6 Workers’ Comp Risks on the Road
Measuring the Unmeasurable
Risk managers and third-party administrators (TPAs) use massive amounts of claims data to reduce, predict and manage risk, but the quality of the TPA-client and TPA-claimant relationships are the single most important measure of an insurance program’s success, risk managers and TPAs agree.
“The qualitative factors make the relationship,” said Marty Frappolli, senior director of knowledge resources, The Institutes, a risk management and insurance education organization.
“They’re harder to measure than the quantitative factors” such as claim resolution costs, timeframes, loss expense and legal costs, “but they’re at least as important.”
Qualitative vs. Quantitative Measurements
Every company has its own spin on what metrics are important to them, said David Smith, vice president of risk management for Family Dollar, whose TPA delivers a monthly scorecard with top-line metrics. They include “simple things” like closing ratios and stick rates — are claims staying closed? — average claim costs and reserve development on its book of business, which it compares from month to month and year to year.
To coax the best outcome from an undesired event, as all claims represent, Grace Crickette, senior vice president and chief risk officer, American Automobile Association for Northern California, Nevada and Utah, recommends employers define upfront the data fields they want the TPA to collect and resist the impulse to collect numerous but useless data just because they can.
“Excess fields create unnecessary work and distract TPAs from making sound decisions on the claimant’s behalf,” she said. Ambiguous fields such as “other” and “miscellaneous” create poor data integrity.
Smith said he looks for the story behind the metrics. “If the average claim payment spikes by 5 or 10 percent, that doesn’t necessarily mean the TPA is at fault.”
Instead, the spike could be driven by the company’s strategic decision to pay more to settle claims quickly, betting against the chance of longer-term reserve developments if they remain open.
Metrics raise the flags that prompt the questions, Smith said.
“If the average claim payment spikes by 5 or 10 percent, that doesn’t necessarily mean the TPA is at fault.” — David Smith, Vice President of Risk Management, Family Dollar
“If the average claim payment rose last year, we’d ask, ‘Is there a problem? How should we deal with it?’ ” The monthly scorecard reflects the total book of business, down to the TPA’s regional office, and down even further to the individual adjuster.
“Maybe an adjuster’s asleep on the job,” said Smith. “Then we’d sit down with our TPA to figure out what to do about it.”
Susan LaBar, risk manager for Coach USA, a transportation company, looks through weekly reports at reserve changes and new claims.
“I send the reports to my people in our locations and say, ‘This week you had two slips and falls on your bus. What’s going on?’ ”
“The qualitative factors make the relationship.” — Marty Frappolli, senior director of knowledge resources, The Institutes
At yearly TPA meetings, Coach compares its insurance program over the past three years with industry numbers.
“Are we paying more for claims? Are they closing faster?” said LaBar.
When shoulder injuries upticked last year, for example, Coach traced the problem to more stops where the driver lifted luggage.
“We ask our TPA what do we do about it. If they don’t come up with solutions, they’re not a good TPA.”
The big-picture post-loss metrics, said Joel Raedeke, vice president of consultative analytics, Broadspire, are average cost and closure rate. He cautions against the “skewed perspective” that an overconcentration on one metric can produce, especially in the presence of new safety or return-to-work (RTW) initiatives.
For example, he said, an employer’s concerted RTW program could reduce or eliminate lost time days and indemnity exposure on a small claim, which would reduce average costs in total. “But if you have your eye only on average cost per indemnity claim, you might see the average cost per indemnity claim rise because you’re pulling the lower-cost claims out of the mix. You think it’s getting worse when actually getting better.”
Metrics for Satisfaction
“There’s no need to measure customer satisfaction,” said David Zaback, executive vice president, National Health Plan.
“Excess fields create unnecessary work and distract TPAs from making sound decisions on the claimant’s behalf.” — Grace Crickette, senior vice president and chief risk officer, American Automobile Association for Northern California, Nevada and Utah
“If there’s a problem, your client tells you about it — quickly — but if you’re still together after five years, something’s going right.”
If a client’s not satisfied, “you start getting calls from the boss. People start asking, ‘Why is it costing me so much? Why did it take 65 days to pay that claim? A lot of other vendors will make it easy for your client to jump ship, so if they’re still with you, they’re obviously satisfied.”
A TPA that depends on negative feedback from its client isn’t using metrics well, said Smith. “You want your TPA to be proactive, not reactive,” he said.
Analytics are proof for CFOs, LaBar said, but not for people who handle claims every day. She gets instant feedback from the 19 safety managers at far-flung locations who report to her.
“They’ll call me in two seconds with a complaint,” she said, but she notes those complaints come from colleagues, not claimants.
“Before I go into yearly meetings with my TPA, I know exactly what will happen.”
LaBar values a TPA’s sense of urgency.
“Every injured person wants to think you’re as concerned about their injury as they are.”
This attribute is foremost on her radar screen when she interviews adjusters.
“I can tell if they care by the way they answer questions. When they respond immediately and with passion, that’s good. Waffling and making excuses are signs they won’t be aggressive in their claims handling.”
Barbara Ritz, manager of workers’ compensation, Temple University Health System, looks for a fully engaged partner. The measurable qualities she seeks are keeping her program in legal compliance and reducing costs, but “managing an insurance program takes more than just knowing the law.”
A TPA could be hitting the marks at 100 percent — timely communications with claimants and providers, timely processing claims, holding the line on reserves, issuing notifications in accordance with ACA filings with the state — but that’s not enough. Ritz said the TPA must also be actively listening to the client and adapting to each client’s unique challenges.
“If they propose programs that won’t work in my union shop, fail to represent our organization appropriately or can’t bring creative solutions, the relationship isn’t working.”
Crickette looks at caseloads. Overloading adjusters might suppress administrative costs, she said, but outcomes suffer when they lack time to think through decisions or refine their data. Good adjusters can be innovative, far exceeding the mere competence of meeting deadlines, heading off runaway claims and understanding regulations.
“Extraordinary adjusters navigate relationships,” she said.
They know the client’s business, such as what light duty is available for an injured worker. They know the assigned clinicians and the medical landscape where the injured worker will be treated. They have good communication with the clinicians and know what calls can open the doors to the worker’s return to work.
When the relationship appears to be failing, employers should do a little soul searching, said Michael Stack, principal, Amaxx Workers Comp Solutions Inc.
“We want them to look in the mirror and ask, ‘What am I not doing? Do I have a return to work program? A fraud prevention program?’ ”
Switching TPAs should be the last resort, he said, if only because of the insuperable costs and the headaches of switching, such as issuing new location codes, breaking in new adjusters and marrying up new systems.
“It’s eye-opening for a risk manager who never adjusted a claim to see where the problems come up. For example, they may see the value a nurse case manager is adding to their claim file. The TPA might be doing an excellent job.”
Managing the Data
Anticipating the time when client and TPA part ways, who manages the data? Both are best, said Smith.
“If you’re big enough to have the resources, keep your own analytics data while TPA keeps it also. If you’re not, trust your TPA to keep the data points that are important to you.”
Absent a system to store data independent of its TPA, said LaBar, a company becomes captive in a bad situation.
“You absolutely need your own data. If you ever leave your TPA, the data piece is a nightmare when all your data’s in their format.”
For example, she said, her former TPA’s system referred to the date of an incident as the “date of occurrence,” and her new one calls it the “date of loss.” LaBar worked with the new TPA for a year to reconfigure the code differences before Coach’s existing data matched up with the new system.
But Crickette recommends the TPA’s system as the “single source of truth.”
“I don’t know of a company that can afford redundant systems, so go with the TPA’s,” she said.
However, the client company should take pains to provide accurate data feeds and proper mapping from other systems into the TPA’s system. This harkens back to the client’s responsibility for high-quality data.
“Make sure the data quality is good enough that you can analyze it and put it to good use,” Crickette said.
Unbundled risk management information systems (RMIS) are an option, where technology companies manage a company’s data but don’t manage claims. Broadspire offers a hybrid: a native RMIS that can be contractually unbundled from its claims management service.
“If a client left Broadspire, it wouldn’t have to recode or rethink its data,” said Raedeke.
Contractors Face Complex Insurance Scenario
With today’s expanding global marketplace, U.S.-based construction companies naturally seek growth opportunities in foreign countries. For instance, China has been on a decades-long building spree. Middle Eastern nations continue to invest in massive developments. Cross-border construction activity among developed countries, particularly in Europe and Japan, remains robust.
That’s the good news for U.S. contractors considering or already involved in global projects. On the flip side, it’s critical to realize that international opportunities present different challenges than domestic projects.
Construction services represent a significant portion of global trade. World exports of construction rose 2% (to $115 billion) in 2012, the World Trade Organization estimates. The European Union and Asia represent the major share of that trade. Yet, while international trade in construction is on the rise, every country retains its own laws regarding insurance, so building a multinational insurance program represents a significant challenge.
ACE’s recently published whitepaper, “Global Construction: International Opportunities, Local Risks” focuses on educating risk managers about the complexities of going global.
Key issues for contractors to consider include:
Legally speaking, compliance for U.S. contractors operating outside the U.S. is much more complex than for their domestic operations. For example, by operating in different countries, multinational contractors must adhere to a myriad of local national laws and regulations regarding the “duty of care” they owe to the general public and other third parties. While most of the developed world has established employer duty-of-care legislation, the majority of the countries where many of these new global projects are available have not. A contractor’s insurance program should be flexible enough to handle claims in several different jurisdictions and provide adequate coverage for awards granted in emerging, as well as developed, legal jurisdictions.
Continuity of coverage across borders
For projects in foreign countries, a proactive risk management strategy should not only address the wide range of exposures typical in a given construction project, but also the impact that the differing local laws and regulations may have on the insurance coverage. For example, a contractor may have to obtain local insurance policies for various lines of business to cover the risks associated with its operations and to be compliant with local insurance requirements.
Building multinational solutions
A multinational program using “non-admitted” coverage can be a cost-effective alternative to local coverage. Such non- admitted coverage is usually arranged in the parent company’s home country to insure exposures in other countries. Some countries, however, don’t allow non-admitted coverage, while others may allow it subject to conditions such as prior approval. In the past the threshold question was whether non-admitted insurance could be used, but today companies should also consider potential changes in enforcement practices as well as evolving regulations.
Local services can be crucial
Besides compliance issues, companies should address issues such as how local claims will be handled and paid, and which other local services they may need in the event of a claim or incident. For example, companies building projects in the European Union may want to purchase environmental coverage that responds to the demands of the European Environmental Liability Directive in order to provide proper insurance protection for potential liability associated with damage to the environment or natural resources. On a broader level, catastrophe planning should be part of a global risk management strategy.
Public/private partnerships may bring new risks
Another consideration for contractors revolves around project structure. Typically in the U.S., construction projects have been driven either by the owners or the contractors and the insurance coverage reflected that through an owner- or contractor-controlled insurance program (OCIP/CCIP). Today, while more U.S. projects are being structured as public-private partnerships, because the structure is more common in Europe, U.S. contractors considering projects abroad may encounter it for the first time. Public-private partnerships raise questions about how risks and liabilities are apportioned among the parties, so contractors may find themselves sharing responsibility for risks that are not typically part of a standard project, or have increased exposures for professional liability.
M&As can impact insurance programs
With the growth of the global construction economy, and the rising need for the development or improvement of infrastructure in emerging economies, an increasingly multinational approach has led to consolidation and merger-and-acquisition activity in the construction marketplace. As this trend continues, companies also need to consolidate their insurance programs to achieve better efficiency by individual lines of business and to meet insurance requirements in different countries.
The takeaway: local risks, global solution
For contractors working in more than one country, maintaining consistent insurance coverage across borders while controlling costs clearly presents a number of challenges. By using a controlled master policy and admitted insurance from local carriers, contractors potentially gain greater insight into their claims trends and an increased ability to identify locations experiencing significant losses. With this information, contractors also will be in a better position to take corrective action and reduce losses.
Finally, while varying insurance regulations and markets must be addressed, contractors should evaluate the insurance carrier, its experience and presence in foreign markets and its relationships with local insurers around the world. When it comes to international construction projects, the right insurance coverage will play a crucial role in long-term success.
To learn more about how to manage global contracting risks, read the ACE whitepaper: “Global Construction: International Opportunities, Local Risks.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with ACE Group. The editorial staff of Risk & Insurance had no role in its preparation.