Did you ever wonder if sometimes you might be assuming too much about too many things? My experience as a long-term corporate risk leader for numerous major companies tells me that sometimes I gave short shrift (and relied inappropriately on dated assumptions) to worker's comp exposure, most particularly when the cost of risk in that area was declining.
It's a bit too easy to rest on one's laurels when things are going well. The problem is that it can -- and often does -- lead to doing the same when results are moving in the opposite direction. Allowing this to persist can undermine even a robust workers' comp risk control strategy and can add to the increased personal risk that declining performance exacerbates. The implicated dated assumption here? That workers' comp is so mundane and the regulatory mechanism so complicated and confusing, that the risk control strategy and the annual renewal ritual of the related insurance arrangements becomes perfunctory. I'm not sure anything that becomes perfunctory is a good thing, least of all the all-too-important goal of taking care of employees when they get injured on the job.
In a recent conversation with a senior risk leader about risk strategy, he expressed concern that the risk financing decisions made for his company's workers' comp exposure might not be optimal, especially given the shift in exposure magnitude from indemnity to medical. In particular, he was concerned that the decision to self-insure versus a large deductible had been made by his predecessor's predecessor, and he wasn't convinced that the decisions of the past were holding up in the present. However, he wasn't yet in a position to make a change, because he was finding it a challenge getting his broker to provide a comprehensive cost-benefit analysis of different financing options.
You might say this is a "no brainer" and that every risk manager should be reassessing his or her strategic risk financing decisions with some regularity. A broker not doing their job is actually no excuse; both true. This risk manager's situation was a function of a lack of available resources (people and time) internally, to conduct this analysis. His inability to find a good external source of assistance was the further complication.
Regardless of the reasons, it seems to me that we too often operate on dated assumptions about many things, to our detriment. In today's fast-changing world, nothing stays the same very long, even workers' comp risk financing and control strategies. In fact, I would argue that too often workers' comp strategies are set and infrequently revisited for contemporary relevance and impact. After all, isn't "the system" over 100 years old, archaic and inefficient to the point of being beyond redemption? I don't think so; as selected states have shown, there are new and better ways to handle this exposure.
In addition, many risk management departments have been severely affected by resource cuts and have increasing difficulty getting the job done well, as a result. While brokers and consultants have typically been the fallback for support, those sources are themselves affected by resource restrictions and budget limitations that often don't support "discretionary" activity. With this being the present reality, unlikely to change much in the foreseeable future, the attention to core strategic risk decisions and their current relevancy must be a priority. That would include moving this out of the discretionary category, especially in the eyes of your key stakeholders.
Certainly in this example, the risk manager can get along with a sub-optimized workers' comp risk financing decision that may not even be noticed. However, the long-term impact of such decisions can be cumulatively significant. As a result, we need to make sure we understand and still agree with the underlying assumptions made often by predecessors, for all matters that are the current priorities. Of course, making clear what those current priorities are is the lynchpin to this clarity of understanding about assumptions.
So you might ask: "What's this got to do with 'Next Level' workers' comp?" Well, I just believe that despite the attention the tactical may get, strategic workers' comp planning and execution are often given insufficient attention and are negatively affected by too many dated assumptions. Assumptions made in the past about workers' comp strategy, even the distant past, may still be relevant and appropriate, but they must be periodically revisited and assessed for current relevancy and appropriateness to remain aligned with current corporate culture and priorities. While it may not be easy to find the necessary resources to conduct these reassessments, with a clear understanding and articulation of the downside implications of not completing these reviews, risk managers can stay ahead of this exposure which is constantly evolving with increasing opportunity for meaningful interventions enabling improvement in results we all desire.
CHRIS MANDEL is senior vice president, strategic solutions for Sedgwick. He is a long-term risk management leader and a former president of the Risk and Insurance Management Society Inc. He can be reached at
September 10, 2013
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