Their emergence has been hailed as a “game changer” and “the biggest discussion topic in insurance.” Inspired by developments in the consumer marketplace, connected personal protection equipment, or “wearables,” can track a variety of employee risk factors and generate data so powerful that many believe it will revolutionize workplace safety procedures and risk modeling.
Health-related wearables such as the FitBit are taking the consumer market by storm, but far more powerful technology is being developed and implemented in commercial settings, from heavy industry to aviation, logistics and manufacturing.
Mining giant Rio Tinto is an early adopter of wearables, providing its workers with a “SmartCap” that measures brainwaves to detect fatigue. Honeywell and Intel recently released a prototype of their “Connected Worker” solution for industrial workers and first responders, which uses a hub of sensors to track workers’ location, vital signs, motion and exposure to hazardous gases.
Whether in the form of vests, caps, glasses or materials, it is now possible to generate valuable data that brings risk managers and insurers closer to workplace risk than ever before. It is hoped these insights should in turn help safety supervisors improve workplace design and procedure, foster safer worker behaviors and reduce workers’ compensation claims.
Having observed several pilot studies closely, David Bassi, former head of innovation and risk consulting, casualty for AIG, said safety wearables could reduce losses by up to 50 percent in some situations.
“The test cases are so compelling, it’s just a matter of scalability,” he said.
“The explosion will come pretty quickly. Virtually everyone I know in a safety role at a big company is interested in participating in a pilot or thinking about how to incorporate this kind of technology into their workplace.”
With demand strong, supply growing and costs coming down, the final piece of the puzzle is the insurance market, which insureds hope will begin to offer responsive pricing, customized products and client incentives once wearables’ benefits begin to be realized.
“In an age when data is becoming ever more critical for the insurance industry, this is huge,” said Michael Sillat, CEO of WKFC Underwriting Managers (part of Ryan Specialty Group). “A lot of the technology being developed is only being spoken about and is not available in the marketplace, but it has certainly grabbed my attention and that of many of my peers,” he said.
“Connected devices are going to have profound implications for the commercial property casualty insurance world, and wearables in particular are going to be very important in improving worker safety,” said Lex Baugh, president of casualty at AIG, which recently invested in wearable tech firm Human Condition Safety.
Nigel Walsh, vice president of CapGemini, expects more partnerships of this ilk, and heralds the ability to interact and advise on a daily, hourly or real-time basis as “game changing” for insurers.
“Insurers will no longer be claims paying companies — they will become better risk managers. When you provide value-added service and insight driven out of IoT, rather than just changing the price, you create real engagement and real value,” he said.
However, insurers don’t make knee-jerk adjustments to their terms or pricing, so for now organizations will need to take something of a leap of faith, and invest in wearables knowing it may take a number of years for improved loss experience to yield premium reductions.
The costs associated with implementing wearables into the workplace vary hugely, from a few dollars for the most rudimentary device up to millions for enterprise solutions including real-time feedback loops, network operation centers and the latest wearable technology. While the cost of equipment and data capacity continues to slowly decline, companies will need to think carefully before investing.
Rachel Michael, senior consultant in Aon Global Risk Consulting’s ergonomics practice group, said there are “no excuses” for not knowing the location and well-being of workers in hazardous jobs like firefighting or mining, for whom even expensive investments will be worthwhile, but she pointed out that companies should be sure they have done all they can to improve workplace ergonomics prior to investing.
“If an employer is palletizing 30-lb. boxes at ground level, do they really need a wearable spinal loading measurement system to determine whether this is bad?
You could save lots of time and money if you fix your line first,” she said.
Data management is also a concern — both in coping with the sheer volume of data (which Bassi said runs on some pilots into exabytes per week) and also avoiding what Michael terms “death by data” — having reams of information at your disposal but no clear plan of action.
Before a wearable technology is even considered, Michael said a planning discussion including the risk manager, HR, IT and possibly several other departments must take place. “You need to understand how much and what type of data is to be collected, how it is to be used, and what changes can be driven with the outcomes,” she said.
And companies should be prepared in case data raises uncomfortable truths, she added.
“If you hook all your workers up to smart caps and find that they are all suffering fatigue, are you willing to shut down your operations?” Michael asked, noting that this would be all but impossible in industries such as health care, firefighting or aviation.
Wearables are faced with various other challenges — from unions raising objections over potential worker discomfort or invasion of privacy, to workers becoming over-reliant on or overconfident because of the technology, or even the potential health risks associated with prolonged proximity to sensors and WiFi.
Then there are the questions around liability. If a worker with known heart issues has a heart attack on the job, could an employer tracking the vital signs be deemed negligent for not acting on warning signs? Would companies use wearables to offload responsibility for unsafe practices and workplace injury on their staff?
Ultimately, this highly promising technology should offer a win-win for insureds and insurers alike, but it can only be successful if the data is used effectively and risk managers enforce best practices through training, education and procedures.
“If all we do is sit back at the end of the week and look at the data, we’ve missed the opportunity,” said Michael.
Craft Incentive Programs With Care
What kinds of safety incentives lessen injuries and illnesses, and what kinds inadvertently discourage workers from reporting?
Safety professionals say it’s all in how an incentive program is structured, and perhaps even more importantly, how the importance of maintaining a safe work environment – especially for workers and their families — is communicated.
In 2012, the U.S. Occupational Safety and Health Administration issued a memorandum calling for employers not to provide incentives that effectively discourage employees from reporting their injuries.
Disincentives include awarding paid time off to a unit that has the greatest reduction in incidence rates or maintaining an injury-and illness-free worksite for a period of time.
“If employees do not feel free to report injuries or illnesses, the employer’s entire workforce is put at risk,” OSHA wrote.
“Employers do not learn of and correct dangerous conditions that have resulted in injuries, and injured employees may not receive the proper medical attention, or the workers’ compensation benefits to which they are entitled.
“Ensuring that employees can report injuries or illnesses without fear of retaliation is therefore crucial to protecting worker safety and health.”
The agency last year issued an updated memorandum that detailed the differences between a positive incentive program and one that discourages reporting.
“A positive incentive program,” wrote the agency, “encourages or rewards workers for reporting injuries, illnesses, near-misses, or hazards; and/or recognizes, rewards, and thereby encourages worker involvement in the safety and health management system.”
The memorandum included examples of positive incentives such as “providing tee shirts to workers serving on safety and health committees; offering modest rewards for suggesting ways to strengthen safety and health; or throwing a recognition party at the successful completion of company-wide safety and health training.”
The agency warned that incentive programs that focus on injury and illness numbers often have the effect of discouraging workers from reporting an injury or illness.
Disincentives to reporting, it said, “may range from awarding paid time off to a unit that has the greatest reduction in incidence rates to rewarding workers with a celebration for achieving an injury/rate reduction goal or maintaining an injury-and illness-free worksite for a period of time.”
“There are also programs that actually defeat the purpose, by telling people that they can get paid if they don’t have accidents. But that sends the wrong message.” — Brent Jones, safety officer, Red River Army Depot
But these are just memorandums, and since there are no hard and fast rules about such programs, many employers are confused about what is now acceptable to OSHA, said Don Enke, director of risk control services at Safety National.
Enke recently spoke about OSHA’s view of incentive programs in a webinar, “Out Front Ideas with Kimberly George and Mark Walls,” sponsored by Safety National and Sedgwick.
“I think what OSHA is looking for is, does your program have characteristics that would compromise safety, discourage reporting a claim, or even delay reporting a claim?’” Enke said.
“They definitely don’t want anything delaying reporting. And they don’t want anybody retaliated against if they report a claim.”
Traditional safety incentive programs often reward employees for having a certain number of days without any injuries. However, that could discourage employees or their supervisors from reporting an injury, a key concern of OSHA’s.
“What I’m seeing in the workplace with various clients is more of a progressive program of leading indicators vs. lagging indicators,” Enke said.
“It’s recognizing employees for various proactive safety behaviors. That is where I’m seeing more progressive programs or employers moving in that direction, where it’s part of their safety culture.
“They’re getting employee buy-in and ownership, and they’re making employees part of the program where they are involved with hazard indications, reporting near misses, reporting unsafe conditions, even involved with audits, training programs — even taking online training courses.”
Tamara Ulufanua-Ciraulo, director of insurance at Stater Bros. Supermarkets in San Bernardino, Calif., said that safety professionals need to review their incentive program to make sure the organization is not pushing people to not report.
For example, at Stater Bros., no single store carries the sole burden of its own claim costs, Ulufanua-Ciraulo said.
Costs are now spread out across all stores, and each store has a pro rata share of the cost based on man-hours and how injuries are reported.
“That way, no one injury can hurt a store’s profit and loss statement, which minimizes a manager’s desire to not report,” she said.
For its employees, Stater Bros. rewards them for engaging in safe practices that minimize injuries. The grocer holds annual recognition parties, with raffle prizes of gift cards, gas cards and apparel, and catered breakfasts for certain years of no reported injuries.
But Ulufanua-Ciraulo believes incentives like these don’t result in employees not reporting, because the company has also changed the culture about safety, with bulletins saying that what’s most important is the employee — not the organization.
“We recognize employees’ good intentions by giving them positive recognition for staying safe,” she said. That has helped dispel any misunderstanding about reducing injury costs being the company’s top priority, which leads workers to not report.
Brent Jones, safety officer at Red River Army Depot in Texarkana, Texas, said it comes down to how safety incentives are structured and then communicated to employees: “The right tools in the wrong hands can always be detrimental to the organization.”
“We do offer safety incentives, but we don’t tie them to injury rates or anything like that,” Jones said. “Instead, we reward for good behavior in trying to reduce injuries.”
The depot has an “on-the-spot” incentive program, in which supervisors can recognize employees for going above and beyond the standards.
For example, supervisors wouldn’t recognize an employee for wearing personal protection equipment, “because that’s what they’re supposed to do.”
But if an employee reports potential safety hazards, that goes above and beyond, so their supervisor can hand them a ticket that can be redeemed at the safety office for a gift, such as glasses, coffee mugs, backpacks, coolers, chairs, umbrellas.
These all have the depot’s safety logo on them, which also helps the safety team’s communication efforts by publicizing the depot’s commitment to safety when employees use these items outside of the workplace.
The program only works if there is good communication, Jones said.
“A lot of programs are poorly communicated and, in my opinion, don’t work,” he said. “There are also programs that actually defeat the purpose, by telling people that they can get paid if they don’t have accidents. But that sends the wrong message.”
If leadership of an organization thinks incentive programs are only there to encourage fewer accidents, then that’s likely going to give OSHA cause to view their incentive program merely as a way to discourage injury reporting, Jones said.
“The message to employees is that they should keep themselves safe so they can go home to their families without injury,” he said.
“That brings it home a little bit with a whole new outlook. How that message is delivered probably means the most, even with an incentive program.”
Commercial Auto Warning: Emerging Frequency and Severity Trends Threaten Policyholders
The slow but steady climb out of the Great Recession means businesses can finally transition out of survival mode and set their sights on growth and expansion.
The construction, retail and energy sectors in particular are enjoying an influx of business — but getting back on their feet doesn’t come free of challenges.
Increasingly, expensive commercial auto losses hamper the upward trend. From 2012 to 2015, auto loss costs increased a cumulative 20 percent, according to the Insurance Services Office.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow,” said David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty at Liberty Mutual Insurance. “As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
For companies with transportation exposure, costly auto losses can hinder continued growth. Buyers who partner closely with their insurance brokers and carriers to understand these risks – and the consultative support and tools available to manage them – are better positioned to protect their employees, fleets, and businesses.
Liberty Mutual’s David Blessing discusses key challenges in the commercial auto market.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow. As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
–David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty, Liberty Mutual Insurance
More Accidents, More Dollars
Rising claims costs typically stem from either increased frequency or severity — but in the case of commercial auto, it’s both. This presents risk managers with the unique challenge of blunting a double-edged sword.
Cumulative miles driven in February, 2016, were up 5.6 percent compared to February, 2015, Blessing said. Unfortunately, inexperienced drivers are at the helm for a good portion of those miles.
A severe shortage of experienced commercial drivers — nearing 50,000 by the end of 2015, according to the American Trucking Association — means a limited pool to choose from. Drivers completing unfamiliar routes or lacking practice behind the wheel translate into more accidents, but companies facing intense competition for experienced drivers with good driving records may be tempted to let risk management best practices slip, like proper driver screening and training.
Distracted driving, whether it’s as a result of using a phone, eating, or reading directions, is another factor contributing to the number of accidents on the road. Recent findings from the National Safety Council indicate that as much as 27% of crashes involved drivers talking or texting on cell phones.
The factors driving increased frequency in the commercial auto market.
In addition to increased frequency, a variety of other factors are driving up claim severity, resulting in higher payments for both bodily injury and property damage.
Treating those injured in a commercial auto accident is more expensive than ever as medical costs rise at a faster rate than the overall Consumer Price Index.
“Medical inflation continues to go up by about three percent, whereas the core CPI is closer to two percent,” Blessing said.
Changing physical medicine fee schedules in some states also drive up commercial auto claim costs. California, for example, increased the cost of physical medicine by 38 percent over the past two years and will increase it by a total of 64 percent by the end of 2017.
And then there is the cost of repairing and replacing damaged vehicles.
“There are a lot of new vehicles on the road, and those cost more to repair and replace,” Blessing said. “In the last few years, heavy truck sales have increased at double digit rates — 15 percent in 2014, followed by an additional 11 percent in 2015.”
The impact is seen in the industry-wide combined ratio for commercial auto coverage, which per Conning, increased from 103 in 2014 to 105 for 2015, and is forecast to grow to nearly 110 by 2018.
None of these trends show signs of slowing or reversing, especially as the advent of driverless technology introduces its own risks and makes new vehicles all the more valuable. Now is the time to reign in auto exposure, before the cost of claims balloons even further.
The factors driving up commercial auto claims severity.
Data Opens Window to Driver Behavior
To better manage the total cost of commercial auto insurance, Blessing believes risk management should focus on the driver, not just the vehicle. In this journey, fleet telematics data plays a key role, unlocking insight on the driver behavior that contributes to accidents.
“Roughly half of large fleets have telematics built into their trucks,” Blessing said. “Traditionally, they are used to improve business performance by managing maintenance and routing to better control fuel costs. But we see opportunity there to improve driver performance, and so do risk managers.”
Liberty Mutual’s Managing Vital Driver Performance tool helps clients parse through data provided by telematics vendors and apply it toward cultivating safer driving habits.
“Risk managers can get overwhelmed with all of the data coming out of telematics. They may not know how to set the right parameters, or they get too many alerts from the provider,” Blessing said.
“We can help take that data and turn it into a concrete plan of action the customer can use to build a better risk management program by monitoring driver behavior, identifying the root causes of poor driving performance and developing training and other approaches to improve performance.”
Actions risk managers can take to better manage commercial auto frequency and severity trends.
Rather than focusing on the vehicle, the Managing Vital Driver Performance tool focuses on the driver, looking for indicators of aggressive driving that may lead to accidents, such as speeding, sharp turns and hard or sudden braking.
The tool helps a risk manager see if drivers consistently exhibit any of these behaviors, and take actions to improve driving performance before an accident happens. Liberty’s risk control consultants can also interview drivers to drill deeper into the data and find out what causes those behaviors in the first place.
Sometimes patterns of unsafe driving reveal issues at the management level.
“Our behavior-based program is also for supervisors and managers, not just drivers,” Blessing said. “This is where we help them set the tone and expectations with their drivers.”
For example, if data analysis and interviews reveal that fatigue factors into poor driving performance, management can identify ways to address that fatigue, including changing assigned work levels and requirements. Are drivers expected to make too many deliveries in a single shift, or are they required to interact with dispatch while driving?
“Management support of safety is so important, and work levels and expectations should be realistic,” Blessing said.
A Consultative Approach
In addition to its Managing Vital Driver Performance tool, Liberty’s team of risk control consultants helps commercial auto policyholders establish screening criteria for new drivers, creating a “driver scorecard” to reflect a potential new hire’s driving record, any Motor Vehicle Reports, years of experience, and familiarity with the type of vehicle that a company uses.
“Our whole approach is consultative,” Blessing said. “We probe and listen and try to understand a client’s strengths and challenges, and then make recommendations to help them establish the best practices they need.”
“With our approach and tools, we do something no one else in the industry does, which is perform the root cause analysis to help prevent accidents, better protecting a commercial auto policyholder’s employees and bottom line.”
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.