explore the use of UAVs in assessing potential roof damage during the claims process and in responding to natural disasters.

“The potential use of unmanned aerial systems provides us one more innovative tool to help State Farm customers recover from the unexpected as quickly and efficiently as possible,” said Wensley Herbert, operations vice president-claims.

At AIG, the company received FAA approval to use UAVs to conduct inspections for risk assessment, risk management, loss control and surety for its customers.

Insurers granted exemptions to use drones are American International Group Inc. (AIG), Erie Insurance Group, State Farm Mutual Automotive Insurance Co., and United Services Automobile Association (USAA).

The exemption also permits AIG to implement a robust research and development program to explore new and innovative ways to employ UAVs.

UAVs can help accelerate surveys of disaster areas with high resolution images for faster claims handling, risk assessment and payments, according to the company. The drones can also quickly and safely reach areas that could be dangerous or inaccessible for manual inspection, and they provide richer information about properties, structures and claims events.

“AIG is committed to continuous improvement and innovation to providing better, faster and safer risk and claims assessments to our customers,” said Eric Martinez, executive vice president, claims and operations. “Leveraging cutting edge technologies like UAVs can enhance our ability to assess and mitigate risks to better help our customers and their communities prepare for and rebuild after a catastrophic event.”

AIG has already established an international UAV research and development center and conducted flights in New Zealand. These flights have provided valuable insights on technology, flight operations, and image collection technology, flight and image collection techniques that will be incorporated into AIG’s global UAV strategy, the company said.

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USAA said drones could help speed review of insurance claims from its members following natural disasters.

In October 2014, USAA filed for an exemption under Section 333 of the FAA Modernization and Reform Act of 2012 to enable more efficient testing of small drones. Exempt from select FAA regulations, USAA can now fly drones during the day within line-of-sight of a trained pilot and air crew. Prior to the approval, USAA test flights could only take place at FAA-approved sites.

USAA said drones could help speed review of insurance claims from its members following natural disasters.

Currently no aircraft is allowed to exceed an altitude of 400 feet, and all flights must continue to be reported to the FAA.

With FAA approval, USAA will work to efficiently research and develop best practices, safety, and privacy protocols and procedures as it further develops plans for operational use, according to the company.

USAA received a second exemption in early April that will allow the insurer to go operational in a catastrophic situation.

“We’re proud to be among the first insurers approved for this technology,” said Alan Krapf, president, USAA Property and Casualty Insurance Group. “It’s our responsibility to explore every option to improve our members’ experience.”

The USAA family of companies provides insurance, banking, investments and retirement products to 10.7 million current and former members of the U.S. military and their families.

A spokesperson for Erie insurance Group said the company believed drones, which they refer to as unmanned aerial systems (UAS), will play a major role in the future of insurance innovation and help the company be safer and more efficient in its claims handling and risk assessment.

“For example,” the spokesperson said, “if we need to assess a roof on a large building or one that has an especially steep pitch, we can now test the viability of using UASs instead of sending someone up on a ladder.

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“We hope to eventually be able to use UASs to assess damage after catastrophic weather events when physical structures can be especially precarious.”

Commercial drone flights are generally banned in the U.S. However, the FAA has awarded some exemptions for commercial drone use under a program created by Congress to allow flights while the agency completes more formal regulations.

Steve Yahn is a freelance writer based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at riskletters@lrp.com.
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Sponsored: Berkshire Hathaway Specialty Insurance

Healthcare: The Hardest Job in Risk Management

Do you have the support needed to successfully navigate healthcare challenges?
By: | April 1, 2015 • 4 min read

BrandedContent_BHSIThe Affordable Care Act.

Large-scale consolidation.

Radically changing cost and reimbursement models.

Rapidly evolving service delivery approaches.

It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.

After all, this is more than just a business.

The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.

But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.

“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.

Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.

The Foundation: Financial Strength

BrandedContent_BHSIBerkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.

For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.

But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.

For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.

“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.

Keeping Things Simple

BrandedContent_BHSIHealthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.

Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.

“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.

Claims: More Than an After Thought

Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.

In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.

And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.

“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”

Responding To Ebola: Creativity + Flexibility

BrandedContent_BHSIThe recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.

Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.

BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.

These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.

At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance, Berkshire Hathaway Specialty Insurance

Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.

“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.

It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.

To learn more about BHSI Healthcare, please visit www.bhspecialty.com.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact info@bhspecialty.com.

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance.
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