I’m often asked how to best manage the risk and safety of a community. Like many of you across our great globe, I’d answer with one word – consensus. Consensus requires a mixture of hope, perseverance, courage, and partnership. Risk is about the ebb and flow of partnerships. Its achievement is often hard won and bittersweet, but extremely rewarding when all the planets align.

Our collective greatest resources are our people…our risk family. Let’s talk about the people that assist you in achieving your consensus. They come in all shapes and sizes with a multitude of personality. The composition of your team capitalizes on all its strengths and tries to minimize its weaknesses. Personalities manifest themselves in the idiosyncrasies of individual dress, mannerisms or speech. More often than not, we might agree that the more colorful the attire, the more colorful the personality, right? More importantly, the more colorful the partner, the more imaginative the opportunity for consensus!

Our partners in risk and safety are varied. Each of us brings our education, definition of common sense, upbringing, departmental needs and perception of reality to every risk and safety discussion we have.

Whoever said patience is a virtue missed the opportunity of being a public risk manager for a day. Many people we know may have preconceived notions about risk and the people who manage it. I often hear stories from my contemporaries who think that the public perceives us as ogres, trolls or people with a huge red marker with “NO” tattooed across our foreheads.

How many times have you been introduced by your boss to members of another division or the public and the comeback is “Why I’d never have guessed it was you who made my life miserable…I’ve always pictured you as something different.”

Safety Committees are a wonderful melting pot of reality and the opportunity for the totality of a group to be “different.” They have the capacity to offer sanctuary by embracing the richness of all of the personalities contained within the team, which results in the team coming together to achieve common goals. Embracing the acceptance of our differences and the nuances of our consensus is what makes our committee a macrocosm of the very best of who we all are.

In January, we began a series of blogs focusing on Return to Work (RTW) programs. As we discussed in the previous blog, the people most responsible for the overall success or failure of RTW programs are those in senior management positions. No RTW program can get off of the ground without the support of these executives. While those in senior management are responsible for setting the tone at the top, the supervisors and managers in charge of daily operations are responsible for the day-to-day success or failure of the RTW program.

REASON # 2: PROGRAMS MAY NOT CREATE REWARDS AND INCENTIVES FOR THE PEOPLE MOST RESPONSIBLE FOR ITS SUCCESS.

I once worked for a large global manufacturing company. On one occasion while training our operational personnel on workers’ compensation management, one of the regional managers told me something that I will never forget. He said, “The supervisors make more decisions in a day than I make in a month. It is hard for them to go from the problems related to day-to-day manufacturing to thinking of successful ways to handle workers’ compensation claims. “

Although he may have been exaggerating when he said the floor supervisors made more decisions in a day than he made in a month, I got his point. The supervisors’ primary responsibility is to manufacture as much product as possible, as cost effectively as possible, on a daily basis. They will deal with absent employees, malfunctioning machines, irregular raw materials, and a host of other problems. The introduction of more responsibilities, including figuring out how to fit injured employees on restricted duties into the daily pandemonium of the workplace, can slow production and result in greater cost of goods sold. Furthermore, these RTW duties will require more dedicated time from the supervisor, so long as the employee is on restricted duty.

So how do we make RTW programs a priority for supervisors?

To facilitate a successful RTW program, rewards should be associated with RTW goals when evaluating supervisors’ performances. For example, it would be counterproductive to the RTW program if the supervisor based all rewards and penalties simply on the goal of manufacturing as fast as possible. If the supervisor sets the precedent that workers’ compensation claims costs are too high and reducing employee absences is something that must be addressed, direct workers’ compensation costs and indirect costs will be reduced. As a result, the supervisor should be rewarded for enhancing the RTW program, even if the cost of goods sold increases.

The third blog will address an ongoing problem for RTW programs as well as other leadership programs that are often intended to address short-term goals rather than create a long-term benefit.

Building a “safety culture” in your organization can be challenging and, once successfully established, you might wonder how long will it remain in good working order? Some influences that can alter the safety mindset of your team are changes in management or even changes in your superiors. “TIME” is also a huge factor in the stabilization of your organization’s safety culture. Safety improvements will only last so long until the unforeseen hazards reveal themselves. Let’s face it; we live in an ever-changing world where organizations have to adapt in order to run concurrently with safety regulations.

Currently in my organization, the safety culture has become a little bit stagnate in some of my departments. Due to this so-called “dry spell”, I plan to reboot it. It is important to think about what factors will need to be considered when rebooting your safety culture. What do the employees in your organization believe about your mission and vision statement? What departments are the most challenging to get in front of? What resources are available to you and your organization to help spread the safety message? What support is needed to be successful? Lastly, what is the best way to communicate with your team? All of these questions will need to be answered if you want to reboot your safety culture successfully.

“Family” is a word I would use to describe an organization that has a successful working safety culture. Think about it; many people spend more time at work then they actually do at home with their real families. With that said, your organization should treat their employees like family and have an open and welcoming environment. Being excited to see your work family will boost the morale in your organization and happy employees miss less days of work, are more productive, and take more pride in their work. This is definitely how I want my employees to feel when they come to work in my organization.

Communication is one of the strongest tools an organization can have. Keeping your employees abreast of loss trends, updated safety info, and trainings will help reduce the likelihood of them being injured. On top of that, creating an open two-way communication, with all employees, will only increase employee job satisfaction. Knowing that an employee can have their opinion heard goes a long way in any environment.

Leadership buy-in will be one of the most crucial key components, as without it, any ideas will fade and disappear. Leaders who believe in what they preach will be supported and will build the buy-in of their employees. Having all employees on the same mindset about the importance of safety creates a successful safety culture. A successfully operating safety culture will then become the norm or, as the saying goes, “the way we do things around here”.

With all that said on rebooting your safety culture, I have identified the departments that I will be working with in my organization and have already achieved support from leadership. I plan to create a 10-15 minute webcast that I can share with all employees in these departments. I chose this communication style, as these groups are the hardest to get together for in person batch trainings. I will share facts about each group’s loss trends along with a solution that reflects our organization’s mission and vision statement. I also encourage you to comment on challenges you’re facing or successes you are celebrating in your organization. Until next time…

Running a successful Return to Work Program (RTW) is hard work. However, it is critical to reduce workers’ compensation claims costs. I have worked with public entities with superior RTW programs while simultaneously working with other public entities who said they couldn’t set them up. These were sometimes public entities with similar operations and employee characteristics with widely varying attitudes and outcomes.

If RTW programs are beneficial, then why aren’t more public entities using them? There are three primary reasons why many Return to Work programs are not successful, the first of which will be discussed in this blog. The three reasons are:

1. The leaders who can make it happen are not willing to lead,
2. The program lacks incentives and rewards for the people most responsible for its success, and
3. It is treated as a “shiny object” program rather than a behavior change.

REASON # 1: THE LEADERS WHO CAN MAKE IT HAPPEN ARE NOT WILLING TO LEAD

To avoid RTW program failures, leaders must be willing to make the hard decisions and require the hard work needed.

Why wouldn't they make the hard decisions? Some will say:

• “We won’t save that much.”
• “Our jobs or circumstances are different / too strenuous.”
• “Our supervisors don’t have time for this.”
• “The doctors won’t go along with it.”
• “Human Resources doesn’t think we can do it.”
• “The unions won’t allow it.”
• “We don’t have the people or expertise required.”
• “Our claims people/TPA should already be doing this.”

While it is safe to say that a Return to Work program cannot eliminate all lost time (LT) claims payments, the Pareto principal, also sometimes referred to as the 80/20 rule, applies in workers’ compensation also. In my experience, 15 to 25% of the claims will generate 80%, 85%, 90% or even more of the claims costs. The following pie charts display this data:

If you sort your claims by highest total incurred cost, you will probably see that the most costly claims are not those that had the most severe injuries, although these obviously can be very costly, but those in which the employees’ time off from work has continued on and on. If these costs are allowed to linger, then the current and subsequent budget years will have a growing layer of costs on top of new claims costs that must be budgeted and funded into the future.

This data will clearly show that you need a RTW program. When this is understood, senior management must work on understanding and overcoming the typical objections mentioned earlier and utilize creativity to unearth solutions. Senior management, once it is willing to lead, will then realize that many of these objections are simply barriers erected by people who do not understand the importance of addressing this issue or who are reluctant to change the status quo.

We all work hardest on the things that will benefit us, so Part 2 will focus on the benefits to different people and departments that will help drive success.

The physical and emotional well-being of employees is of vital importance to the success of K-12 schools, but the challenge of keeping school staff safe from harm is becoming more and more complex. As a result of rising grievances, the costs of Workers’ Compensation (WC) claims are sky rocketing. Rising claims and rising costs are the curse of school administrators who continually look for ways to reduce the probability of injuries happening on their campuses, and it’s also why risk managers embrace the saying – “the best Workers’ Comp claims are the ones that never happen.”

Making sure that claims never happen depends on any number of factors ranging from reducing hazards to surveillance videos to effective training and, according to the AMAXX Workers’ Comp Resource Center, “unsafe acts” contribute significantly to WC claims. In K-12 schools, those unsafe acts most often involve teachers intervening in student altercations or student attacks directly against teachers.

In a July 2015 U.S. Department of Education report addressing teacher victimization by students, the department cited more than $2 billion lost annually and lost work days approaching one million.

In a recent Risk & Insurance article, author David Godkin noted that “physical contact between students and teachers in one Minnesota school district had tripled over the past five years… and that 8 of 10 teachers nationwide report being victimized by students at least once in a school year.”

After nearly 20 years working with schools on climate improvement, Community Matters knows unequivocally that the most effective way to reduce school violence, including staff injuries, is by creating a culture of respect where the nurturing of positive staff-student relationships is of paramount focus, therefore minimizing unsafe acts.

The good news is that there is increased recognition among administrators nation-wide of the value, benefits and effectiveness of implementing school climate improvement plans. The current trends, research and legislation all highlight and promote the importance of school climate as a primary cornerstone and driver for improving safety and discipline resulting in the reduction of undesirable student behaviors that can lead to injuries.

So Where to Begin?

We know we can’t legislate civility nor can we punish children into being less violent. The only viable solution to the spread of students’ aggression towards teachers and peers is to change the social norms that allow it to occur. When school norms change from meanness and indifference to kindness, compassion and respect, that’s when vandalism, altercations, retaliations and other risk-related incidents go down.

Given our experience in providing support, training and consultation to more than 1,600 schools across the country, Community Matters has found the following to be the best practices leading to successful climate improvement and risk reduction:

• Successful teachers and staff are those who put relationships first – taking the extra time to greet students by name, offering a kind word or smile, being “hall-friendly” and cultivating authentic connections with students. These actions pay off in students developing a stronger sense of belonging, less negative reactivity towards teachers, reduction in staff time spent on discipline and more time for teaching and learning.
• Increasing student voice and utilizing a peer to peer role-modeling approach is the quickest, most cost efficient and effective way to change the social norms on campus and reduce bullying, fights and resultant teacher injuries. By identifying and training the socially-influential leaders in each of the campus cliques to set an example of courage and compassion in their words and actions towards others, over time the social acceptability of such negative behaviors can be eradicated.
• Discipline needs to be focused on restoration rather than punishment – restorative practices include powerful tools and strategies that maintain connection, restore relationships, repair hurt and ultimately reduce altercations; disagreements can also be diffused well before they get to the point of a physical exchange when restorative practices are used effectively.
• It takes strong organizational leadership to change the culture and climate of a school. Discipline procedures and practices are effective when all key stakeholders, from the administration and school board to the students, parents and staff, are included in the development and implementation of behavioral policies. If we want our students to be compassionate, respectful of differences and courageous enough to intervene, we must find our own courage first – the shift starts at the top.
• Educational leaders, from school boards and superintendents to building administrators, must be willing to make an honest and comprehensive climate assessment of their school’s strengths, weaknesses, gaps and opportunities for improvement. Starting with a “deep dive” analysis will go a long way in ensuring that school climate improvement planning is built on accurate data and leads to measureable and sustainable results.

In the end, transforming school climate is the only real solution to engendering employee risk reduction and stemming the tide of spiraling claims. We take heart in knowing that shifts are taking place and that many schools are committed to school climate transformation. While there is still much work to be done, more and more schools are taking positive actions to ensure that students can attend schools where they feel welcome, safe, connected, and where the consequences and costs of Workers’ Comp claims are vastly reduced.

In workers’ compensation claims, the main objective for an employer is to return injured employees to work as quickly and safely as possible within their functional limitations through transitional work. Stay at Work (SAW) programs allow this to happen.

For the employer, states offer financial incentives to facilitate transitional duty by reimbursing part of the employee’s salary. For the employee, SAW programs enhance self-esteem and promote healing. These medical best practice programs help workers with on-the-job injuries recover faster and for employers to maintain skilled, injured workers in a difficult job market and reduce workers’ comp premium costs.

Offering a physician-approved transitional duty position can improve the employee’s life as well as the company’s bottom line along with enhancing employee morale in the workplace. SAW programs allow the employer to retain a valued employee, thereby, not incurring recruitment and new-hire training costs. Such initiatives are designed to keep the injured worker connected to the workplace, allowing him to maintain a productive mindset as well as avoiding dependence on a disability system. SAW programs provide a sense of security and stability for the employee and the employer.

Getting Everyone On Board

Transitional duty can consist of any temporary change in work tasks or functions. Modified workstations and equipment allow injured workers to perform work functions while recovering from an injury, and reduced time/work schedules and providing different jobs are examples of actions employers may take to facilitate the return of an injured worker to the workplace. Successful SAW programs significantly reduce the duration of injury absences from 15 weeks to 3-4 weeks.

Of course, to be successful, these initiatives require “buy in” from all parties. An SAW program benefits the employer financially by:

• anticipating and controlling hidden costs
• reducing financial impact of workplace injuries
• providing a proactive approach to cost containment
• improving the company’s ability to manage an injury claim and any restrictions
• getting experienced employees back to work, resulting in less time and money spent on recruiting and hiring

Research tells us that SAW programs result in a significant early return to work, helping to prevent long-term disability and improve the likelihood of the employee continuing to work once released to full duty (also known as sustainable RTW).

It should be no surprise that a simple workers’ compensation case may result in expensive litigation if not handled correctly. Well-executed SAW programs will provide clear expectations and guidelines for employees injured on the job and have proven to reduce litigation. Employees feel valued, and providing a well-documented program shows prospective insurance companies that the employer takes risk management seriously.

Easy to Establish

Establishing a SAW policy is not difficult. Clear guidelines and specific, consistent policies must be established in writing. A payroll gatekeeper is a must if the injured worker will receive partial compensation for hours worked. There is usually a cap on the SAW eligibility of 90 days. This typically gives the injured employee ample time to be released to full duty. All parties involved in the program need to be educated as to how it works and why it is important to adhere to the guidelines.

Statistics show employers who make these programs available are highly effective at reducing the duration of absence associated with work-related injuries, with an average 3.6-week reduction in the median time away from work. For workers with a permanent disability, SAW programs reduce the median number of weeks out of work by 12.6 weeks.

The topics of cyber risk and cyber security have been around for a while, but wrapping our heads around these topics seems to be something with which many of us public risk management professionals struggle. As chair of PRIMA’s External Affairs Committee, cyber risks and security are topics that we have been discussing for more than a year, and still strive to define.

While the following may not provide answers to the bigger questions regarding cyber security, hopefully, it will help us to wrap our collective heads around the potential exposures. First, let’s look at some definitions.

Cyber Risk – any risk of financial loss, disruption, or damage to the reputation of an organization from some sort of failure of its information technology system. (1)
Cyber Security – protection of computers, networks, programs and data from unintended or unauthorized access, change, or destruction.

Next, what are some of the risks to our cyber security? Again, the list is evolving, but below are some of the more common exposures that may pose a threat.

• Loss of hardware through theft or accidental loss – think of this as the physical loss of any device with sensitive information, including laptops, tablets, cell phones, and hard drives.
• Misuse of data by employees or other insiders – could be anyone with access to data who might use or exploit private information for personal gain.
• Web application attacks – a category which may include defacing a website, additions of spam or a malicious code, theft of account and database information, and access to classified content.
• Phishing – any activity that attempts to gain sensitive information by posing as a legitimate site. Phishing efforts may ask for specific information or may contain links to malicious software (which is often referred to as pharming).
• Dedicated Denial of Service (DDOS) attacks – an activity where multiple systems, sometimes hundreds or thousands, target a website or system causing a slowing or complete shutdown of the website or system.
• Cyber extortion – any kind of attack where a ransom is demanded before the assault is disengaged.
  Point-of-sale (POS) attacks – an effort to gain credit card data through data skimming (installation of hardware to a point of sale terminal), malware (exploits the gap(s) in security while credit card data is being processed), and even the cloning of cards or their data.
• Payment card skimming – a form of POS attack method where a small device is installed on a credit card reader to scan and store data from the magnetic strip.
• Viruses – programs from other infected computers, data medium (CD, DVD, etc.) or through a network which replicates itself and can infect other computers or device in a network.
• Worms – programs which copy themselves across a network or computer program

Recognizing and identifying the various types of cyber risks that threaten the security of our entities is just the beginning of the process. From here, the risk management process of assessment, development and evaluation of a plan, implementation of risk management actions, and monitoring the results is crucial.

You get a call from the chief of police about using a drone in his department. They are excited about the many uses in law enforcement, such as surveillance on rooftops where snipers may be or have been, traffic accident investigations where there is a big traffic jam, and various other things. He asks what they need to do to start operating; they can buy one online with fancy cameras for only a few hundred dollars.

Naturally you contact your legal department about this. It is doubtful whether any of the attorneys within the department are involved with aviation law, but they can search on Google and the Federal Aviation Authority (FAA) website (www.faa.gov) to find information. The attorney shares that since this drone (classified by the FAA as a “small unmanned aircraft system (sUAS)” is considered a public aircraft, the new FAA Part 107 regulations that have been publicized in the media do not apply to your city or any government. Therefore, you have to seek what is known as a Certificate of Waiver or Authorization (COW) to operate the drone, which exempts you from the Federal Aviation Regulations (FAR) for operation of an aircraft. Note that the drone is defined as an “aircraft” under recent interpretations by the National Transportation Safety Board (NTSB) and FAA.

The application process begins with a “declaration letter” from your solicitor, which certifies that you are in fact a public entity, as defined by federal law. This is sent to the FAA, and you must be accepted by the FAA as a public entity before proceeding further. The letter must highlight that the drone will not be used for commercial purposes, such as monitoring a public works construction project.

Next, you must register the drone with the FAA, with the necessary application, purchase documentation, and manufacturer, model and serial number information. This can be done online or by mail to the FAA. After this is complete, there is an online process of applying for the COA with the FAA. Details are required concerning the maintenance of the sUAS, its area of operations, its mission, safety and risk control details, such as recovery due to battery failure or communication failures.

Additionally, the person who will serve as pilot of the drone needs training and certification as a remote pilot, which involves classroom or online training and completion of a test. If the individual is already a private pilot, recreational pilot or sport pilot that will suffice. In a later blog, I will explore the tort liability and insurance issues associated with operation of a drone.

In last week’s PRIMA Blog, we explored unallocated expenses. In this blog, we will discuss allocated expenses. According to IRMI, allocated expenses (ALAE) are defined as loss adjustment expenses that are assignable or allocable to specific claims. Fees paid to outside attorneys, experts, and investigators used to defend claims are examples of ALAE. Municipalities typically entrust their TPAs to select vendors as needed to administer the claims. One common example of an allocated expense is bill review, which is used to reprice medical bills to fee schedule. Many TPAs use bill review as an additional source of revenue.

Example: Bill Review (ALAE)

Assumptions

• 1000 claims: 250 LT; 750 MO
• 10 invoices per LT claim; 3 invoices per MO claim
• 45% savings
• Average fee per bill: LT = $600; MO = $300

TPA 1                         TPA 2

Rates                                                      20% savings                $8.50/bill

•Invoices                                                N/A                            4,750

•Medical Paid                                         $2,175,000                N/A

Bill Review Fee                                        $195,750                   $40,375

Total Fee                                                $542,000                   $652,375

Now comparing the two TPAs, TPA 1 still has an advantage (albeit much smaller); but that is not all. Many TPAs have also hired their own nurses to perform telephonic case management and utilization review. This has also become an important source of revenue for TPAs. While some TPAs do a very good job in the managed care sector, oftentimes the emphasis is on the revenue leading to an overutilization of managed care services.

Example: Telephonic Case Management (ALAE)

   TPA 1                         TPA2

Counts                                                  1,000                         1,000

• Lost Time                                           250                            440

• Medical Only                                      750                            560

Rates                                                     $ 85/hr                      $200/mo

• Utilization (LT)                                   50%                            25%

• Utilization (MO)                                  5%                             5%

• Duration

–LT                                                      8 hrs/mo (3 mos)       3 months

–MO                                                     2 hrs/mo (1 mo)        1 month

• Total Telephonic Case Management  $261,460                   $71,600

Total Fees                                             $803,460                   $723,975

Once all costs have been identified and defined, TPA2 has become the best choice for the municipality. The entity must remain ever diligent in making sure that all business partners comply with established service and financial standards. Reporting mechanisms must be in place until a level of trust has been established. Even then, as President Reagan stated so succinctly, “trust, but verify”.

What Can You Do About It?  

Demand full disclosure. Insist that all pricing – allocated and unallocated – remain fully transparent.  Retain the opportunity to contract with vendors directly. Make sure allocated expenses as a percent of total paid fall below 10% (typically 5-8%). Pay your TPA a fair fee up front, preferably a flat, fixed fee. Audit all business partners frequently by a disinterested third party. And, most importantly, develop a relationship with your business partners. These are integral factors that will determine the success of your workers’ compensation program. All are entrusted with the care of a very valuable asset – your employees.

When a self-insured entity hires a TPA to manage their claims program, the entity, in essence, hands their checkbook (and a high degree of trust) over to the TPA. The TPA is also given the authority to hire other vendors necessary to administer the claim. Make sure they have your best interests at heart and do not forget to “trust but verify”.

You have just concluded a rigorous request for proposal (RFP) process and selected a third party administrator (TPA) at a very good price, or so you thought. At the end of the three-year agreement, your average cost per claim is still increasing at a steady rate. But you have just negotiated a hefty reduction in the fee per claim you are paying. The medical network, utilization review and pharmacy vendors are all showing much-improved savings. At the end of the day, your experience modification (e-mod) has not improved and still remains at an unacceptable level. Average costs per claim are actually increasing. Does this sound familiar?

The industry, using the RFP and spreadsheets, has done a good job of holding unallocated expenses steady over the past 15 years. As a result, the claims fee now covers approximately 60% of a TPA’s expenses, such as investments in technology, and the overall rise in expenses (e.g. benefits) facing businesses today. Therefore, it might make financial sense for your entity to self-insure and hire a TPA. The first step towards getting a good deal is developing an understanding of allocated vs. unallocated expenses. Unallocated expenses (according to IRMI) are defined as all external, internal, and administrative claims handling expenses, including determination of coverage, that are not included in allocated loss adjustment expenses (ALAE). In a typical TPA contract, the most common unallocated expenses are claim fees, though administration and system fees are common as well.

Example: In a typical TPA contract, ULAE =

• TPA 1 WC Claim Fee
  • Indemnity = $995
  • Medical Only = $130
• TPA 2 WC Claim Fee
  • Indemnity = $1200
  • Medical Only = $150

As you can see, there is a big difference between the fee charged for an indemnity claim versus a medical only claim. Therefore, to make sure that you are paying the proper fee, entities need to ensure that the TPA follows the industry definition of indemnity and medical only claims. Many TPAs will use a liberal definition to classify a higher portion of claims as indemnity, resulting in a higher overall fee. For example, the statutory definition of an indemnity claim is a claim that has incurred or paid (on closed claims) indemnity or legal costs; the file will be charged as a lost time claim. All other claims should be charged as medical only. However, some TPAs will classify a medical claim as an indemnity claim if, indemnity is paid or incurred, or if a claim incurs only medical charges but remains open for more than 90 days, or if medical charges exceed a certain dollar amount (e.g. $2500).

When reviewing RFP responses, looking at two TPAs, one that follows the statutory definition (TPA 1) and another that follows the more liberal definition (TPA 2), how might this impact the bottom line?

         TPA 1            Rate              TPA 2             Rate

Claim Counts                1,000                                 1,000

• Indemnity                              250                $995            440                $1,200

• Medical Only                         750                $130            560                 $150

         Cost

• Indemnity                             $248,750                            $528,000

• Medical Only                         $97,500                             $84,000

         Total                               $346,250                           $612,000

As you can see, the results can be dramatic. The savvy consultant you hired to lead the RFP selection process has done a good job of pointing out the potential pitfalls. Your spreadsheet will clearly indicate that TPA 1 is your best choice. We will peel back the onion by looking at allocated expenses in my next blog post.