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Managing Principal
Integro Insurance Brokers
San Francisco

The Art of Inventory Claims Management

With today's volatile financial markets and challenging economy, minimizing balance sheet liabilities takes on even more importance.

Even so, many employers are retaining millions of dollars of outstanding workers' comp liabilities that they do not have to carry, said James Bacon, managing principal at Integro Insurance Brokers in San Francisco.

The problem for those organizations is that they have not had a method for determining which of those liabilities are ripe for assault, allowing the companies to slash--in an actuarially sound process--their total workers' comp liabilities in a short period.

Bacon's process, called Claim Inventory Management, is designed to do just that.

The first employer to implement the process reduced its $30 million of workers' comp liabilities 40 percent to $18 million.

Overall, the six large companies that have implemented the process have chopped their workers' comp liabilities between 17 percent and 42 percent. With undiscounted workers' comp liabilities ranging from $15 million to $50 million at the outset, those companies were able to shave millions of dollars off their balance sheets.

Bacon has a long history in claims management, system design and analytics, much of it focused on measuring workers' comp liabilities. He was a claim adjuster and then a supervisor for 10 years. He worked in workers' comp systems design and data management for five years and then spent another 10 years in program management and analytics.

Based on his experience, he has identified the liability calculation variables that workers' comp claim management processes can and should control better. The most important of those variables are incurred development, paid development and the claim closure rate.

"Interestingly, we initially assumed that as the incurred development decreased, due to accelerated claim closure, the paid development would increase," Bacon said. "That is not the case most of the time."

Bacon said that "there are many instances where claims can be closed, thus reserves and IBNR (incurred but not reported losses) reduced, without accelerating the payments. This is because we strive to get improved outcomes. Thus, we pay out less than would be indicated by the historical payment patterns over a large group of claims."

The process also tracks, among other variables, the litigation rate, indemnity/medical-only ratios and expense payments.

The process for controlling those variables essentially enhances the claim management process that the claim administrator provides.

"The root issue is that claim administrators do not have enough time to spend on a claim to get the best result," Bacon said. If an extremely productive claim adjuster is working on 150 indemnity claims concurrently, then he or she will spend less than an hour per month on each claim on average, based on 1,500 productive hours annually, Bacon said.

Another key element of the process is a methodology that provides the necessary metrics for the actuary to support the immediate reduction of the employer's balance sheet liabilities. Otherwise, the actuary likely would wait a year or two to confirm the employer's new workers' comp liability trends.

Stanford University Medical Center was among the first employers to implement the process a couple years ago under Hala Y. Helm, who, as senior director-risk finance, was charged with restructuring risk management. As part of that initiative, risk management assumed responsibility of workers' comp from the human resources department, Helm said. She is now vice president-chief compliance officer at John Muir Health in Walnut Creek, Calif.

The process enabled Stanford Medical Center to reduce its outstanding liabilities by about one-third to approximately $30 million from $45 million, Helm said.

The savings were great, she said. "We rolled those savings into our actuarial forecast and leveraged the savings for the insurance group."

Other important, long-term benefits of the process were the implementation of best practices in managing workers' comp claims and "upping the ante on expectations" on claims management with the workers' comp third-party administrator, Helm said.

"It got us more focused on the claims process," and it led to "sustainable best practices going forward," she said.

--Dave Lenckus

Divisional Vice President, Risk Management
Family Dollar
Matthews, N.C.

Staying in Touch with the Employee Family

Not placing a focus first on return on investment usually is anathema in corporate America, but for David Smith at Family Dollar, it was an easy call as he implemented and then improved an employee emotional health program.

To Smith, divisional vice president, risk management at Family Dollar, the program for all employees--team members--did not depend on a cost/benefit analysis. It was the humane response after an employee suffered emotional trauma at work.

Turns out, however, that kind of support also curbs workers' compensation costs and improves employee retention.

Family Dollar operates 6,700 stores nationwide in middle- and low-income neighborhoods. While the discount retailer provides security, company stores--like retailers generally--face the risk of robberies, threats of violence and other traumatic events.

In 2004, Smith, who had just been appointed divisional vice president, risk management, implemented a program providing immediate counseling to any employee who suffers a traumatic workplace event. Significantly, the program covers not only full-time but also part-time employees, who typically are not eligible for benefits from retailers.

Once a store manager reports a traumatic incident, Grandville, Mich.-based Crisis Care Network (CCN), a provider of incident and employee assistance programs, immediately contacts all affected employees and provides up to 10 days of telephonic counseling.

"Time is of the essence" in offering employees support that will help minimize disruptions in their lives, Smith said. "Telephonic contact is always made within two hours of notification. CCN talks to the affected team member, coaches them through their feelings, shares with them the stages of emotions they will go through, answers questions, reassures and assesses their emotional state."

The counselor then encourages the employee to call back for any reason.

The counselor also assures the employee of a follow-up call in 10 days. If the employee is not troubled then and has returned to work, the counseling ends. If the incident was severely traumatic, however, immediate onsite counseling might be provided instead.

That was the program until 2009, when Smith determined it could be improved. That began with a communications effort to increase employee awareness about the program.

Smith also brought newly retained workers' comp claims administrator Sedgwick CMS, based in Memphis, Tenn., into the loop. After fielding a report of a possible workers' comp claim from a store manager following a traumatic incident, Sedgwick ensures that CCN is notified. That avoids the risk of CCN not contacting a traumatized employee because a store manager was unaware of the program and failed to notify the provider.

Smith also brought in Minneapolis-based Behavioral Medical Interventions(BMI), which specializes in helping individuals who need intensive therapy.

BMI has a couple of roles. After a severely traumatic incident, an employee's case might not be assigned to a CCN counselor but instead channeled to BMI.

BMI also could be called in when an employee who had received telephonic counseling continues to miss work or struggle emotionally after 10 days. The CCN counselor, risk management and Sedgwick would determine whether the employee should receive more intensive care.

BMI would manage that care. The employee initially would receive five counseling sessions, after which a case assessment would determine whether more therapy is necessary. For employees already in therapy, BMI would work with the therapist to ensure an aggressive resolution so the employee can return to work.

On the program's return on investment, Smith said: "Most importantly, it is the right thing to do in support of our team members" and to retain them with the company.

The employee retention rate after a traumatic event has increased about 29 percent to the current 90 percent retention rate with no lost time. Only 6 percent of cases progress into the workers' comp system, but those claims are 15 percent less costly, Smith said.

Matthew Cohen, account manager/operations manager at Sedgwick, also said that Family Dollar projects its return-on-investment "in the high six figures." Those savings are reflected in lower workers' comp disability claims costs and indirect costs, which the American Society of Safety Engineers estimates could run as much as 20 times direct costs, Cohen said.

"Whereas the financial savings from reduced attrition and workers' comp claims are significant, David truly seems to derive his greatest satisfaction from witnessing associates who are more quickly able to resume healthy, productive lives," said Bob VandePol, president of CCN.

--Dave Lenckus

Helping Others Through Trauma

With Family Dollar operating 6,700 stores nationwide in middle- and low-income neighborhoods, company stores--like retailers generally--face the risk of robberies, threats of violence and other traumatic events.

In 2004, David Smith, divisional vice president, risk management, implemented a program providing immediate counseling to any employee suffering from a traumatic workplace event. "Time is of the essence," Smith said.

A quick reaction on the part of the employer improves employee morale and lessens the disruption in his or her life, he said. Family Dollar's program goes "above and beyond" because many of the employees working on the front lines of Family Dollar's stores don't have access to those kinds of services.

Smith's program covers full-time and part-time employees, who typically are not eligible for benefits from retailers. The company benefits, of course, from Smith's initiative as it improves employee retention. But, Smith said, "Most importantly, it is the right thing to do in support of our team members."