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Within the claims management industry, Sedgwick CMS President and CEO David North may be the most articulate, if not glib, CEO in the industry. He's known for being exceptionally well-prepared, funny and enthusiastic, and perhaps more than a bit obsessive in his pursuit of business. Says one broker who specializes in workers' comp: "Nobody outworks Dave. He's personable, considerate and very bright, with lots of creativity. And he doesn't like to lose."

North has among the longest current tenures as CEO of a major claims management company?he's been in the top job for 12 years.

Says one of his former competitors: "Dave's very shrewd and works very hard. He took what was a middle-of-the-road, rather plain-vanilla TPA, and turned it into the largest workers' comp third-party administrator in less than three years."

For the last 10 years, North says, the company has been able to maintain a 22 percent annual growth rate with almost all of that generated from internal growth, not acquisitions. But that's changing.

A CHANGING MINDSET

Ever since 1991, when it landed its first contract with one of the very largest companies in the United States, Sedgwick CMS has been clear in its focus: Its goal is to be the claims administrator to the nation's very largest employers. That includes today the biggest corporations along with the large public entities and nonprofit organizations.

But, it's also something of an irony that Sedgwick today is synonymous with claims management rather than brokerage. The company's history dates back to 1969 when it was founded by Robert L. Young as National Compensation Services, a California-based workers' compensation and claims management operation. In 1972, it was acquired by then insurance broker Fred S. James & Co. In 1983, it changed its name to Claims Management Services, the CMS part of its name today. Two years later, CMS became part of the Sedgwick Group after Fred S. James was acquired by the larger broker, the Sedgwick Group.

"The claims management business was always collateral to the brokerage business," North explained, until Sedgwick was acquired by MMC Corp., the parent of Marsh Inc. For Marsh, the Sedgwick acquisition focused more on Sedgwick's established brokerage operations, which were merged into the existing Marsh organization. Meanwhile, the claims operation, now Sedgwick CMS, became a separate, independently owned company based in Memphis, Tenn., with Marsh retaining a big portion of the ownership. So, at that point, the Sedgwick brand, then mostly associated with insurance brokerage, now represented only claims management.

In 2006, Marsh sold off its stake in Sedgwick CMS to Fidelity National Corp. and the company entered a new era.

In the past, North had eschewed an "acquisitions rollup" growth strategy that had been pursued by some of his competition. But, as North explained, after the investment by Fidelity National in Sedgwick last year and access to new capital for investment, there was plenty of opportunity in the claims management business for acquisitions and expansions. In May 2006, Sedgwick announced the acquisition of VPA, a California-based claims service organization that specialized in absence and disability management for large clients.

Then a month later, North announced the acquisition of CompManagement, another TPA based in Ohio, for $191.5 million. In the announcement of these acquisitions, Sedgwick stated its rather ambitious goal to become a $1 billion company within the next two years.

"We believe there is an appropriate rollup strategy for us as long as we can add to our unique capabilities. I think it is critical that we remain focused on claims and on our clients (in any acquisition strategy)," he says.

He added that claims management operations have not, generally, been the focus of private equity investors, and that may give Sedgwick something of an advantage in the marketplace.

"We won't overpay. Is the investment appropriate considering the potential return?" North says.

As you might expect, part of the culture that North advocates at Sedgwick is an emphasis on "service" in the claims servicing business, especially with a market of very large clients with complex issues.

"Our clients are sophisticated." he says. "They won't overpay for our services, but we are not the lowest price supplier."

Today, Sedgwick's workers' compensation claims remain the largest part of Sedgwick's business, accounting for 43 percent of the new claims it handled last year. Liability claims management services account for 29 percent of new claims, and disability management amounted to 18 percent.

The focus on the very largest clients in the marketplace gives Sedgwick the chance to offer claims solutions specifically designed for each customer. "We must keep current on the best technology for our customers and, at the same time, keep our business processes flexible," North says. "Our job is to build custom solutions that work for our clients."

COMPASS POINTING HOME...

The claims management business is exceedingly people intensive. Winning often lies in the ability of management to motivate its employees.

In this kind of service business, North will quickly tell you that Sedgwick's employees--"colleagues" as he calls them--make the company a success.

"We have achieved a level of success, but there is no silver bullet out when it comes to what we do. We say that to be a leader, you have to execute right all the time."

By and large, Sedgwick has had a good record of keeping its management in place, without some of the turnover levels seen at other firms. But the company is challenged, as are all in the industry, with turnover at the lower ranks. And that can be made more difficult as the company continues to grow. Sedgwick added 2,000 "colleagues" to the work force in 2006.

"Our work force is 73 percent female, 51 percent single and 36 percent minority," North says.

"Values are important in our organization," he continues. "People who work here have outside obligations, like single mothers. We have to consider humanity in our decision-making and we have to listen to our colleagues. That's the secret."

The secret may also be that North is the devoted father of a 6-year-old daughter, and some of his enthusiasm for work and golf might have been tempered by the demands at home.

A large Sedgwick client commends North and the company's attitude toward its people and its training process. "In the process of a claims audit, it's not unusual for mistakes and problems to be discovered. From my experience, it's clear when that happens, Sedgwick is using the incident as an opportunity to learn, rather than an opportunity to blame. I've seen the process in action--and how it's used as a chance to teach and help the employee improve."

North doesn't advocate offshoring claims and adjusting operations to locations outside of the United States. When he was on a panel at last year's National Workers' Compensation and Disability Conference, he vowed that Sedgwick wouldn't offshore these operations despite any advantages that an overseas location may offer.

"We believe that we can find the work force in the United States that has the type of work ethic that we look for from our people," he says--without having to go offshore.

Instead of "offshoring," North says that Sedgwick has a program of "Lakeshoring." Sedgwick scouted the United States for a location in a region that probably had seen job losses for a facility to handle high-frequency, low-severity claims. Demand for those services is increasing, especially as Sedgwick increases its disability and absence management business.

Sedgwick found its first location for its "Lakeshore" model in Dubuque, Iowa, and has opened two facilities there. No jobs or business processes were moved offshore because of this investment. The company is reportedly looking for additional locations.

North also acknowledges that the claims business has not been attracting enough new people to the business. "We actively recruit new college grads, but we also created, three years ago, Sedgwick CMS University. Training for all colleagues throughout the company is developed under the direction of the university. The focus is on career development, developing talent from within to help to replace colleagues who are now nearing retirement."

... AND TO NEW BUSINESS

Sedgwick has its own proprietary claims information system, and North says it's working to harness predictive modeling techniques and claims outcome technology. That experience and skill with the very largest clients, he says, gives them a "unique opportunity to expand beyond our traditional market."

The middle market may become more attractive because "we have the ability to reconfigure our products for the middle market and offer that market a more effective solution to their problems," he says. Especially in the disability management markets, there may be more opportunity among smaller companies.

"We're selling the midmarket now, especially with some of our acquisitions," North says.

"An injured worker is an injured worker," regardless of the employer, he added. "We are all aware of what are the appropriate interventions and the optimal procedures to handle an injury."

The challenge for greater expansion into the market has been to break down some silos and integrate services better. And for small and middle-market customers, the issues are much more personal to them, North says.

North is challenged by all the changes in the industry from managed care, to technology to global demands.

The bottom line for North, however, is fairly simple:

"Our success is that we execute better today than our competition."

JACK ROBERTS is editor in chief of Risk & Insurance®.

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August 1, 2007

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