Risk Scenario


Lack of pre-loss planning leaves a manufacturer and its supply chain vulnerable in the face of disaster.
By: | November 2, 2015 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Big Waters

Jill Heald is a woman that loves to focus and hates distractions.


Heald paid close attention when an earthquake struck Japan in 2011 and a typhoon flooded Thailand that same year.

The press and the trade press laid out the gory details. Major companies; auto manufacturers, electronics companies and telecommunications companies were hit with supply chain losses they did not see coming. And the losses were big.

As the risk manager for Auto-Spire, an electronics manufacturer that makes integrated circuits used in the automotive industry, the Thailand and Japan losses made a deep impression on Heald. She vowed to herself that that sort of thing would never happen to her company.

Post-2011, shifts in Auto-Spire’s procurement process resulted in the company sourcing semi-conductors from an up and coming Malaysian manufacturer. Looking ahead to 2016, Heald in mid-2015 began thinking about and seeking approval for an ambitious contingent time element coverage insurance package.

“How big are we talking?” her broker asked her when she first sketched her plan in a phone call.

“Based on a brief meeting I had with Auto-Spire procurement folks, I believe a $25 million program should be sufficient, given the redundancy of our supply chain,” Heald told her broker.



“Well, we’re not going to get it all in one place,” the broker said. “Let me make some calls,” he said.

“How about we set up some face-to-face meetings with some of the underwriters?” Heald said.

“No need,” the broker said. “This is what you’re paying me for,” he said.

Unease gnawed at Heald after she hung up with the broker. It would make her feel a lot better to meet with the underwriters and some of their claims teams.

But the broker was who he was. Nobody had his contacts and he was a wizard with carrier relationships, or so everybody said.

Two days later the broker called her back.

“Okay I’ve got some ideas but we’ve got some work to do,” the broker said.

The nut was this: The CTE program that Heald was envisioning was going to require the participation of two, maybe three carriers. The way the broker presented the story, he’d been burning the midnight oil to connect with underwriters in the U.S. and Bermuda.

“So let me see if I’ve got this straight,” Heald said.

“We’ve got one U.S. carrier on the primary layer at $15 million.”

“Correct,” the broker said.

“And two carriers in the second layer at $5 million a pop. Both based in Bermuda,” Heald said.

“Again, correct,” the broker said.

They both agreed the premium prices were historically very good. The location of the semi-conductor maker was not a high flood risk. And the soft property market was another blessing.

Heald and her broker bound the coverage before Thanksgiving for the year 2016.

In April of 2016, Typhoon Lumba-Lumba, Malaysian for dolphin, strikes Malaysia as a CAT 4.

Do you meet face to face with underwriters and members of their claims teams before binding coverage?

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The morning after the typhoon strikes, Heald is online and on the phone trying to determine if the city where the Auto-Spire semi-conductor supplier is located was heavily damaged in the storm.


The good news is that it did not appear to be. The bad news comes within days when deliveries of semi-conductors from Malaysia to Auto-Spire’s U.S. factories slow to a crawl.

“Do we know what’s going on?” Heald said to an Auto-Spire executive in procurement at the end of the week.

“The communication there is horrible Jill,” the procurement executive said. “I wish I could tell you more, but right now I have next to nothing.”

“How could you have next to nothing?” Heald said to no one after she hung up with procurement. “It’s your job.”

Using her broker’s more robust international contacts, Heald pushes hard and gets some information. It’s just that the information she gets is not comforting.

The information is sketchy but it appears that several suppliers to the semi-conductor maker were knocked out by the typhoon.

Facing millions in lost sales, Heald and her broker file a claim on their CTE coverage for $20 million.

Heald is immediately descended upon by underwriters for the three carriers. The underwriters are demanding answers to a number of questions.

“We see there is no claims handling agreement associated with this program. Who’s the adjuster of record?” an underwriter for the U.S.-based carrier on the primary layer asked Heald.

“Adjuster of record? I’ve never heard of the phrase,” Jill Heald said.


With no claims handling agreement in place between Auto-Spire and the carriers on the CTE program, Heald spends weeks responding to the various carriers’ document requests.

Three weeks after the storm struck, Heald’s broker calls her with his version of good news.

“Hey, I talked to Ajax Ltd., they’re going to cut you a check for $1 million as an advance while these CTE claims get sorted out,” the broker said.

With semi-conductor shipments from Malaysia at a trickle, Heald takes little solace in this.

“Really? I guess I’ll take it,” Heald says. But the truth is that she’s worn down to a nub in all the back and forth between the carriers.

The lack of a claims handling agreement has translated into weeks of delays in getting claims information filed and adjusted. Each carrier has a different process for adjusting the claim.

All three carriers use the services of outside forensic accountants. Unfortunately, each carrier uses a different accounting firm.

There are also different terms and conditions between the different policies. Whether there could be coverage gaps created by those differing terms and conditions is an ongoing source of stress for Heald.

“There’s got to be a better way to do this,” she told her broker on the phone one day. “We should have had transparency into this ahead of time.”

“Look Jill, I’ve been doing this a long time,” the broker said.

“I don’t care how long you’ve been doing it. You and I could have done it better,” Heald shot back.

And one million is looking like a drop in the bucket next to lost sales to the automakers that are starting to reach into the tens of millions.

It’s now six weeks after the storm hit and the Malaysian supplier is still not fully back up to speed.

Do you make sure to establish a pre-loss claims handling agreement with the carriers on your program to minimize confusion and foster cooperation in the event of a loss?

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A Hellish Grind

The typhoon that struck Malaysia and clipped Auto-Spire’s supply chain resulted in $45 million in lost sales.


Heald heaps the blame on herself, even though this is an organizational failure. Heald was led to believe that $25 million of CTE was sufficient but Auto-Spire’s dependence on third party suppliers was increased due to the recent shift in its procurement process.

It wasn’t that the carriers on the program didn’t pay the claim, they eventually did. But the delays caused by the lack of a claims handling agreement created serious tension between Heald and the Auto-Spire C-suites. Not to mention cash flow problems on top of the lost sales due to the crimp in Auto-Spire’s supply chain.

“A promise to pay is a promise to pay…. in a timely manner,” her CFO thundered at her when she broke the news to him that due to delays in adjusting the Malaysia claims the carriers still hadn’t cut Auto-Spire checks.

“They are going to pay Jim, it’s just that the claims process got extended more than we would like,” Heald told him.

“It’s not the carriers’ fault,” she added.

“How do you mean?” he said.

“It’s my fault actually,” Heald said.

“I should have had a pre-loss claims handling agreement in place. That would have streamlined the process much more and given all parties a clearer picture of the claims handling process.

“But you didn’t do that,” the CFO said.

“No, I didn’t,” Heald said.

“What about your broker, shouldn’t he have put something like this in place?”

“I don’t want to blame him either. The fact is that we didn’t do it,” Heald said.

“So how much time do you think that cost us, in terms of getting paid,” the CFO said.

“Hard to say,” Heald said. “Six weeks minimum,” she added.

“Do you know what it costs to borrow $20 million for six weeks?” the CFO said.

“Not off of the top of my head,” Heald said.

“A lot,” the CFO said. “A lot.”

It is also clear to Heald that she needs to develop a better channel of communication with the procurement group so that she can be in a better position to procure adequate insurance for the needs created by Auto-Spire’s supply chain.

She thought she was doing the right thing in putting together a substantial CTE program. Now it all feels like a cruel joke.

In crafting contingent time element coverage, how confident are you that you have the necessary transparency into your supply chains to gauge any possible losses?

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Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.

What to Do Before a Loss

In most cases, you’ll receive no warning before disaster strikes. If you experience a sizable loss, the loss itself may be your smallest issue. You might also be worried about injuries, deaths, lost market share, revenue stream, notifying shareholders or something else.

When a loss happens, it is similar to the start of a professional sports game. It is a culmination of all the practice leading up to the game, only the practice is the pre-loss planning. That’s why pre-loss planning is so important. Before a loss occurs, work with your broker and/or insurer(s) to develop a plan for loss management that is carefully tailored to meet your unique needs.

The following is a list of the key information your loss management plan should cover:

  • procedures and guidelines for handling loss, including a clear delineation of who will report the loss to your insurance partner(s).
  • a detailed list of names and contact information of members of your emergency response team
  • key contacts at your subsidiaries and remote offices
  • contingency arrangements with emergency services and critical suppliers
  • tailored loss-handling and claims cooperation agreements with other program participants
  • global coordination requirements
  • assignment of emergency duties for local plant personnel, your corporate insurance department, your broker and others
  • a designated liaison to work with the adjuster

Without pre-loss planning, there can be fear of the unknown. However, with pre-loss planning it can be reassuring to know that you just have to pick up the phone and make only one call when a loss occurs, know who is coming to your site and know how your insurer will respond.

Many emotions come with an actual loss. Pre-loss planning can provide you that much needed level of confidence when you need it most in your job.


Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]
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2015 Teddy Awards

Commitment to Care

This year’s Teddy Award winners focused on building programs that put employees first and get injured workers back on the job quickly.  
By: | November 2, 2015 • 8 min read
Fireman Suffering from Smoke Inhalation

The worlds of workers’ comp and claims management grow more complex almost by the day. A workers’ comp program that used to be managed in-house by a handful of people now involves a far broader field of expertise, with a small army of specialty partners, each armed with terabytes of data.


For the past 20 years, Risk & Insurance® has given the Theodore Roosevelt Workers’ Compensation and Disability Management Award to exceptional programs that innovate to produce the best results.

But even the leaders of those top-notch programs of decades past would likely be bewildered trying to navigate the ins and outs of managing today’s workplace illness and injury challenges.

The above factors are what made judging the winners of this year’s Teddy Award, sponsored by Sedgwick, so challenging and educational.

It was interesting to see that in addition to relying on advanced tools and strategies, the people leading top programs across the country have an old-fashioned streak. They aren’t just sitting behind desks and directing their teams by email or conference calls.

They’re out in the field, putting eyes on the situation, getting face-to-face with those with boots on the ground, and making things happen. They’re forging the kind of personal relationships necessary to drive meaningful progress.

2015JudgesSidebarThey also have a deep understanding of the fact that it doesn’t matter how you crunch the data, doing what’s right for injured employees will always be what’s right for the company.

Without exception, every Teddy Award application we received gave us something to applaud. It’s never easy to isolate which ones to introduce to readers as Teddy Award winners. To help with the task, we enlisted the help of a panel of experts with decades of experience.

This year’s panel included Ron Ehrhardt, vice president of operational safety, Compass Group, a 2014 Teddy Award winner; Wendell Hughes, environmental, health and safety manager, Honda of South Carolina, a 2014 Teddy Award winner; 2014 Risk All Star Patricia Hostine, former U.S. director of disability management at Flex-N-Gate; Mark Noonan, managing principal at Integro Insurance Brokers; and Roberto Ceniceros, senior editor of Risk & Insurance® and co-chair of the National Workers’ Compensation and Disability Conference® & Expo.

Judges reviewed Teddy applications independently, and then gathered via conference call to share their thoughts and opinions. They then rated each finalist numerically in five separate categories. The overall average ratings determined the winners.

Results are typically the easiest place to start. Injury frequency, lost time, and medical and indemnity cost data is carefully evaluated with an eye toward year-over-year improvement in performance. Judges considered mergers, fluctuations in staffing levels and other factors that may have influenced outcomes.


But numbers are just one piece of the puzzle. Program longevity is also evaluated. Most new programs produce impressive numbers in the early years, when low-hanging fruit is easiest to pick. However, a longstanding program showing modest, steady gains year after year may be equally impressive.

Hazard levels and complexity are considered as well — health care facilities, for instance, face a dramatically different set of risk exposures than supermarkets.

Top programs exemplify an absolute commitment to bringing injured employees back to work, keeping them at work, and accommodating virtually any kind of restriction, by any means necessary.

Judges evaluate the finalists based on their own knowledge and experience of what works and what doesn’t, with an eye toward selecting programs that are not only successful today, but have the tools in place to remain successful for the long haul. Flexible, sustainable programs have the infrastructure in place that can adapt over time as the company grows and evolves.

Up Close and Personal

Anne-Marie Amiel, risk manager, Columbus Consolidated Government, Georgia

Anne-Marie Amiel, risk manager, Columbus Consolidated Government, Georgia

A common thread among this year’s Teddy Award candidates was that top workers’ comp professionals don’t shy away from getting in the thick of things. Anne-Marie Amiel, risk manager for 2015 Teddy Award winner Columbus Consolidated Government, received reports that there had been multiple trips and falls in the city’s Fleet Yard body shop. So she went to inspect the shop herself. Spotting a raised lip on a step going into the shop, she asked that the raised edge be painted a bright cautionary color. Result: no more tripping incidents.

She also visits with all of the medical providers who treat injured city workers, to put a “face” on the city so providers know who to call if they have a question about an employee or light-duty options.

Similarly, management at Teddy Award finalist SEEK, a staffing agency based in Grafton, Wis., does onsite visits with clients and conducts safety walkthroughs to get a first-hand look at any location into which they might be sending employees.

Jennifer Saddy, director of workers’ compensation, director of corporate insurance and risk management, American Airlines

Jennifer Saddy, director of workers’ compensation, director of corporate insurance and risk management, American Airlines

2015 Teddy Award winner American Airlines’ workers’ compensation director Jennifer Saddy and her team also meet face-to-face with clinical personnel to discuss expectations and parameters. They conduct in-person training sessions for their TPAs, medical providers, physical therapists and case managers to ensure that everyone involved has a complete understanding of the environment that airline employees work in and the risks they face.

Bringing Them Back

Only a decade ago, the return-to-work programs of many Teddy Award applicants could have been summed up as, “We bring employees back to work as soon as a doctor clears them to return to their jobs.” Some tried to accommodate limits like lifting restrictions. But the overall picture was typically basic.

In 2015, however, return-to-work is the arena where most Teddy Award applicants and winners shine brightest. Top programs exemplify an absolute commitment to bringing injured employees back to work safely, keeping them at work and accommodating virtually any kind of restriction, by any means necessary.

A number of Teddy Award applicants took a proactive approach to secure alternative funding to pay workers on modified duty to ensure there are no RTW obstacles.

They also eschew the past trend of using “busywork” for light-duty jobs, and seek out ways that recovering employees can make meaningful and productive contributions to their workplaces.

In the City of Sunnyvale, Calif., police and firefighters — the source of most of the city’s injury claims — are fully cross-trained. That doubles the field of potential modified-duty positions for both groups. An injured police officer, for instance, could easily be employed training new firefighters.

At Columbus Consolidated Government, a police officer with a knee injury was tasked with unravelling a database problem that resulted in unbilled trash collection. She was able to heal from her injury and help the city recoup $100,000 at the same time.

At Brookdale Senior Living, recovering workers engage in anything from planning holiday parties to reorganizing linen closets, to putting together sales and marketing packets — all tasks that need doing, but are a struggle for other workers to fit into their packed workdays.

At staffing agency SEEK, finding modified duty at client locations can be particularly challenging. SEEK uses the opportunity to offer injured workers training that will upgrade their skills or even teach them new skills that can broaden their placement opportunities.


“While our employees are assigned to light duty, we use the opportunity to better our product — the employee,” wrote Lynne Kossow, SEEK’s health and safety administrator.

For some companies, budgetary concerns make even simple RTW accommodations a difficult choice.

And there is the perennial struggle of how to pay the salaries of those on modified duty while at the same time possibly needing extra manpower to help with whatever tasks the injured worker is unable to do.

We noticed that a number of Teddy Award applicants are taking a proactive approach to securing funding for these concerns, and ensuring that there aren’t any obstacles preventing employees from getting back to work.

The State of Montana, for one, negotiated a program with its insurer that allows it to earn back a certain percentage of its annual premium. Those funds are then earmarked for making accommodations, restructuring work environments, redesigning workstations, and any of the other incidental costs of returning injured workers to the job.

The best part is that with the money saved by enabling more effective RTW, the state is gaining even more return on the premium it earns back.

Caryl Russo, senior vice president for Corporate Care, Barnabas Health

Caryl Russo, senior vice president for Corporate Care, Barnabas Health

2015 Teddy Award winner Barnabas Health, a hospital system facing departmental reluctance to place workers on modified duty due to payroll budget issues, carved out a line item in the HR budget to cover injured workers’ salaries during transitional work.

Brookdale Senior Living took a similar approach, allocating a special budget to pay workers on modified duty so it would not negatively impact the budget of individual communities. They chose to spin the arrangement as the company providing a “free” worker the community would have to help them. “WOW … did the attitudes change!” the company noted in its application.

Employees First

While there is still little collaboration between workers’ comp and group health at most companies, we saw evidence that some lines can blur, particularly when there is an obvious benefit to employees’ well-being and overall safety.

Tamara Ulufanua-Ciraulo, director of insurance, Stater Bros. Markets

Tamara Ulufanua-Ciraulo, director of insurance, Stater Bros. Markets

2015 Teddy Award winner Stater Bros. Markets instituted something it calls the ICE PACK program, which puts physical therapists on-site to offer free advice, taping, wrapping and icing for any aches, pains or injuries, whether the problems are industrial or non-industrial in origin. The program made an impact on overall employee health and resulted in fewer minor injuries becoming workers’ comp claims.

Stamford, Ct.-based Pitney Bowes manages an impressive array of employee programs and services that benefit those with either occupational or non-occupational injuries or illnesses. These programs are designed to help employees manage the many struggles that can arise in the course of an injury or disability.


“Pitney Bowes recognizes the connection between mental and physical health, and when evaluating any illness or injury, psychosocial, medical, psychological, economic and vocational considerations are explored and addressed as needed.  This enables us to identify potential barriers to wellness, and our ability to remove those barriers to increase a timely, safe and successful return to work,” the company explained in its application.


Read more about all of the 2015 Teddy Award winners:

AA LAX TuesdayRevamped Program Takes Flight: The American Airlines and U.S. Airways merger meant integrating workers’ compensation programs for a massive workforce. The results are stellar.


112015_03_stater 150X150Checking Out Solutions: From celebrating safety success to aggressively rooting out fraud and abuse, Stater Bros. Markets is making workers’ comp risk management gains on multiple fronts.


112015_04_columbus 150X150Revitalizing the Program: In three years, the Columbus Consolidated Government was able to substantially reduce workers’ compensation claims costs, revamp return-to-work and enhance safety training.


112015_05_barnabas 150X150Spreading Success: Barnabas Health wins a Teddy Award for pushing one hospital’s success in workers’ comp systemwide.


Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]
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Sponsored Content by CorVel

Telehealth: The Wait is Over

Telehealth delivers access to the work comp industry.
By: | November 2, 2015 • 5 min read


From Early Intervention To Immediate Intervention

Reducing medical lag times and initiating early intervention are some of the cornerstones to a successful claims management program. A key element in refining those metrics is improving access to appropriate care.

Telehealth is the use of electronic communications to facilitate interaction between a patient and a physician. With today’s technology and mass presence of mobile devices, injured workers can be connected to providers instantaneously via virtual visits. Early intervention offers time and cost saving benefits, and emerging technology presents the capability for immediate intervention.

Telehealth creates an opportunity to reduce overall claim duration by putting an injured worker in touch with a doctor including a prescription or referral to physical therapy when needed. On demand, secure and cost efficient, telehealth offers significant benefits to both payors and patients.

The Doctor Will See You Now

Major healthcare players like Aetna and Blue Cross Blue Shield are adding telehealth as part of their program standards. This comes as no surprise as multiple studies have found a correlation between improved outcomes and patients taking responsibility for their treatment with communications outside of the doctor’s office. CorVel has launched the new technology within the workers’ compensation industry as part of their service offering.

“Telehealth is an exciting enhancement for the Workers’ Compensation industry and our program. By piloting this new technology with CorVel, we hope to impact our program by streamlining communication and facilitating injured worker care more efficiently,” said one of CorVel’s clients.

SponsoredContent_Corvel“We expect to add convenience for the injured worker while significantly reducing lag times from the injury to initiating treatment. The goal is to continue to merge the ecosystems of providers, injured workers and payors.”

— David Lupinsky, Vice President, Medical Review Services, CorVel Corporation

As with all new solutions, there are some questions about telehealth. Regarding privacy concerns, telehealth is held to the same standards of HIPAA and all similar rules and regulations regarding health information technology and patients’ personal information. Telehealth offers secure, one on one interactions between the doctor and the injured worker, maintaining patient confidentiality.

The integrity of the patient-physician relationship often fuels debates against technology in healthcare. Conversely, telehealth may facilitate the undivided attention patients seek. In office physicians’ actual facetime with patients is continually decreasing, citing an average of eight minutes per patient, according to a 2013 New York Times article. Telehealth may offer an alternative.

Virtual visits last about 10 to 15 minutes, offering more one on one time with physicians than a standard visit. Patients also can physically participate in the physician examination. When consulting with a telehealth physician, the patient can enter their vital signs like heart rate, blood pressure, and temperature and follow physical cues from the doctor to help determine the diagnosis. This gives patients an active role in their treatment.

Additionally, a 2010 BioMed Central Health Services Research Report is helping to dispel any questions regarding telehealth quality of care, stating “91% of health outcomes were as good or better via telehealth.”

Care: On Demand

By leveraging technology, claims professionals can enhance an already proactive claims model. Mobile phones and tablets provide access anywhere an injured worker may be and break previous barriers set by after hours injuries, incidents occurring in rural areas, or being out of a familiar place (i.e. employees in the transportation industry).

With telehealth, CorVel eliminates travel and wait times. The injured worker meets virtually with an in-network physician via his or her computer, smart phone or tablet device.

As most injuries reported in workers’ compensation are musculoskeletal injuries – soft tissue injuries that may not need escalation – the industry can benefit from telehealth since many times the initial physician visit ends with either a pharmacy or physical therapy script.

In CorVel’s model, because all communication is conducted electronically, the physician receives the patient’s information transmitted from the triage nurse via email and/or electronic data feeds. This saves time and eliminates the patient having to sit in a crowded waiting room trying to fill out a form with information they may not know.

Through electronic correspondence, the physician will also be alerted that the injured worker is a workers’ compensation patient with the goal of returning to work, helping to dictate treatment just as it would for an in office doctor.

In the scope of workers’ compensation, active participation in telehealth examinations, accompanied by convenience, is beneficial for payors. As the physician understands return to work goals, they can ensure follow up care like physical therapy is channeled within the network and can also help determine modified duty and other means to assist the patient to return to work quickly.


Convenience Costs Less

Today, convenience can often be synonymous with costly. While it may be believed that an on demand, physician’s visit would cost more than seeing your regular physician; perceptions can be deceiving. One of the goals of telehealth is to provide quality care with convenience and a fair cost.

Telehealth virtual visits cost on average 30% less than brick and mortar doctor’s office visits, according to California state fee schedule. In addition, “health plans and employers see telehealth as a significant cost savings since as many as 10% of virtual visits replace emergency room visits which cost hundreds, if not thousands, of dollars for relatively minor complaints” according to a study by American Well.

“Telehealth is an exciting enhancement for the Workers’ Compensation industry and our program. By piloting this new technology with CorVel, we hope to impact our program by streamlining communication and facilitating injured worker care more efficiently,” said one of CorVel’s clients.

Benefits For All

Substantial evidence supports that better outcomes are produced the sooner an injured worker seeks care. Layered into CorVel’s proactive claims and medical management model, telehealth can upgrade early intervention to immediate intervention and is crucial for program success.

“We expect to add convenience for the injured worker while significantly reducing lag times from the injury to initiating treatment,” said David Lupinsky, Vice President, Medical Review Services.

“The goal is to continue to merge the ecosystems of providers, injured workers and payors.”

With a people first philosophy and an emphasis on immediacy, CorVel’s telehealth services reduce lag time and connect patients to convenient, quality care. It’s a win-win.

This article was produced by CorVel Corporation and not the Risk & Insurance® editorial team.

CorVel is a national provider of risk management solutions for employers, third party administrators, insurance companies and government agencies seeking to control costs and promote positive outcomes.
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