An improving job market brings opportunities for employees in the workers’ compensation industry along with challenges for their employers and their employers’ customers. One large third-party administrator is experiencing an “uptick” in employee turnover as the economy gradually improves, the organization’s leader recently discussed at a conference. Other TPA executives tell me their employee retention levels remain flat, but one can reasonably foresee a repeat of the first TPA’s experience as more job opportunities arise.
An improving economy is good for everyone and a worker’s ability to advance into a better job is a positive sign that the economy is functioning as it should, by efficiently allocating resources.
When the economy tanked, for example, a risk manager I have known for years reluctantly returned to a TPA adjuster job following a layoff. Her skills were under-utilized and she wasn’t happy about returning to a role she had held before advancing in her career.
As the economy improved, she landed a risk management position where she is now happier, fully applying her broader knowledge. Her new employer also benefits from her skill set that was under-utilized during the recession.
The catch is that even moderate employee turnover among TPAs is difficult for customers, industry leaders tell me, presenting challenges for customer service continuity.
Clients suffer when a new adjuster assumes a file they are unfamiliar with. Customers like the service consistency delivered by adjusters and other TPA employees familiar with their business practices and claims handling preferences. They want to keep adjusters they have developed solid working relations with.
Losing employees also concerns TPAs because they can see their recruiting and training investments walk out the door.
Consequently, TPA executives are talking more about improving career advancement opportunities for their workers and how they might reshape careers in their industry so they can retain employees. That’s going to mean getting inside people’s heads and understanding their motivations.
There are many reasons people switch jobs, including commute times, salary increases, workplace personnel issues and career advancement.
A founding member of the Disability Management Employer Coalition recently suggested I write a story about the job churn he now sees among the disability insurers, consultants, and employers he has known for years. He thinks the movement is caused by the corporate demands that emerged during the recession, as companies moved to do more with less.
He thinks workers are moving in hopes of a lighter workload. I can’t verify whether his theory about the cause of job changes is correct.
But given his position in the disability management community, I suspect his observation that more professionals are moving on as the business outlook improves is on target.
The labor market has not fully recovered from the Great Recession’s impact. But industry leaders would be wise to look ahead and rethink employee retention strategies.
This is a cyclical challenge TPAs have faced before. Pre-recession, when the economy was booming, employee churn was significant, I’m told. But TPAs won’t be the only ones wrestling with these issues as the economy continues improving.
Whether unbundling workers’ compensation managed care services from third-party administration contracts really benefits employers continues to stir debate among the strategy’s advocates and detractors. I suspect that whether an employer that unbundles sees improved claims outcomes and cost savings, or better service depends on their resources and commitment to managing multiple vendors.
However, fewer risk managers and workers’ compensation managers may be considering unbundling today, compared to a few years ago, said Charles F. Martin, managing director, casualty operations consulting leader at Marsh USA Inc.
“My sense is that there is definitely less of an inclination to unbundle,” Martin said, noting that he has clients that unbundle and he believes some companies benefit from doing so.
But proponents haven’t established that unbundling guarantees better claims outcomes, Martin said. Meanwhile, TPAs and insurers improved their delivery of managed care offerings, helping to sway employer decision-making.
Some employers using an unbundled approach for years are being nudged back to bundling, thanks to consolidation among managed care service providers. I can’t say, however, whether there’s a trend there.
One workers’ comp manager I spoke with reaffirmed her commitment to keep unbundling case management, utilization review, and bill review from her TPA services. She said doing so allows customization of those products to fit her needs and affords greater quality control.
Unbundling remains an important option for employers with the sophistication to manage it. Recently, though, Srivatsan Sridharan and Niel Simon at Gallagher Bassett Services Inc. sought me out to pose counter arguments to unbundling.
Risk managers with shrinking internal staff support will be challenged to oversee multiple service providers and replicate the level of quality control that a TPA team can provide, they said.
“There are too many moving parts and making sure that quality and outcomes are not compromised in any of these parts requires significant investment in time, people and resources,” Sridharan said.
Employers can make mistakes when there is a limited amount of claims data to analyze before deciding which service providers to contract with, they said. In contrast, GB makes decisions based on its analysis of $4 billion in claims data.
Sridharan and Simon also posed other arguments. But several speakers in a recent Risk & Insurance® webinar titled “Succeeding with an Unbundled Claims Management Approach” made strong arguments for their opposing view as well.
For example, Frank Lott, corporate claims director for FirstGroup America, said he unbundles bill review, pharmacy benefit management, field nurse case management, and physical therapy.
Doing so for 2.5 years has led to greater transparency in bill review fees, he said. Before he couldn’t understand what he was billed for. He has also experienced reduced costs, improved program control for greater loss cost reductions, and a higher level of service provider expertise.
The debate over bundling versus unbundling doesn’t matter much to some insurers because they don’t allow their customers to unbundle.
But the option should remain available for employers and the debate should continue so they can weigh critical insights on which options may serve them best.
A Renaissance In U.S. Energy
America’s energy resurgence is one of the biggest economic game-changers in modern global history. Current technologies are extracting more oil and gas from shale, oil sands and beneath the ocean floor.
Domestic manufacturers once clamoring for more affordable fuels now have them. Breaking from its past role as a hungry energy importer, the U.S. is moving toward potentially becoming a major energy exporter.
“As the surge in domestic energy production becomes a game-changer, it’s time to change the game when it comes to both midstream and downstream energy risk management and risk transfer,” said Rob Rokicki, a New York-based senior vice president with Liberty International Underwriters (LIU) with 25 years of experience underwriting energy property risks around the globe.
Given the domino effect, whereby critical issues impact each other, today’s businesses and insurers can no longer look at challenges in isolation one issue at a time. A holistic, collaborative and integrated approach to minimizing risk and improving outcomes is called for instead.
Aging Infrastructure, Aging Personnel
The irony of the domestic energy surge is that just as the industry is poised to capitalize on the bonanza, its infrastructure is in serious need of improvement. Ten years ago, the domestic refining industry was declining, with much of the industry moving overseas. That decline was exacerbated by the Great Recession, meaning even less investment went into the domestic energy infrastructure, which is now facing a sudden upsurge in the volume of gas and oil it’s being called on to handle and process.
“We are in a renaissance for energy’s midstream and downstream business leading us to a critical point that no one predicted,” Rokicki said. “Plants that were once stranded assets have become diamonds based on their location. Plus, there was not a lot of new talent coming into the industry during that fallow period.”
In fact, according to a 2014 Manpower Inc. study, an aging workforce along with a lack of new talent and skills coming in is one of the largest threats facing the energy sector today. Other estimates show that during the next decade, approximately 50 percent of those working in the energy industry will be retiring. “So risk managers can now add concerns about an aging workforce to concerns about the aging infrastructure,” he said.
Increasing Frequency of Severity
Current financial factors have also contributed to a marked increase in frequency of severity losses in both the midstream and downstream energy sector. The costs associated with upgrades, debottlenecking and replacement of equipment, have increased significantly,” Rokicki said. For example, a small loss 10 years ago in the $1 million to $5 million ranges, is now increasing rapidly and could readily develop into a $20 million to $30 million loss.
Man-made disasters, such as fires and explosions that are linked to aging infrastructure and the decrease in experienced staff due to the aging workforce, play a big part. The location of energy midstream and downstream facilities has added to the underwriting risk.
“When you look at energy plants, they tend to be located around rivers, near ports, or near a harbor. These assets are susceptible to flood and storm surge exposure from a natural catastrophe standpoint. We are seeing greater concentrations of assets located in areas that are highly exposed to natural catastrophe perils,” Rokicki explained.
“A hurricane thirty years ago would affect fewer installations then a storm does today. This increases aggregation and the magnitude for potential loss.”
On its own, the domestic energy bonanza presents complex risk management challenges.
However, gradual changes to insurance coverage for both midstream and downstream energy have complicated the situation further. Broadening coverage over the decades by downstream energy carriers has led to greater uncertainty in adjusting claims.
A combination of the downturn in domestic energy production, the recession and soft insurance market cycles meant greatly increased competition from carriers and resulted in the writing of untested policy language.
In effect, the industry went from an environment of tested policy language and structure to vague and ambiguous policy language.
Keep in mind that no one carrier has the capacity to underwrite a $3 billion oil refinery. Each insurance program has many carriers that subscribe and share the risk, with each carrier potentially participating on differential terms.
“Achieving clarity in the policy language is getting very complicated and potentially detrimental,” Rokicki said.
Back to Basics
Has the time come for a reset?
Rokicki proposes getting back to basics with both midstream and downstream energy risk management and risk transfer.
He recommends that the insured, the broker, and the carrier’s underwriter, engineer and claims executive sit down and make sure they are all on the same page about coverage terms and conditions.
It’s something the industry used to do and got away from, but needs to get back to.
“Having a claims person involved with policy wording before a loss is of the utmost importance,” Rokicki said, “because that claims executive can best explain to the insured what they can expect from policy coverage prior to any loss, eliminating the frustration of interpreting today’s policy wording.”
As well, having an engineer and underwriter working on the team with dual accountability and responsibility can be invaluable, often leading to innovative coverage solutions for clients as a result of close collaboration.
According to Rokicki, the best time to have this collaborative discussion is at the mid-point in a policy year. For a property policy that runs from July 1 through June 30, for example, the meeting should happen in December or January. If underwriters try to discuss policy-wording concerns during the renewal period on their own, the process tends to get overshadowed by the negotiations centered around premiums.
After a loss occurs is not the best time to find out everyone was thinking differently about the coverage,” he said.
Changes in both the energy and insurance markets require a new approach to minimizing risk. A more holistic, less siloed approach is called for in today’s climate. Carriers need to conduct more complex analysis across multiple measures and have in-depth conversations with brokers and insureds to create a better understanding and collectively develop the best solutions. LIU’s integrated business approach utilizing underwriters, engineers and claims executives provides a solid platform for realizing success in this new and ever-changing energy environment.
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.