Compassion in the Age of Uncertainty
It is the political season, so we hear many different plans for fixing the economy, creating jobs and other aspirations.
Here is one we can’t forget about.
While we host some of the leading health research and medical facilities in the world, the decline of our population’s health is one of our most pressing issues.
Recently, we were saddened to learn of research by Drs. Meara and Case, reported in the New York Times, demonstrating an increase in mortality among middle-aged (45-54) white Americans. The trend was most severe among those with just a high school education.
Economic uncertainty is strongly correlated to the increase in mortality rates.
This is a reversal of decades of improvement in American mortality rates. Thankfully, that improvement continues for all other population groups and ages.
Workers in this age group, at the height of their careers, could be considered the backbone of our American economy.
As employers and experts in risk and health, we’ve learned about co-morbidities such as diabetes and heart disease and how they dramatically add complexity, length of treatment, and cost to worker injuries.
Yet, the cause of the increased mortality in this group, according to the research, is a dramatic increase in substance abuse, including prescription drugs and heroin, in addition to alcoholic liver disease and suicides.
The linkage between prescription drug dependence and workers’ compensation injuries and treatment is well known, but what about those other causes?
In this segment of 45-54 year old whites with no more than a high school education, significantly more pain was reported than in the past. Fully a third of this group reported chronic joint pain over the 3 year period, and those with the least education reported the most pain and the worst health generally.
Other research has demonstrated that the US has fallen behind other wealthy nations in life expectancy, which brings us back to the economy.
Economic uncertainty is strongly correlated to the increase in mortality rates. In fact, those individuals with the least education who reported the most pain and worst health also reported the greatest financial distress.
During this period of 2011 to 2013, household income for households headed by a high school graduate fell by 22 percent, when adjusted for inflation. The explanation for the increase in mortality attributable to suicide and substance abuse is a combination of pain with mental distress!
What can we take from this to help us be more compassionate employers? The most influence organizations can have on employee well being is through the work culture and environment.
Well being and engagement drive business results. Wellness is a combination of physical and emotional health, financial well being, and positive social connection.
Where once wellness initiatives were limited to the corporate offices, we’ve found that employers have expanded initiatives throughout their operations. All around us, wellness programs and opportunities are being expanded to financial well being and employers have long encouraged positive social interactions at work.
Wellness is a critical and urgent imperative for our times, improving health while saving employers on costly worker injuries and health care and improving productivity and results. This will go a long way toward making the overall economy healthier.
Some Surprising States Lead in Employment Litigation Lawsuits
Small and mid-sized businesses continue to get hit with employment practices lawsuits – with hot spots scattered across the country, according to the “2015 Hiscox Guide to Employee Lawsuits” report released last month by the Bermuda-based specialist insurer.
Companies based in New Mexico face the greatest risk nationwide, with a 66 percent higher chance of facing an employee charge than the national average, according to Hiscox’s analysis of data on employment charge activity from the U.S. Equal Employment Opportunity Commission and its state counterparts.
Other states and jurisdictions where employers are at a high risk of employee charges include Washington, D.C. (65 percent above the national average), Nevada (47 percent), Alabama (41 percent), California (40 percent), Mississippi (39 percent), Delaware (35 percent), Illinois (34 percent), Arkansas (22 percent) and Tennessee (20 percent).
Natalie Douglass, senior managing director, management liability practice at Arthur J. Gallagher & Co. in St. Louis, said the study results were “interesting and a little bit surprising.”
“When we think about employment risk, we tend to focus on severity of litigation to come up with hot spots like California or Florida. It’s a little surprising to see states like New Mexico or Alabama when we focus on charge frequency.” — Natalie Douglass, senior managing director, management liability practice, Arthur J. Gallagher & Co.
“When we think about employment risk, we tend to focus on severity of litigation to come up with hot spots like California or Florida,” Douglass said. “It’s a little surprising to see states like New Mexico or Alabama when we focus on charge frequency.”
The reason was that Hiscox adjusted the EEOC data for employer population, she said. For example, states like New Mexico and Alabama have between 1 percent and 3 percent of the total charges in 2014, but adjusting for the states’ employer population, “the data is shown in a new light.”
“From an insurance perspective, larger employers aren’t going to be as affected by increased charge frequency, as their retentions are likely large enough to address those claims,” Douglass said.
“The bigger impact will be with small employers, increasing their need for insurance, and also loss prevention measures in that segment.”
Laws Difficult to Navigate
Bertrand Spunberg, practice leader, executive risks at Hiscox USA, said that “some states … can be very difficult to navigate because their fairness laws are often broader than the federal law, so employers must commit themselves to comply with these state laws to a higher standard.
“Every business should expect a very real exposure from these lawsuits.” — Bertrand Spunberg, practice leader, executive risks, Hiscox USA
“But that’s a tall order for smaller companies that don’t have the resources and expertise to keep track and comply with changes in state laws; insurance can help protect them so they won’t be caught off guard,” Spunberg said.
Indeed, one in five small and mid-sized businesses will face employment charges with an average cost to defend of $125,000, which includes expenses such as attorney’s fees and settlement costs, according to Hiscox claims data for firms with under 500 employees.
For those that did have insurance coverage, the average deductible was $35,000, compared to the $90,000 balance paid out by their insurance company.
The median judgment for cases that go to trial was approximately $200,000 for employment lawsuits adjudicated by the courts, while one in four cases resulted in a judgment of $500,000 or more.
“Every business should expect a very real exposure from these lawsuits,” Spunberg said.
Robert Hale, a partner at Goodwin Proctor LP in Boston, said that there was no one explanation for why certain states have a spike in employment litigation, compared to the rest of the country “as it is clear that there are significant differences in both the legal landscape and the cultural and employment settings among these different states.”
“Bottom line, the reality is that we’re living in a time of transition in employment law, and if you are not paying attention, you’re going to get into trouble.” — Karl Lindegren, partner, Fisher & Phillips LLP
“If it were simply a matter of the degree to which there’s protective legislation for employees, then some of the Northeastern states would be in the mix,” Hale said.
Class-Action Litigation Risks
Of particular concern are cases involving independent contractors and classification of employees for overtime pay eligibility, he said.
Unlike most other areas of employment law risk, these create a risk of class-action litigation. Because of the number of employees affected, the costs associated with making a determination in those areas is potentially much greater than the cost for an employer that makes an individual employee termination decision.
Hale said there has been a “sea change” in the past 15 to 20 years regarding the purchase of employment practices liability insurance to cover the risks of employment litigation. It was a rare product for many years, he said, but now it’s a common part of any business insurance portfolio.
“The result is that the insurance companies have created a significant amount of market pressure on the employment litigation defense bar and, frankly, insurers have been able to use that market power to decrease rates charged by defense practitioners,” he said.
“That has affected the market for those legal services even for matters that are not covered by insurance.”
Tom Hams, managing director with Aon’s financial services group in Chicago, said his firm continues to see a real focus on disability claims, “which is the hardest charging area right now and the focus of the EEOC.”
“Employers have to be very sensitive around the issue of accommodations and when taking employment actions involving employees who are perceived to have disabilities.” — Tom Hams, managing director, Aon financial services group
“Employers have to be very sensitive around the issue of accommodations and when taking employment actions involving employees who are perceived to have disabilities,” Hams said.
There is also a “huge trend” of lawsuits alleging violations of the Fair Credit Reporting Act, and “if an attorney can find one job application with any kind of flaw, they can turn it into a mass or class-action suit,” he said.
Moreover, “ban the box” — eliminating questions about criminal background in job applications — has become a hot topic because of changes in federal, state and local laws challenging the practice.
“As a result of the ‘ban the box’ and FCRA activity, employers should make sure they have their job applications reviewed by their counsel to make sure they are doing the right thing,” Hams said.
Training is a Necessity
Brian Weiss, vice president, regional leader, FINEX claims at Willis in New York City, said there has been an overall slight downward moment in employment practice claims – it’s “certainly not as high as right around the financial crash, but still elevated.”
“It’s going to take some time before we get to pre-crash numbers, but slowly and steadily we may get there,” Weiss said. “I’ll be curious after this study if we’ll see carriers seek sublimits and sub-retentions in those jurisdictions.”
For Wiess’ clients that have high concentrations in high-risk areas, he recommended they make a special point to train both managers and employees. Many law firms, he said, offer conduct training at employer sites.
He noted that some state laws may lead to higher claims or particular claim trends. For example, in Alabama, there has been from a 1 percent to 5 percent spike of total EEOC color discrimination claims over the past 5 years, as well as a spike in religion discrimination claims, from 2 percent to 5 percent of total national claims over the same time period.
“So if you have a high number of employers in one of these states, you need to train to the laws and standards of that state,” Weiss said. “At the very least, managers need to have a thorough understanding of the applicable laws in these jurisdictions.”
“Bottom line,” said Karl Lindegren, a partner of Fisher & Phillips LLP in California, “the reality is that we’re living in a time of transition in employment law, and if you are not paying attention, you’re going to get into trouble.
“If you continue to do what you thought you were always able to do regarding the Fair Credit Reporting Act and background checks, then you will get into trouble. What I tell my clients is that if they do the right thing and treat people the right way, it will go a long way to winning a lawsuit, and even avoiding a lawsuit.”
Managing Construction’s True Risk Exposure
When it comes to the construction industry, the path to success is never easy.
After a long, deep recession of historic proportions, the sector is finally on the mend. But as opportunities to win new projects grow, experience shows that more contractors go out of business during a recovery than during a recession.
Skilled labor shortages, legal rulings in various states that push construction defects onto general liability policies, and New York state’s labor laws that assign full liability to project owners and contractors for falls from elevations that injure workers are just some of the established issues that are making it ever harder for firms to succeed.
And now, there are new emerging risks, such as the potential for more expensive capital, should the Federal Reserve increase its rates. This would tighten already stressed margins, perhaps making it harder for contractors and project owners to invest in safety and quality assurance, and raising the cost of treating injured workers.
Liberty Mutual’s Doug Cauti reviews the top three risks facing contractors and project owners.
“Our customers are very clear about the challenges they are facing in the market,” said Doug Cauti, the Boston-based chief underwriting officer for Liberty Mutual’s construction practice.
“Now more than ever, construction risk buyers – and the brokers who serve them – are leveraging our team’s deep expertise to find solutions for complicated risks. This goes way beyond what many consider the traditional role of an insurance carrier.”
Other leading risks facing contractors and project owners.
Given the current risk environment, firms that simply seek out the cheapest coverage could leave themselves exposed to these emerging risks. And that could result in them becoming just another failed statistic.
So what is the best way to approach your risk management program?
Understanding the Emerging Picture
Construction firms have been dealing with multiple challenges over the last several years. Now, several new emerging risks could further complicate the business.
After an extended period of historically low interest rates, the Federal Reserve is indicating that rates could rise in late 2015 or sometime in 2016. That would surely impact construction firms’ cost of capital.
“At the end of the day, an increased cost of capital is going to impact many construction firm’s margins, which are already thin,” Cauti said.
“The trickle-down effect is that less money may be available for other operational activities, including safety and quality programs. Firms may need to underbid and/or place low bids just to get jobs and keep the cash flow going,” Cauti said.
“Now more than ever, construction risk buyers – and the brokers who serve them – are leveraging our team’s deep expertise to find solutions for complicated risks.”
— Doug Cauti, Chief Underwriting Officer, Liberty Mutual National Insurance Specialty Construction
“Experience shows us that shortcuts in safety and quality often lead to more construction defect claims, general liability claims and workers’ compensation claims,” Cauti said.
Currently, the frequency of worker injuries is down on a national basis but the severity of injuries is on the rise. If those frequencies start creeping up due to less robust safety programs, the costs could grow fast.
And if this possible trend is not cause enough for concern, the growing costs associated with medical care should have the attention of all risk managers.
“Five years ago medical costs represented 56 percent of a claim,” said Jack Probolus, a Boston-based manager of construction risk financing programs for Liberty Mutual.
“By 2020, that medical cost will likely grow to 76 percent of an injured worker’s claim, according to industry experts,” Probolus said.
Rising interest rates and rising medical costs could form a perfect storm.
Focusing on the Total Cost of Risk
For risk managers, the approach they utilize to mitigate the myriad of existing and emerging risks is more important than ever. The ideal insurance partner will be one that can integrate claims management, quality assurance and loss control solutions to better manage the total cost of construction risk, and do it for the long term.
Liberty Mutual’s Doug Cauti reviews the partnership between buyers, brokers and insureds that helps better manage the total cost of insurance.
In the case of rising medical costs, that means using claims management tools and workflows that help eliminate the runaway expense of things such as duplicate billings, inappropriate prescriptions for powerful painkillers, and over-utilization of costly medical procedures.
“We’re committed to making sure that the client isn’t burdened in unnecessary costs, while working to ensure that injured employees return to productive lives in the best possible health,” Probolus said.
The right partner will also have the construction industry expertise and the willingness to work with a project owner or contractor from the very beginning of a project. That enables them to analyze risk on the front end and devise the best risk management program for the project or contractor, thereby protecting the policyholder’s vulnerable margins.
“We want to be there from the very beginning,” Liberty Mutual’s Cauti said.
“This isn’t merely a transaction with us,” he added. “It’s a partnership that extends for years, from binding coverage, through the life of the project and deeper as claims come in and are resolved over time,” he said.
In other words, it’s a relationship focused on value.
Today’s construction insurance market – with an abundance of capacity – can lead to new carriers entering the market and/or insurers seeking to gain market share by underpricing policies.
“We see it all the time,” Liberty Mutual’s Cauti said.
Where does this leave insureds? Frustrated at pricing instability, or by the need to find a new carrier. And wiser, having learned the wisdom of focusing on value, that is the ability to better control the total cost of risk.
“Premium is always important,” notes Liberty Mutual’s Cauti. “But smart buyers also understand the importance of value, the ability of an insurer to partner with a buyer and their broker to develop a custom blend of coverages and services that better protect a project’s or contractor’s bottom line and reputation. This is the approach our dedicated construction practice takes.
Why Liberty Mutual?
For more information on how Liberty Mutual Insurance can help assess your construction risk exposure, contact your broker or Doug Cauti at [email protected].
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.