Hire for Integrity
As risk managers we are all too familiar with being awakened by calls in the dead of night involving major incidents, accidents, injuries or events. The root cause of many of these misfortunes is often our employees and — unfortunately — their bad habits.
In more cases than we’d like to see, the bad outcome may have been caused by a negligent, careless, hostile, disgruntled or even criminal employee.
Yes, we all have (or should have) strong safety protocols and policies and procedures in place to prevent these accidents from occurring. In addition, we all provide (or should provide) risk management and safety training to our employees, especially after these serious events occur.
But all the training in the world won’t offset a bad hire. So what if we had a risk management time machine? What if we could go back in time and prevent that disastrous event from happening by not hiring the employee who was responsible? What would that be worth to you and your organization?
What if we could go back in time and prevent that disastrous event from happening by not hiring the employee who was responsible? What would that be worth to you and your organization?
At Silverado, we assessed our hiring process to determine if we could mitigate and reduce risk based on how we hire. Our conclusion? Yes, we absolutely could.
We looked at traits common to what we would consider “bad hires,” and the shared traits of employees who were terminated for cause and/or caused or contributed to an avoidable accident.
Several years after making the decision to include risk management in our hiring practices, our claims data and new safety culture has validated our initial belief.
The Importance of Integrity
Warren Buffet said, “In looking for people to hire, you look for three qualities; 1. Integrity, 2. Intelligence, 3. Energy.” At Silverado, we incorporated an integrity screen for ALL new hires companywide a couple years back. To work for Silverado, you must pass this test.
I understand we all need to be profitable to survive. So adding an extra step and upfront expense may seem unnecessary or even impractical, especially for something that isn’t a state or federal requirement.
But we concluded early on that it was the right thing to do in order to employ the safest and highest integrity employees possible.
In our case, these employees are providing care to thousands of vulnerable memory-impaired individuals whom we are entrusted with every single day. Knowing care is being provided by high integrity people is extremely important to us.
We also know that any cost or time associated with it will be paid back tenfold by a reduction in claims (and related hard and soft costs). And we have the data to prove it.
Two years after making integrity screens part of the Silverado culture, we wanted to look at the effect on our risk data.
The University of Arizona ran an in-depth two-year independent study on our employees who took the integrity test and those who didn’t. This study specifically addressed workplace injuries (workers’ compensation claims) and focused on frequency and severity. The results showed even greater impact that we anticipated.
- Incidence of any claim being filed is nearly 3 times as strong among non-test takers.
- Incidence of a claim exceeding $5K is nearly 4 times as strong among those who never took the test.
- Incidence of a claim exceeding $20K is nearly 12 times as strong among those who never took the test.
- Internally we also found that hiring for Integrity positively affected our turnover rate as well as our professional liability frequency.
At Silverado we have found that higher integrity equals lower risk. By hiring for integrity we have successfully been able to mitigate risk from the initial hiring process and prevent many injuries (and associated costs) before they ever occur.
Attitudes Shift on Medical Marijuana
The tide is turning towards paying workers’ compensation claims involving medical marijuana, but many payers remain reticent.
Industry professionals would prefer that the federal government stop classifying the drug as an illegal controlled substance before paying such claims.
Four states — Connecticut, Maine, Minnesota and New Mexico — approved workers’ comp reimbursement for the use of medical marijuana, at least publicly, according to Mark Pew, senior vice president at PRIUM in Duluth, Ga.
Courts in New Mexico ruled that carriers must pay for marijuana if a doctor in that state recommends it as part of a claimant’s treatment.
However, some carriers are defying the state court’s order, arguing that it’s illegal under federal law. Still, there seems to be an ongoing shift in risk management and insurance toward paying claims that involve marijuana use.
“I think increasingly, more people with whom I’ve spoken are open to the possibility — that includes physicians, nurses, claims adjusters, and those that influence decisions,” he said.
“They will review based on the clinical efficacy for that particular patient.”
However, not everyone is convinced, as the studies conducted on marijuana are not as definitive as those for FDA-approved drugs, Pew said.
Moreover, professionals still point to the fact that marijuana is classified as illegal by the federal government.
Paying claims for its use could create a legal quandary.
“I think those that not convinced are still the majority of the workers’ comp industry,” Pew said.
“It is a loaded question, because marijuana is a divisive and partisan issue, and personal biases of individuals within the workers’ comp system influence their perceptions on it.”
On top of this, payment decisions based on utilization reviews (UR) are problematic because there are no medical guidelines for medical marijuana, Pew said. In some states UR is the arbiter, in other states UR is but an opinion, and in still others, UR is not supported.
Within workers’ compensation, the two treatment guidelines most used by states are Official Disability Guidelines and ACOEM, although some states have created their own. None currently recommend the medical use of marijuana, regardless of condition.
As such, if UR decisions rely on those guidelines, “the answer would be ‘no’ ” on payment for the drug use, Pew said.
But when reimbursement decisions are made outside of UR, individual biases on the subject of marijuana could have an impact, he said.
“Some will absolutely not consider marijuana as medicine and refuse reimbursement,” Pew said.
“Others may have personal experience or know someone that cannabis helped and be willing to consider it.”
“At no time in our history has a state government required the reimbursement for use of a substance that is illegal under in the eyes of the federal government.” — Nichole Wilson, director, pharmacy product development, Coventry Workers’ Comp Services
When it comes to evaluating the clinical efficacy of medical marijuana, practitioners should look at whether benefits exceed the risks, level of function and activity, quality of life, and whether the addition of medical marijuana could help discontinue the use of such dangerous drugs such as OxyContin, Alprazolam, Xanax and Soma, he said.
“In other words, evaluate the appropriateness of cannabis as you would any other drug or treatment — does it work or not for that specific patient? That has been the case in the four states where reimbursement is being done, and the way in which the tide seems to be turning,” Pew said.
The use of medical marijuana for chronic pain is growing more and more popular — as of February 2016, 26 percent of all registered medical cannabis patients in New Mexico usde it for chronic pain, Pew said.
Moreover, 46 percent of registered patients use it for PTSD.
These numbers include all registered patients, not just injured workers, but those conditions are obviously applicable to workers’ comp.
Chronic pain is typically included as a qualifying condition for medical cannabis programs around the country, with Minnesota adding a very narrowly defined “intractable pain” to its list of approved uses as of Aug. 1.
“All of this means that medical cannabis is a burgeoning issue, with evolving science and opinions, and is absolutely pertinent to workers’ comp both now and into the future,” Pew said.
“And if marijuana is ever made legal and/or rescheduled at the federal level, the conversation changes dramatically.”
Lisa Anne Forsythe, senior consultant, regulatory business consulting and analysis, at Coventry Workers’ Comp Services in Sacramento, Calif., said “the tide is definitely turning.”
She has been working on the issue from a regulatory, legal and financial/billing perspective.
There were no medical marijuana claims whatsoever until after the recent appellate rulings in New Mexico, the first state in the country to allow medical marijuana as a compensable benefit.
“It simply wasn’t an issue from a legal, regulatory and financial standpoint until then,” Forsythe said.
Paucity of Evidence
Don Lipsy, Coventry’s manager, pharmacy regulatory communications in Tucson Ariz., said there are “burgeoning pockets” of utilization of medical marijuana related to workers’ comp injuries. While Coventry has not had claims, they’ve heard secondhand of claims being paid by others.
“We’re seeing an expansion of use as an alternative to opioids, and my concern is that we might be trying so hard to address the opioid epidemic that we are treating medical marijuana as a silver bullet,” Lipsy said.
“I’m not so sure we aren’t trading one issue for another.”
From a clinical perspective, there are still a lot of people on the fence on whether or not marijuana is useful, said Nichole Wilson, Coventry’s director of pharmacy product development in Omaha, Neb.
“The evaluation of benefits versus risks are on most clinicians’ minds,” Wilson said.
“Since it’s still classified by the federal government as an illegal Schedule 1 controlled substance, there is not a preponderance of clinical evidence evaluating the drug, and that is a challenge to the medical community.”
“The tide is turning towards public acceptance of medical marijuana, with 169 million people living in the jurisdictions that have legalized it.” — Gregory McKenna, vice president and counsel for governmental affairs, Gallagher Bassett Services
Moreover, there’s a lot of concern about possible interactions of medical marijuana might have with other treatments as well as its potential benefits, Forsythe said.
“But there is also comparatively little discussion on the practical, legal and financial implications associated with the adoption of medical marijuana as a compensable benefit at this time, and that is something that really needs to be talked about,” she said.
“That was definitely one of the larger topics within the New Mexico bill. When we tell an insurance company that medical marijuana is a mandated covered benefit, this is precedent-setting — at no time in our history has a state government required the reimbursement for use of a substance that is illegal under in the eyes of the federal government.”
The Federal Conundrum
The liability implications of paying for an illegal substance need to be more thoroughly examined, experts said.
For example, the use of the federal banking system to pay for the illegal drug could that trigger federal criminal action under the Racketeer Influenced and Corrupt Organizations Act (RICO), Forsythe said.
“Financial institutions are loathe to potentially run afoul of RICO and have avoided doing business with dispensaries, etc., due to liability concerns,” she said. “Insurance companies face a similar exposure.”
Gregory McKenna, vice president and counsel for governmental affairs for Gallagher Bassett Services in Itasca, Ill., said the TPA’s workers’ comp resolution managers “are on the front line,” since they decide whether medical marijuana is a compensable treatment.
First, since federal banking restrictions make it illegal for providers of medical marijuana to use FDIC-approved banks, payment to them has to be made in cash, McKenna said. As such, the claimant needs to pay the provider in cash, and then the claimant has to be reimbursed by check.
“Payors have to make decisions to proceed with a reimbursement to the claimant, which is further complicated by a series of federal criminal statutes related to marijuana transactions,” he said.
“This is out of the realm of what we do normally, so it is a new frontier.”
Another significant challenge lies in the fact that the industry has few decision-support tools for medical marijuana, such as clinical intervention to alert workers’ comp decision-makers to potential interactions between medical marijuana and other medications or medical bill review processes to ensure proper dosage or utilization.
“However, the tide is turning towards public acceptance of medical marijuana, with 169 million people living in the jurisdictions that have legalized it,” McKenna said.
“Because of that volume of people, now the DEA and other federal agencies are taking a very careful look at reclassifying medical marijuana to make it legal.”
The agencies are also looking at naming very specific components of marijuana, to determine whether there may be some additional benefits to those components. That could open up additional research to take a clinical look at the efficacy of medical marijuana.
“This and decriminalization could lead to more workers’ comp payments within the industry,” he said.
Helping Investment Advisers Hurdle New “Customer First” Government Regulation
This spring, the Department of Labor (DOL) rolled out a set of rule changes likely to raise issues for advisers managing their customers’ retirement investment accounts. In an already challenging compliance environment, the new regulation will push financial advisory firms to adapt their business models to adhere to a higher standard while staying profitable.
The new proposal mandates a fiduciary standard that requires advisers to place a client’s best interests before their own when recommending investments, rather than adhering to a more lenient suitability standard. In addition to increasing compliance costs, this standard also ups the liability risk for advisers.
The rule changes will also disrupt the traditional broker-dealer model by pressuring firms to do away with commissions and move instead to fee-based compensation. Fee-based models remove the incentive to recommend high-cost investments to clients when less expensive, comparable options exist.
“Broker-dealers currently follow a sales distribution model, and the concern driving this shift in compensation structure is that IRAs have been suffering because of the commission factor,” said Richard Haran, who oversees the Financial Institutions book of business for Liberty International Underwriters. “Overall, the fiduciary standard is more difficult to comply with than a suitability standard, and the fee-based model could make it harder to do so in an economical way. Broker dealers may have to change the way they do business.”
As a consequence of the new DOL regulation, the Securities and Exchange Commission (SEC) will be forced to respond with its own fiduciary standard which will tighten up their regulations to even the playing field and create consistency for customers seeking investment management.
Because the SEC relies on securities law while the DOL takes guidance from ERISA, there will undoubtedly be nuances between the two new standards, creating compliance confusion for both Registered Investment Advisors (RIAs)and broker-dealers.
To ensure they adhere to the new structure, “we could see more broker-dealers become RIAs or get dually registered, since advisers already follow a fee-based compensation model,” Haran said. “The result is that there will be likely more RIAs after the regulation passes.”
But RIAs have their own set of challenges awaiting them. The SEC announced it would beef up oversight of investment advisors with more frequent examinations, which historically were few and far between.
“Examiners will focus on individual investments deemed very risky,” said Melanie Rivera, Financial Institutions Underwriter for LIU. “They’ll also be looking more closely at cyber security, as RIAs control private customer information like Social Security numbers and account numbers.”
Demand for Cover
In the face of regulatory uncertainty and increased scrutiny from the SEC, investment managers will need to be sure they have coverage to safeguard them from any oversight or failure to comply exactly with the new standards.
In collaboration with claims experts, underwriters, legal counsel and outside brokers, Liberty International Underwriters revamped older forms for investment adviser professional liability and condensed them into a single form that addresses emerging compliance needs.
The new form for investment management solutions pulls together seven coverages:
- Investment Adviser E&O, including a cyber sub-limit
- Investment Advisers D&O
- Mutual Funds D&O and E&O
- Hedge Fund D&O and E&O
- Employment Practices Liability
- Fiduciary Liability
- Service Providers D&O
“A comprehensive solution, like the revamped form provides, will help advisers navigate the new regulatory environment,” Rivera said. “It’s a one-stop shop, allowing clients to bind coverage more efficiently and provide peace of mind.”
Ahead of the Curve
The new form demonstrates how LIU’s best-in class expertise lends itself to the collaborative and innovative approach necessary to anticipate trends and address emerging needs in the marketplace.
“Seeing the pending regulation, we worked internally to assess what the effect would be on our adviser clients, and how we could respond to make the transition as easy as possible,” Haran said. “We believe the new form will not only meet the increased demand for coverage, but actually creates a better product with the introduction of cyber sublimits, which are built into the investment adviser E&O policy.”
The combined form also considers another potential need: cost of correction coverage. Complying with a fiduciary standard could increase the need for this type of cover, which is not currently offered on a consistent basis. LIU’s form will offer cost of correction coverage on a sublimited basis by endorsement.
“We’ve tried to cross product lines and not stay siloed,” Haran said. “Our clients are facing new risks, in a new regulatory environment, and they need a tailored approach. LIU’s history of collaboration and innovation demonstrates that we can provide unique solutions to meet their needs.”
For more information about Liberty International Underwriters’ products for investment managers, visit www.LIU-USA.com.
Liberty International Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual Insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy issued for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.