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Pool Administrator
Arthur J. Gallagher & Co.

The Claims Custodian

Matching grants of up to $1,000 from a school insurance pool's surplus funds allows schools to buy safety equipment.

Jim Graff, Chicago-based manager of a workers' compensation self-insurance pool for schools, is hoping that sweating the small things pays big dividends for his school district members.

Graff, a pool administrator with Arthur J. Gallagher & Co., manages the School Employees Loss Fund (SELF), provider of work comp coverage to about 80 northern Illinois school districts.

When he and his team began looking into a series of injury claims plaguing the pool, they soon pinpointed a handful of causes, among them teachers falling off chairs and desks while trying to reach high shelves or put up classroom material.

Graff's deceptively simple response: A grant program that has allowed schools to buy the kind of safety equipment--including stepladders--that can be found at the local hardware store.

"He's very creative and just wonderful to work with," said Ann Michels, an account manager with Cambridge-Sedgwick CMS in Chicago, the pool's third-party administrator.

Graff cites the fact that workers' comp "is a very process-driven line of insurance" where loss control depends on analyzing data and the facts and circumstances of accidents.

"The beautiful thing about having a 25-year-old program is that you have a lot of data," he said.
SELF got started with Gallagher's help during the liability insurance crisis of the mid-1980s, when Illinois school districts suddenly had a tough time finding affordable workers' comp coverage.
The pool has grown from about 36 original members, and now provides statutory coverage with a $750,000 per-occurrence retention and specific excess coverage above that amount, Graff said. The size of the fund has varied with membership, but now amounts to about $10.5 million in annual member loss contributions, he said.

A couple of years ago, a series of expensive claims from trip-and-fall incidents caught Graff's attention. In one case, a teacher fell and broke a shin. In others, a teacher and a custodian hyperextended knees. The custodian injured himself when he fell from a space heater where he'd been standing to wash windows. In all, the accidents cost the pool around $250,000, he said.

When Graff dug into the pool's claims data, he found a spike in claims around August each year, as teachers were getting classrooms ready for the beginning of the school year. With a little more work, he found that many injuries were caused by school employees standing on chairs and tables for added reach. Other clusters of claims came in winter months, with falls on stairs.

After talking the problem over at Gallagher and with pool members, Graff proposed a new program: matching grants of up to $1,000 from the pool's surplus funds to allow schools to buy safety equipment.

Under the program, schools are permitted to buy stepladders, salt kits to de-ice stairs and walkways in the winter, rubberized carpets to place at entrances to deal with wet floors, and digital cameras, so that school personnel can document conditions at the scene of accidents going forward.

All simple steps, but in some cases steps that were not being taken.

"We just want to make the schools safer; that's the bottom line," Graff said.

About 40 percent of the pool's members participated in the grant program last year, and Graff said he's hoping for 65 percent to 70 percent participation this year.

To measure progress, Graff and Cambridge-Sedgwick collected baseline loss data and are tracking claims at participating versus non-participating schools, benchmarking against current and previous payrolls to normalize the results.

To this point, it's looking good, they say.

"From what we've seen so far, all of the (participating) schools have shown an improvement," Michels said.

Graff estimated a 15 percent to 25 percent reduction in slip-and-fall claims at the participating schools for 2010, though he cautioned that it may be too early to draw conclusions. The program will continue for the 2011-2012 school year, and then Graff said he expects SELF's board to look at the results and decide whether to continue.

"We're going to be watching pretty closely," he said.

-- Douglas McLeod

A Contributor to Safer Schools

Jim Graff, pool administrator for Arthur J. Gallagher & Co., has done his part to contribute to public education.

At a time when school budgets are facing deep cuts, Graff found a way to contribute to the common good. He did so by examining the claims data, and then starting a matching grant program using the self-insured risk pool's surplus funds to pay for school equipment to make it safer for teachers and students.

He succeeded on two fronts. For starters, the money was paid out of surplus and used to pay for step ladders to help prevent teachers from climbing on chairs and falling while reaching for books and reference materials stored high above their heads in classroom cubbies.

The grant program also generated funds to buy floor mats and salt kits, which further reduced slip-and-fall injuries during frigid Midwestern winters. Graff's strategy was designed to reduce exposures to falls, and cut claims frequency. Within months, schools participating in the grant program saw reductions of between 15 percent and 55 percent in their slip-and-fall incidents.

Graff was chosen as a Responsibility Leader® because he overcame budgetary restrictions to create safer working conditions in public schools.

Corporate Medical Director
Southern California Edison

Turning Red Flags into Green

Energy utility program cuts injury rates to employees in the first year on the job.

When two of a large power company's most critical business units express concerns about a high incidence of injuries occurring during employees' first year on the job, it sets off risk management red flags.

For Dr. Susan Heller, the corporate medical director of Southern California Edison (SCE) in Rosemead, Calif., those red flags turned to green in the form of cost savings (as well as safer employees), as Heller put together an innovative and successful solution to reduce on-the-job injuries.

Heller began by meeting with business unit partners, and it was quickly decided that any solution would have to achieve several goals, including supporting safety on the job, reducing workers' compensation claims, reducing occupational injuries or illnesses that require medical treatment more than simple first aid which are recorded by the Occupational Safety & Health Administration (OSHA).

Complicating matters was the fact that SCE was about to launch its biggest capital expenditure initiative in the company's 140-year history, involving replacement and/or upgrading of 50-year- old transmission lines and facilities, as well as the investment in new "green'' technology. The result was expanded growth for the company and the hiring of hundreds of new employees.

"In this environment, it was critical to ensure the hiring of healthy and productive workers in order to meet SCE's future needs," Heller said. Heller and the cross-functional team she led designed the injury-reduction program for new employees as a three-step process consisting of:

-- A post-offer medical history used to ensure a candidate's safe ability to participate in the job they were hired for, but that was not used in candidate selection. If a medical issue is identified, the candidate is asked to provide a medical authorization/release from his or her physician in order to continue with step two of the assessment.

-- A post-job offer physical examination used to ensure that the candidate is able to safely participate in job-specific testing. If a medical issue is identified, the candidate is asked to provide a medical authorization/release from his or her physician in order to continue with step three of the assessment.

-- Job-specific testing designed to establish the employee's capability to safely perform the essential job duties. Testing results are used to determine "capable" or "not capable." If a candidate is not capable of physically performing the essential job functions, he or she does not meet the requirements of the job, and the job offer can be withdrawn. The candidate can reapply again once they meet the capability job requirements.

At first, Heller thought post-employment testing could be done in-house. But after more research, SCE partnered with a vendor that could customize a program to meet the company's unique and specific needs.

With Heller's guidance, SCE chose the WorkSTEPS program, which had a post-job offer testing approach designed to be job specific by matching workers' functional capabilities with the essential job functions. Among other things, WorkSTEPS also would certify SCE's in-house medical staff to be able to perform testing at corporate headquarters.

As a success gauge, SCE used the metric of reduced and/or avoided injury costs. Since the pilot program launched in 2009, approximately 550 post-offer candidates have been tested (nine job candidates did not stay with the company as a result of testing). And while pilot expenses were approximately $96,000, the estimated savings relating specifically to reduced workers' compensation and/or disability claims and wage-replacement benefits totaled $800,000.

"The thing that is important is Heller works in a highly regulated industry," said John Koval, an account executive with Sedgwick CMS, who works directly with Heller. "With that as the context, every program Heller tries to implement has to have oversight and approval. She not only has to sell it internally, but to regulators as well. That's a real challenge."

Koval said that Heller's innovative nature, vision and willingness to take the risk associated with implementing a new program actually not only has saved the company money, but also has served to lower risk by supporting safety on the job.

"Most of all, she recognizes that an employee's ability to safely perform the job is as much a job requirement as technical expertise," Koval said.

-- Tom Starner

This Doctor is Always In

Dr. Susan Heller, corporate medical director with Southern California Edison, implemented post-employment testing at her company's corporate headquarters to determine whether employees were physically able to perform the job that they had been hired to do.

Her goals were to reduce workers' comp claims and support the overall health and productivity of the workforce.

This task was especially important because Southern California Edison was about to embark on a massive upgrade of its transmission lines and an investment in green technology.

Heller assembled a corporate team that developed a three-step program that included a post-job offer medical history review, physical examination and job-specific testing.

Her program was innovative because it complied with the Americans with Disabilities Act since it was implemented post-job offer. It's a simple distinction, but it had big ramifications: $96,000 in testing expenses quickly resulted in $800,000 in savings.

Heller was named a Responsibility Leader® this year because her work has resulted not just in bottom-line savings, but in an increase in the ability of workers to do their jobs safely, and without fear of injury.

Principal Consultant, Katersky Consulting
Former Assistant Vice President of Risk Management, BJ's Wholesale Club Inc.

Katersky Assumes Responsibility

Risk manager helps BJ's Wholesale Club take control of its claims.

Adding members and then retaining them is the principal goal of BJ's Wholesale Club Inc., which operates 185 membership warehouse stores in 15 states.

Responding to a companywide membership retention challenge, Ed Katersky, former assistant vice president of risk management at BJ's Wholesale Club Inc. in Natick, Mass., successfully put in place a two-stage plan of action over the past 10 years.

First, after several years of increasing general liability costs, Katersky and his risk management staff convinced management in 2001 to bring its general liability claims administration program in-house and discontinue using its prior third-party administrator.

Katersky led the risk management team in shifting its thinking about BJ's liability claims. Shoppers involved in in-store incidents at BJ's are not merely claimants, he reminded his team, but rather loyal club members who pay for the privilege to shop there. Because of this paid membership relationship, he said, BJ's chooses to accept a higher degree of responsibility to its shoppers than regular retail stores.

In bringing its general liability claims business in-house, "we did cost analysis and hiring two or three adjusters was far cheaper than third-party administrator fees, so it proved its worth cost-wise and met our goal of customer retention," said Katersky, who has moved on to become the principal consultant at Katersky Consulting. "Using the third-party administrator involved a lot of activity by lawyers costing legal fees that were very, very high."

To accelerate the response to member concerns, club store managers now submit incident reports electronically to corporate risk management on the day of the incident, and the details of the incident are confirmed within 24 hours.

Using a triage model, a dedicated BJ's claims adjuster makes contact with every shopper involved in an incident within 24 hours. Instead of a confrontational argument regarding negligence, the adjuster works to reach a fast and positive resolution with the member before the incident spirals into a claim.

With widespread support in the organization, nearly 80 percent of incidents are now settled quickly and efficiently. This program has reduced BJ's average claim value by 67 percent. These results were achieved despite new store openings, membership growth and increasing medical costs.

The second major advance achieved by Katersky and his staff was a novel notion, indeed.

They recommended to senior management that BJ's gift cards be distributed, as part of the general liability resolution process to generate additional goodwill during a potentially frustrating time.

"The gift card was seen as a victory by the member and it was a victory for us because there was no cash outlay like in a claim," Katersky said. "And we knew that when people got a gift card they would come back to the store, so now we're hitting customer retention."

Katersky said that because people shop at the same BJ's club most of the time, he and his team didn't want to create a bad feeling between local management and the member, so they took the process away from the club. "That way the club didn't have to get into a fight with the member," Katersky said. "The club was not good at investigations, they were better at running stores. We would tell them when things were resolved and to please look for the member at the member's next visit."

Another key ingredient in the gift card program, he said, was that a letter was sent with each gift card. "We did not ask for a release because then it became a claim and people would hire a lawyer to review the release and before you know it you would have more lawyers in this thing, which we didn't want," Katersky said. "So we took a position that these are relatively small dollar matters and we would try it without the release to see what would happen. And nothing ever happened, so it was great."

Of some 400 events that occurred last year, 320 to 350 of them were resolved without incident.
"Ed Katersky is an awesome risk professional," said Joanne Heslin, vice president of Willis of Massachusetts. "He's very bright. He likes to try new things. He's ahead of his time in many of the things he does. He's very good at forming partnerships. He very successfully trains people. We call him the professor."

-- Steve Yahn

Bestowing the Simple Gift of Engagement

In his approach to liability claims stemming from the wholesale club's in-store operations, Ed Katersky, former assistant vice president for risk management with B.J.'s Wholesale Club Inc., took the concept of the early offer and advanced it.

For a company that had taken its general liability claims administration in-house years ago, Katersky advanced his former employer's claims management and customer service goals by creating a system that called for almost immediate, personal responses to in-store injuries incurred by the club's membership shoppers.

His response involved the creation of an electronic reporting system that confirmed the details of an incident within 24 hours. That was followed by rapid personal engagement with the injured party, which diffused the mistrust and miscommunication that can often lead to a claim.

When Katersky felt the program had reached a plateau, he took it a step further by offering gift cards to wholesale club members involved in an incident. Claims costs declined yet again.

Katersky is a Responsibility Leader® because he took the initiative in making good customer relations even better, when he felt there was room for improvement.

Vice President, Risk Services
The Cheesecake Factory

Risk Manager Walks the Walk

Instead of ordering a new claims-allocation system, Kurt Leisure taught his managers to think about claims, and instill in them that safety and claims can be controlled.

Kurt Leisure has been in the restaurant business for 25 years, the last 12 at The Cheesecake Factory, where he is vice president, risk services. If you ask him for evidence of his success, he's liable to talk to you about shoes.

To be specific, the company's slip-resistant shoe program is part of a unique claims-allocation program developed and implemented by Leisure. It has led to a 78 percent drop in the cost of risk over a seven-year period. Other elements of the program include a nurse triage program, highly customized safety training, and reporting claims within 24 hours.

Most significantly, Leisure has involved employees at every level in learning about and adopting the program, and creating a system of rewards for participation. The success of this program was significant for Leisure: "That's telling me that we found a good solution and we have buy-off from everyone from the dishwasher up to the management."

Leisure also has supporters throughout the restaurant industry, including Patrick Sterling, director of risk and administration at Texas Roadhouse. Sterling met Leisure through his involvement in industry groups. "I quickly realized he's a leader. You could tell the way folks respect him. I thought, 'I gotta get to know this guy'; I sought him out," Sterling said. Leisure has become a mentor to him, generous with guidance and advice, and his claims-allocation program has been a model for Sterling's own.

Sterling admires Leisure's grasp of how the industry works. "He understands the business very well and knows how to get programs in place. Restaurant operators are very entrepreneurial. Part of being a smart and successful risk manager is knowing your culture. You can't necessarily flip a switch--sometimes it takes two to three years to change culture. Kurt gets that very well."

Leisure has taken a step-by-step approach to implementing new safety programs, making sure to have companywide support. "Risk management was new to when I came into the organization twelve years ago. Some risk managers take a machine gun approach,'' he said. "I'd be a complete failure if I didn't have buy-off in my operations teams in the programs I push down to them. I'm careful what I do push down and I make sure it works. Our program is complicated and has a lot of moving pieces. Most off-the-shelf things don't work in our operations."

Leisure's long-term goal was to instill a new mindset that safety and claims are not just a cost of business, and that claims can be prevented and costs controlled. Rather than jumping in with a new claims-allocation system, he started by teaching a new way to think about claims. "First here's how to prevent claims from happening. Next, here's how to mitigate when it happens. I set them up for success," he said.

Leisure stresses what's distinct about The Cheesecake Factory. "If you look at the culture of our restaurant, our differentiator is service. You expect something and we deliver way over and beyond,'' he said. "If you drop a fork, we present you with a new one on a silver platter and you think, 'Wow, Is this the Ritz Carlton?' '' The emphasis on excellent service was applied to the claims process.

A key element of Leisure's innovative approach and of his success is a keen understanding of human psychology. "This approach is measuring people's emotions," he said. Leisure wanted to make sure that, when injuries did occur, injured employees were attended to. "I was thinking there's a good percentage of our staff who are injured and we're thinking they'll be fine but no one is checking on them, and they're home thinking someone will reach out to them. If we didn't interact, they might run to an attorney.

"It's building a bridge to make sure the staff member is OK, and we know how the accident happened so we can prevent future ones,'' he said. "We're pulling in all the people who matter: manager, claims adjuster, medical person. A lot of people have not had a positive experience with a claims experience--they think they're going to be a claim number." Instead, they now get personalized attention. "As a result, we have virtually no litigation against us," he said.

With such dramatic results, what's next? "The low hanging fruit is gone," Leisure said. "I'm really focused on training. That's where we can take it to next level."

His future plans include looking at "every piece of business," from purchasing to cyber risk, as well as training and the use of technology. All in all, this is a man who is proud of his successes, but not resting on his laurels. "I'm very passionate about what I do,'' he said. "I've been doing it a long time, and I still get excited every morning trying to figure out what I'm going to do next."

-- Lynn Rosen

Turning up the Heat

For Kurt Leisure, vice president, risk services, for The Cheesecake Factory Inc., the expression "cost of doing business'' is a loaded term, a safety and prevention euphemism if not for complacency, then for not doing nearly enough.

Leisure's favorite ingredient for the cost of doing business is one called "Zero.'' Every claim, he said, can be prevented, every workers' comp cost controlled as carefully as oven temperatures.

Despite his employer's safety and prevention programs on paper, operations managers need to adhere to them.

Leisure's never above infusing a little competition and financial incentive to ensure that operations professionals are driven to adhere to his claims-allocation program.

The restaurant chain's loss rate has dropped from $4.13 per $100 of payroll to $1.41 per $100 of payroll, since he implemented his claims- allocation program.

Leisure is a Responsibility Leader® because he displayed the initiative to take a hard look at a program that other companies might have considered state of the art, and he had the courage to change it.

Managing Principal
PowerGuard Specialty Insurance Services

Blazing into New Warranty Territory

PowerGuard Specialty's products now include warranty, property and casualty coverages, with solar accounting for about 90 percent of its business.

Mike McMullen, managing principal with PowerGuard Specialty Insurance Services in Irvine, Calif., is making it easier for companies to be green.

PowerGuard, a managing general agency and Lloyd's of London coverholder, provides warranty and other coverages for solar and wind power projects worldwide. Its range of innovative products--such as a 25-year noncancelable warranty for solar arrays--has helped projects win financing even in the wake of the post-2008 credit crunch.

"It's really helped fast-track our path to bankability," said Troy Dalbey, managing director with the North American unit of Upsolar, a solar module maker based in Shanghai.

McMullen started his career fighting oil well fires, but moved on to safer jobs with Aon Corp. and later with London-based JLT Risk Solutions, which managed one of the market's first wind energy insurance facilities.

In 2007, he launched PowerGuard with John Hahn, former president of Tri-City Brokerage Inc., a process he describes as "hand-to-hand combat" with competitors. PowerGuard began writing property coverage for wind power projects, then moved into property and warranty for solar installations in 2008.

Products now include warranty, property and casualty coverages, with solar accounting for about 90 percent of its business and wind 10 percent, McMullen said.

PowerGuard's warranties have given a big boost to original equipment manufacturers, developers, contractors and owners of alternative energy projects. While property policies typically exclude coverage for defects in materials and workmanship, wear and tear and latent defects, the company's warranty--known as PowerCLIP--picks up these exposures. For photovoltaic solar panels, for example, PowerCLIP wraps around the manufacturer's warranty, extending coverage for 25 years. The warranty goes into effect immediately with no waiting period and is noncancelable, meaning that it remains in force even if the manufacturer goes bankrupt.

The PowerCLIP program has helped win financing for projects from banks that would otherwise have been wary of relying only on manufacturers' warranties, McMullen said.

It has also improved clients' finances in other ways: With sales of solar arrays, a manufacturer accrues liabilities on its balance sheet for the warranties it provides. A third-party warranty like PowerCLIP allows the manufacturer to remove those accruals while booking a much smaller expense for the warranty premium, he said.

PowerGuard also gives project owners flexibility on maintenance. While manufacturers' warranties can require owners to use the manufacturers' own maintenance services, PowerCLIP lets owners hire outside contractors, often saving money with no deterioration in service, McMullen said.

"I'm not the most popular guy with some of those (manufacturers)," he said.

PowerGuard's insurers have paid losses on wind turbine business. "The turbine warranty world is fraught with peril," McMullen said, noting that wind farms can be in locations where winds gust from zero to 200 mph fairly quickly, and that changing the gearbox on one turbine can cost $600,000. "You really need to know your equipment."

The solar warranty program is in its infancy, though, and loss experience is still to be determined. "We're only two to three years into this deal. We only have 23 years to figure out whether we're making money or not," he said, joking.

Tough underwriting should help. McMullen and his team spent months examining Upsolar's business before binding its coverage, Dalbey said, looking at its design and manufacturing processes and examining its financials.

"They have to do more than just kick our tires," he said. "They're very thorough, and they have to be."

Meanwhile, PowerGuard recently expanded its offerings with PowerWrap, a performance guarantee policy for solar projects underwritten by a unit of Hannover Re Group. PowerWrap guarantees the design and installation of a system, warranties its hardware and covers losses of revenue, solar energy tax credits and other costs from non-performing or underperforming systems.

The new product is an indication of the hard work McMullen puts into protecting his alternative energy clients, the clients say.

"I don't know many people who put their nose to the grindstone the way I do. And he does," Dalbey said.

-- Douglas McLeod

Seeing the Light

One of the major issues affecting the financing of solar projects has been the 25-year warranty provided by solar panel manufacturers. The warranties traditionally offered decreasing amounts of production through the life of the warranty. Without some sort of third-party warranty program, important solar and wind energy projects would not get built.

But how do you develop a product that augments a 25-year warranty? Providing noncancellable, investment-grade insurance capacity for this sort of risk was something that had never been done before.

Mike McMullen and his company assembled a world-class group of energy experts, underwriters and insurance program architects to create the only non-cancellable 25-year solar panel warranty. For McMullen, the innovation was about breaking new ground to cover new risks.

McMullen is a Responsibility Leader® because the work he has done will benefit the entire wind and solar energy value chain, including original equipment manufacturers, project developers, maintenance and equipment contractors. And his work will help in lessening U.S. dependence on foreign oil, building a greener energy industry and economy.