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Risk Insider: Martin Frappolli

What’s Your Education Risk Management Policy?

By: | October 23, 2014 • 2 min read
Martin J. Frappolli, CPCU, FIDM, AIC, is Senior Director of Knowledge Resources at The Institutes, which provides professional development to the industry, including the CPCU designation. He can be reached at

One common theme among our industry’s educational conferences is a focus on the future, from discussing what insurance and risk management professionals should know about increasingly complex automotive technologies to what the industry is doing to address long-term demographic trends.

I always look forward to these sessions, as I do any opportunity to learn from colleagues and industry experts, because it seems as if our profession is changing more, and faster, than ever.

This pace of technological change and the exponential increase of data are leading to unforeseen challenges and opportunities. It’s amazing, but has the potential to be scary for the unprepared.

Consider the companies that didn’t fully understand the risks of firms like Uber and Lyft and turned away their business; some regulators still struggle with the sharing economy concept.

Think of the agencies whose clients were vulnerable because they didn’t research the details of cyber risk until after there was a data breach.

Imagine how many organizations out there are exposed to possible failures and inefficiencies because leadership isn’t aware of fundamental enterprise risk management (ERM) practices.

So what could be done, then, to prepare for the as-yet-unnamed challenges of the future? Quite simply, plan to stay educated.

There should be a conscious, proactive effort to assess what types of information a company needs to be successful, and to put a structure in place to make sure employees are getting that information.

For keeping team members up-to-date on the latest market developments, organizations need a formal strategy that goes beyond traditional in-house training or tuition reimbursement.

Just like they need an ERM plan to assess the insurable and non-insurable risks they face, they need education risk management to address the risks posed by having uninformed professionals. Let’s call it an Ed-RM plan.

From a high level, education risk management would ensure that new employees are brought up to speed quickly and thoroughly during the onboarding process and would also lay out a plan for the ongoing maintenance of their expertise.

It doesn’t mean that organizations have to mandate that employees pursue advanced degrees or designations, although encouraging them to do so would certainly be an effective way to make sure there are capable leaders waiting in the wings.

What it does mean is that there should be a conscious, proactive effort to assess what types of information a company needs to be successful, and to put a structure in place to make sure employees are getting that information.

Of course, all the current ways we learn new ideas and technical skills would fit into this plan.

Attending conferences, networking with colleagues, pursuing continuing education, and even reading industry publications like this one are valuable tactics for continuous learning.

But an Ed-RM plan would establish a strategy. If we aren’t constantly discovering new skills and improving our training in an industry changing as quickly ours, then we are falling behind.

The smartest and most successful businesses are those that recognize lack of learning as a risk and learn to manage it.

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Worker Misclassification

Classified Information

Government agencies are cracking down on employees who deliberately misclassify workers.
By: | October 15, 2014 • 6 min read

Misclassification mistakes — two words that sound almost innocuous, but which could result in substantial fines and legal headaches for a company if they get things wrong.

Put simply, misclassification mistakes arise most often when a company misclassifies an employee as an independent contractor.


Such a misclassification can have a serious impact if that person is, for example, supposed to be covered by insurance. Moreover, it happens more often than many people think.

“Misclassification of employees as independent contractors continues to be rampant, especially in traditionally low-wage industries such as home health care and janitorial services, but also remains prevalent in higher-paying industries such as construction and trucking,” Debra Friedman, a member of the labor and employment practice Group at law firm Cozen O’Connor, told Risk & Insurance®.

A 2000 study by the U.S. Department of Labor (DOL) found that approximately 30 percent of companies misclassify workers. Some of them may simply be ignorant of the law (although ignorance offers no legal defense).

More often, though, companies deliberately misclassify workers to save money. This is because companies do not pay Social Security and Medicare taxes, unemployment insurance tax, or workers’ compensation insurance for independent contractors, nor do they provide independent contractors with employee benefits such as health insurance, pensions or 401(k) matches, and paid time off.

Significantly, these costs can represent 20 percent to 40 percent of an employee’s total compensation.

Also, said Friedman, “independent contractors, unlike employees, are not protected under federal or state minimum wage or overtime laws or anti-discrimination statutes, and do not have the right to bargain collectively and join unions or obtain job-protected leave.”

Stakes Are High

Some recent cases have shown a wide variety of companies and plaintiffs.

In July of this year, FedEx Ground drivers won summary judgment in their misclassification lawsuit brought against FedEx under the Massachusetts Independent Contractor Act, with the judge ruling the workers were, in fact, employees.

And in October 2013, the Penthouse Executive Club in New York reached an $8 million settlement with a group of adult dancers who had complained that they had been misclassified as independent contractors and had not been properly compensated as a result.

“Historically, misclassification mistakes have been a very big issue in the trucking industry, or especially if you are dealing with contractors,” said Eric Silverstein, senior vice president and leader of Lockton’s risk management team.

“As a result, the trucking industry has put together the blueprint for how to deal with this. If you’re providing insurance for an owner/operator fleet, or you’re dealing especially with subcontractors, then there needs to be a clear contract and an arms-length agreement. From a risk management perspective this can be a lot of work — it must be very clear who’s working under contract.”

According to Friedman, misclassification of employees has serious implications for companies, as they are at risk for investigations and lawsuits from both federal and state governments, as well as private lawsuits from individuals or classes of individuals.

“Federal and state governments have been losing billions of dollars each year due to misclassifications and therefore have been putting more resources into identifying and prosecuting misclassifications.” — Debra Friedman, labor and employment practice group, Cozen O’Connor

In addition to taxes and benefits (including the value of lost benefits), a company may be liable for penalties (such as fines, liquidated damages and/or punitive damages), costs, interest, and attorneys’ fees, she said.


Companies also may be required to post notices about their wrongdoing in their workplaces, and, in California — even on their company websites.

“Importantly, federal and state governments have been losing billions of dollars each year due to misclassifications and therefore have been putting more resources into identifying and prosecuting misclassifications,” said Friedman.

“In 2011, the U.S. Department of Labor and the IRS entered in a Memorandum of Understanding [MOU] to share information for the purpose of identifying and reducing misclassifications of workers. Since that time, at least 14 states also have entered into MOUs with the U.S. Department of Labor to share information and reduce the incidence of worker misclassifications.”

The IRS also has an employment tax initiative in place to audit more than 6,000 employers, selected at random, with the objective of finding and correcting worker misclassifications.

Friedman pointed out that this increased government focus is resulting in millions of dollars in back wages and penalties.

In May 2013, for example, the DOL obtained a consent judgment against Bowlin Group LLC and Bowlin Services LLC, providers of infrastructure solutions, for more than $1 million in back wages and damages covering 196 employees.

Seventy-seven of the workers had been misclassified as independent contractors.

“On the state level, New York should serve as a cautionary tale,” Friedman added. “In 2013 alone, New York identified almost 24,000 instances of employee misclassification, uncovered more than $300 million in unreported wages and assessed nearly $12.2 million in unemployment insurance contributions.”

Other states also are getting increasingly tough on misclassification.

Massachusetts announced that in 2013, it collected more than $15 million in back taxes, unpaid wages, unemployment insurance contributions, fines and penalties related to employer fraud and misclassification. Earlier this year, a California state labor board ordered a logistics company to pay more than $2.2 million in back pay to seven drivers it misclassified as independent contractors.

With such high financial stakes it makes sense to avoid making these mistakes in the first place.


Sheryl Jaffee Halpern, labor and employment attorney, Much Shelist

“Employers should keep in mind that whether an individual can work for their company as an independent contractor is not the employer’s decision,” said Sheryl Jaffee Halpern, labor and employment attorney at law firm Much Shelist. “It’s the government’s decision. The challenge is that the tests used by the IRS and the U.S. Department of Labor are not identical. And the agency responsible for administering unemployment benefits in the worker’s home state may apply yet a different test — which in many states is more stringent than the IRS’ and Department of Labor’s tests.”

Employers should become familiar with these tests, she said, and then use the relevant factors to assess on an individual basis whether a worker can properly be classified as an independent contractor.

Early Connection

That classification should come at the outset of the business relationship, Friedman said. Generally, she said, independent contractors have specialized skills that are not focused on the company’s core business functions. If in doubt, classify the worker as an employee or consider working through a workforce management or staffing company and have them make the classification determination.

“Employers should keep in mind that whether an individual can work for their company as an independent contractor is not the employer’s decision. It’s the government’s decision.”  — Sheryl Jaffee Halpern, labor and employment attorney, Much Shelist

If such a mistake is made — and identified quickly — then what should a company do?

“Naturally, it’s best not to use the ostrich approach if a mistake has been made,” said Halpern. “That said, because reclassifying a worker can have unintended consequences, we recommend that an employer work with their legal counsel to devise the best strategy for correcting the mistake in a way that does not create additional exposure.”

Friedman said companies have various options for correcting misclassifications.

“If a company is acting on its own, a key consideration is whether to address the classification mistake retroactively by voluntarily paying back taxes or taking other remedial actions.

“Any decision on how to handle the mistake retroactively has risks of opening the door to employee claims and/or government investigations,” said Friedman.
If a company decides to voluntarily pay back taxes, it may want to consider working with the IRS, and possibly any applicable state governments.


Since 2011, the IRS has had a Voluntary Classification Settlement Program that is available to companies that voluntarily seek to reclassify independent contractors as employees and that are not under audit for misclassification by the DOL or a state agency, or under an employment audit by the IRS.

Under this program, companies have significantly reduced federal payroll tax liability, and no interest or penalties are assessed.

While this program clearly has some benefits for addressing misclassifications, Friedman said, companies may be exposed to lawsuits for unpaid wages (minimum wage and overtime) and benefits, as well as fines and penalties under other federal and/or state laws.

There may be companies that believe a misclassification mistake is not all that important.

But the growing number of firms that have been forced to pay substantial fines would loudly disagree.

Marc Jones is a freelance writer based in London. He can be reached at
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Sponsored: Helmsman Management Services

Six Best Practices For Effective WC Management

An ever-changing healthcare landscape keeps workers comp managers on their toes.
By: | October 15, 2014 • 5 min read

It’s no secret that the professionals responsible for managing workers compensation programs need to be constantly vigilant.

Rising health care costs, complex state regulation, opioid-based prescription drug use and other scary trends tend to keep workers comp managers awake at night.

“Risk managers can never be comfortable because it’s the nature of the beast,” said Debbie Michel, president of Helmsman Management Services LLC, a third-party claims administrator (and a subsidiary of Liberty Mutual Insurance). “To manage comp requires a laser-like, constant focus on following best practices across the continuum.”

Michel pointed to two notable industry trends — rises in loss severity and overall medical spending — that will combine to drive comp costs higher. For example, loss severity is predicted to increase in 2014-2015, mainly due to those rising medical costs.

Debbie discusses the top workers’ comp challenge facing buyers and brokers.

The nation’s annual medical spending, for its part, is expected to grow 6.1 percent in 2014 and 6.2 percent on average from 2015 through 2022, according to the Federal Government’s Centers for Medicare and Medicaid Services. This increase is expected to be driven partially by increased medical services demand among the nation’s aging population – many of whom are baby boomers who have remained in the workplace longer.

Other emerging trends also can have a potential negative impact on comp costs. For example, the recent classification of obesity as a disease (and the corresponding rise of obesity in the U.S.) may increase both workers comp claim frequency and severity.

SponsoredContent_LM“The true goal here is to think about injured employees. Everyone needs to focus on helping them get well, back to work and functioning at their best. At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep.”
– Debbie Michel, President, Helmsman Management Services LLC (a subsidiary of Liberty Mutual)

“These are just some factors affecting the workers compensation loss dollar,” she added. “Risk managers, working with their TPAs and carriers, must focus on constant improvement. The good news is there are proven best practices to make it happen.”

Michel outlined some of those best practices risk managers can take to ensure they get the most value from their workers comp spending and help their employees receive the best possible medical outcomes:


1. Workplace Partnering

Risk managers should look to partner with workplace wellness/health programs. While typically managed by different departments, there is an obvious need for risk management and health and wellness programs to be aligned in understanding workforce demographics, health patterns and other claim red flags. These are the factors that often drive claims or impede recovery.

“A workforce might have a higher percentage of smokers or diabetics than the norm, something you can learn from health and wellness programs. Comp managers can collaborate with health and wellness programs to help mitigate the potential impact,” Michel said, adding that there needs to be a direct line between the workers compensation goals and overall employee health and wellness goals.

Debbie discusses the second biggest challenge facing buyers and brokers.

2. Financing Alternatives

Risk managers must constantly re-evaluate how they finance workers compensation insurance programs. For example, there could be an opportunity to reduce costs by moving to higher retention or deductible levels, or creating a captive. Taking on a larger financial, more direct stake in a workers comp program can drive positive changes in safety and related areas.

“We saw this trend grow in 2012-2013 during comp rate increases,” Michel said. “When you have something to lose, you naturally are more focused on safety and other pre-loss issues.”

3. TPA Training, Tenure and Resources

Businesses need to look for a tailored relationship with their TPA or carrier, where they work together to identify and build positive, strategic workers compensation programs. Also, they must exercise due diligence when choosing a TPA by taking a hard look at its training, experience and tools, which ultimately drive program performance.

For instance, Michel said, does the TPA hold regular monthly or quarterly meetings with clients and brokers to gauge progress or address issues? Or, does the TPA help create specific initiatives in a quest to take the workers compensation program to a higher level?


4. Analytics to Drive Positive Outcomes, Lower Loss Costs

Michel explained that best practices for an effective comp claims management process involve taking advantage of today’s powerful analytics tools, especially sophisticated predictive modeling. When woven into an overall claims management strategy, analytics can pinpoint where to focus resources on a high-cost claim, or they can capture the best data to be used for future safety and accident prevention efforts.

“Big data and advanced analytics drive a better understanding of the claims process to bring down the total cost of risk,” Michel added.

5. Provider Network Reach, Collaboration

Risk managers must pay close attention to provider networks and specifically work with outcome-based networks – in those states that allow employers to direct the care of injured workers. Such providers understand workers compensation and how to achieve optimal outcomes.

Risk managers should also understand if and how the TPA interacts with treating physicians. For example, Helmsman offers a peer-to-peer process with its 10 regional medical directors (one in each claims office). While the medical directors work closely with claims case professionals, they also interact directly, “peer-to-peer,” with treatment providers to create effective care paths or considerations.

“We have seen a lot of value here for our clients,” Michel said. “It’s a true differentiator.”

6. Strategic Outlook

Most of all, Michel said, it’s important for risk managers, brokers and TPAs to think strategically – from pre-loss and prevention to a claims process that delivers the best possible outcome for injured workers.

Debbie explains the value of working with Helmsman Management Services.

Helmsman, which provides claims management, managed care and risk control solutions for businesses with 50 employees or more, offers clients what it calls the Account Management Stewardship Program. The program coordinates the “right” resources within an organization and brings together all critical players – risk manager, safety and claims professionals, broker, account manager, etc. The program also frequently utilizes subject matter experts (pharma, networks, nurses, etc.) to help increase knowledge levels for risk and safety managers.

“The true goal here is to think about injured employees,” Michel said. “Everyone needs to focus on helping them get well, back to work and functioning at their best.

“At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep,” she said.

To learn more about how a third-party administrator like Helmsman Management Services LLC (a subsidiary of Liberty Mutual) can help manage your workers compensation costs, contact your broker.

Email Debbie Michel

Visit Helmsman’s website

@HelmsmanTPA Twitter

Additional Insights 

Debbie discusses how Helmsman drives outcomes for risk managers.

Debbie explains how to manage medical outcomes.

Debbie discusses considerations when selecting a TPA.



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

Helmsman Management Services (HMS) helps better control the total cost of risk by delivering superior outcomes for workers compensation, general liability and commercial auto claims. The third party claims administrator – a wholly owned subsidiary of Liberty Mutual Insurance – delivers better outcomes by blending the strength and innovation of a major carrier with the flexibility of an independent TPA.
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