How About a Flat Fee?
More employers wanting predictability in the fees they pay workers’ comp third-party administrators are negotiating to pay a single, flat fee for bill-review services, sources tell me. The arrangements follow from criticisms some employers, their brokers and consultants have heaped on TPAs, saying traditional TPA charges for bill-review services obscure the ultimate cost of those services.
Under traditional arrangements, a TPA might charge an employer on a per-bill basis for each medical-provider bill reviewed. Or, they might charge on a per-line basis, tallying a fee for each expense line on a bill. They can also charge the employer according to the percentage of savings produced by the bill-review process.
The inconsistency in billing methods has fueled suspicion that some TPAs — operating in a highly competitive environment — win business by bidding to provide basic claim-handling and administration at a low cost, and then boost their revenue with additional charges.
TPA executives have countered that their billing measures are transparent, at times even arguing that brokers stir the controversy to attract consulting business. But questions remain.
TPAs also differ from one to the next in their billing formats for the broad range of other claims management services they offer. So employers with the resources to do so often pay their brokers or consultants additional sums to analyze their bills and to help them select the best TPA agreement for them.
Srivatsan Sridharan, senior vice president, product development for TPA Gallagher Bassett Services Inc., said more large employers are negotiating to pay a consistent flat, per-bill fee for all bill-review-related services for each claim. The employer then pays additional amounts for claims handling and all of the other TPA services required to resolve a claim, although the charges for those other services have tended to be more predictable than the bill-review fees.
Data collection has made it possible for TPAs to model an employer’s expected claims-management expenses and accommodate flat-fee deals, Sridharan said. Such arrangements won’t reduce the cost of managing a claim, but they can make bill review costs more predictable, he added.
In a similar vein, brokers meeting privately with TPA executives during the National Workers’ Compensation and Disability Conference® & Expo, held in late November, asked TPAs about their willingness to charge one, all-inclusive fee for an employer’s entire book of claims business, said Joe Picone, chief claim officer for Willis of North America.
Ultimately, employers want to know the “true cost” of managing their claims and this “could be the next evolution of TPA pricing,” Picone said. “Why don’t we just say, ‘Instead of paying $1,500 per claim, my whole contract is worth $1 million or $500,000.’ ”
The mountain of workers’ comp claims data that TPAs collect could help make the broader flat-fee arrangement possible, at least theoretically, because TPAs could mine the data to predict the claims management costs an employer will generate when operating in a specific region and industry, with certain employee demographics and exposure differences.
We will have to wait and see whether innovative employers and TPAs go down that path.
But additional employer options for paying workers’ comp expenses would be a good thing. And with data increasingly available to help TPAs and employers understand claims-management costs, the time is right for employers wanting pricing predictability to seek change.
Health and Safety Success Requires Cultural Change
Dustin G. Richartz spends much of his time lately helping organizations develop the leadership necessary to drive health and safety within their companies.
The senior loss control consultant with Kansas City-based Lockton Companies, Richartz was recently awarded the 2015 Monsanto Queeny Safety Professional of the Year Award by the American Society of Safety Engineers for his work in developing safety and health programs.
Edgar Monsanto Queeny was president of Monsanto in 1947 when an explosion aboard a French freighter destroyed the company’s Texas City plant, killing 512 people, including 145 Monsanto employees. Queeny took the loss and devastation to heart and put greater emphasis on safety in the company’s operations. The company sponsors the Edgar Monsanto Queeny Safety Professional of the Year Award in his memory.
“It’s an extreme honor, as ASSE is one of the largest safety and health organizations with some 37,000 members globally,” he said. “To be recognized as safety professional of the year is a huge honor and one I definitely don’t take lightly.”
Richartz began his career in safety and health in the manufacturing industry and eventually joined the insurance side. He’s helped organizations create programs to keep their employees safe.
“A lot of time is spent on injury prevention programs, developing tools and techniques organizations can use to protect their workers,” he said. “Some are OSHA regulatory programs, and some are environmental programs; environmental evaluations to make sure organizations are adequately protecting their employees. It really is broad based. Safety and health is not just focused on one specific area. A lot of different things go into it.”
In the 15 years he’s been in the safety and health industry, Richartz has seen a change in focus. Keeping workers free of injury and illness now involves all aspects of an organization.
“One of the biggest changes I’ve seen with a lot of organizations, especially those more progressive, is a shifting away from safety and health being a regulatory entity and allowing it to be a component of the business operations and minimizing risk,” Richartz said. “For the first couple of years that was the way the profession was focused — on regulations and compliance rather than on risk mitigation.”
Part of the reason for the shift is because of what Richartz and other safety and health experts say are outdated regulations. Many of the OSHA mandates, for example, were developed in the 1970s and have not been updated to reflect changes in the workplace. Much more is necessary to fully develop an effective safety and health program.
“You’d start with the compliance. It really is a foundational piece,” he said. “Then you’d develop the cultural aspects, leadership that would really help drive the risk unit. So it’s not focused on just the foundation but building it up and integrating it in every aspect of the organization from the front line to your CEO.”
Changing the culture of an organization is not an easy or quick process. It requires the involvement and commitment of organizational leaders.
“Grassroots activities can help move the needle, but it really takes a senior executive to commit to hold their operations teams accountable to make the changes necessary,” Richartz said. “The middle managers influence the activities of the front line workers, but senior executives drive the overall culture.”
Where Richartz often sees companies making the necessary cultural change is in smaller businesses. “They are often more family run organizations,” he said. “Some businesses and industries may push back more than others. But as we see more and more attention placed on occupational safety and health, more organizations are understanding if they don’t do that it will impact their business in a negative way.”
Getting an organization to focus on safety and health requires strong leadership, Richartz explained. It’s an area that can be the key to preventing injuries and illnesses.
“It’s something I’m passionate about,” he said. “It really helps individuals and organizations move the needle, especially if they are stuck in the regulatory mindset. Focusing on developing middle and upper management to understand what it means to lead in safety and get more involvement and buy-in from their mid-level and front line employees. That’s where a lot of my time has been spent with clients and ASSE and other organizations.”
Leadership is one of the qualities that make for an effective safety and health professional, Richartz said. He mentors young people on developing that and other necessary skills.
“A big part is understanding that a lot of occupational safety and health is really based about people and developing soft skills necessary to influence change and influence individuals, not just try and direct but get them to buy into your ideas and thoughts,” Richartz said. “It takes time for you as a professional to develop those skills.”
With aging workers leaving the industry, safety and health professionals are focused on ways to attract new people. Richartz spends much of his time doing just that.
“One of the things I’ve done a lot of work with is partnering with [ASSE’s] Future Safety Leaders Conference Committee to really help develop leaders and invest in those educational programs that are out there to make sure students when they do come out understand the people side as well as the book side,” he said. “A lot of what we do is not just regulatory based … but focuses on the soft skill side.”
Among the changes he sees on the horizon is the trend to focus on the sustainability side of operations, especially for organizations in manufacturing processes and that have global suppliers.
A Global Perspective
As any traveler knows, the world is full of uncertainty and dangerous places, where the challenges of simply trying to run a profitable business far from home are complicated by even greater risks, such as political violence, civil unrest, credit risk, corruption, expropriation of private assets by the government, and more.
Anyone doubting this need only take a look at current events. Some 70 percent of the world’s nations currently have serious corruption problems throughout their governmental and civil service framework. Nearly 40 percent of all nations are experiencing some form of significant civil unrest. Signs of economic distress are everywhere, from falling oil prices to Eurozone debt crises to economic slowdown in China.
Despite such geopolitical risks, the world still needs its businesses to continue running amid dangers that range from warfare and terrorism to punishing economic conditions caused by international sanctions, to simple graft and hostility toward foreigners.
For global and multinational companies, keeping an eye on their political risk profile is as important as handling worker safety, environmental impact, products liability, or any other insurable risk. Thankfully, political risk exposures are insurable as well, and Starr Companies is there to provide its clients with robust political risk insurance coverage, a suite of unique support services that truly is second to none, and the ability to educate clients on how to manage their political risk.
Political risk hazards generally fall into one of the following categories:
Breach of Contract and Non-Honoring of Financial Obligations
These related hazards involve the failure of a local actor to uphold their contractual or financial obligations to a foreign investor, and the inability or unwillingness of local authorities to intercede on the foreign investor’s behalf. This is perhaps the most common form of political risk hazard, as it is a major problem in any environment where there is substantial economic instability and/or corruption.
Confiscation of Property
Also known as “expropriation,” “ownership risk” and “nationalization,” this is when a government seizes property or assets without compensating the owners for them. An overt example of expropriation would be a revolutionary government seizing an office building or a factory belonging to a foreign-owned corporation. An example of creeping expropriation would be a series of successive events by a government to gradually deprive an investor of their property rights.
This is when the local laws change in such a way as to constrict foreign investors’ economic activity in some way. It could range from creeping expropriation to changing taxation or labor laws that might simply make it far less profitable or far less efficient for a foreign entity to operate in a local jurisdiction.
Inconvertability of Currency
Also known as “transfer risk,” this is when a government takes action to prevent the conversion of local currency to another form of currency, making it difficult or impossible for foreign investors to transfer their profits elsewhere. This tends to happen in countries undergoing some kind of political crisis, like when Zaire—now the Democratic Republic of Congo—declared a new national currency in 1980.
Property or income losses stemming from violence committed for political purposes, including, but not limited to declared and undeclared warfare, hostile actions taken by foreign or international forces, civil war, revolution, insurrection and civil strife (politically motivated terrorism or sabotage).
Kidnap and Ransom
Political violence might also manifest itself as a kidnap, ransom and extortion hazard, but that is typically covered by a separate, specialized policy.
To protect against these risks, insurers can provide comprehensive and custom-tailored political risk solutions, which at a client’s request can be broadened to cover investment contract repudiation, currency inconvertibility and political violence. Such policies typically last for periods of 5 to 10 years. Protected assets for this coverage include fixed assets (e.g., a factory, farm, warehouse or office), mobile assets (e.g., harvested natural resources, raw or manufactured inventory or mobile equipment), leased assets (e.g., aircraft, watercraft or construction vehicles) and investment interests in assets abroad (e.g., money dedicated to funding a foreign project, held in a host country bank and subject to expropriation).
Kidnap & ransom coverage protects company personnel and family by providing financial reimbursement for such an event. Depending on the insurer, some K&R programs also provide independent expert consultancy before and after a potential act of kidnapping, ransom or extortion.
Great insurance coverage isn’t enough to adequately protect against political risk, however. Businesses need extra support to stay on top of their exposures, and to know what the latest geopolitical developments are.
Starr Companies, for example, does this through Global Risk Intelligence, a specialized team of political risk experts with long-standing backgrounds in national intelligence and international affairs. GRI delivers to Starr clients a unique risk advisory service that spans the gamut of commercial property & casualty exposures. GRI also produces two assets that are extremely helpful. The first is the Executive Intelligence Brief, a world-class monthly analysis of ongoing geopolitical developments (especially in emerging markets) available exclusively to a carefully selected readership of top executives. The second is the Global Risk Matrix, a quarterly ranking of the overall political security risk of every country on the planet.
The world’s geopolitical landscape is changing at a remarkable pace, with new risks and uncertainties arising in even the unlikeliest of places. And yet, as business becomes ever more globalized, insurers can provide their clients with tailored coverage to absorb the losses that stem from political turmoil. By finding the right insurer, with the financial strength to cover their risks as well as the analytical acumen to help turn risk into opportunity, businesses can create partners in prosperity anywhere in the world.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.