The aftermath of 9/11 was the worst occupational disaster in America since the use of asbestos.

Published 10/15/06 in Risk & Insurance Magazine

Many of the 40,000 World Trade Center ground zero rescue and cleanup workers are at risk of serious health problems and disability from what they inhaled on-site. Why? Because this is a case of how America responds to local disasters: writing a playbook and ignoring it with maddening inconsistency.

This style may be beneficial to some, but it is fatal to others.

Much of my summer reading was about Chicago in 1871, San Francisco in 1906, New York in 2001 and New Orleans in 2005, and it is remarkable how local economies, after being clobbered, recover and grow beyond their predisaster levels.

This renewal can be largely attributed to the agility of the private sector in exploiting changes in land. This happens, to the chagrin of urban planners at the time, without regard to grand designs. In the case of downtown Manhattan, it began in 2002.

But improvising when rescue efforts demand instant response on a massive scale creates more risks to rescuers. Many public-safety workers' deaths from the tower collapses were due to communication failures, for which former New York Mayor Rudolph Giuliani has been given a free pass. His rescue planning was flawed — fatally so.

After the last living person was extricated from the wreckage, there was time to think coolly. But instructions in the safety playbook were ignored. I asked a construction safety professional who worked at the site about this. He told me with exasperation to get real. Men and women were searching for the remains of family, friends, sons and daughters, brothers and sisters. They would not be torn from this labor of rescue. This was the front line of war.

So, what wasn't followed from the playbook on work safety? Those in charge might not have immediately stripped OSHA's authority over the site. They might have closed the site to let the dust settle for a while. Those who began work after a few weeks show much less lung impairment than those who began working earlier.

Leaders might have screened out workers who smoked or who suffered from pre-existing respiratory problems. They might have imposed mandatory monitoring of workers during their time at ground zero.

Neither the government nor insurers paid for systematic voluntary monitoring. This would have tracked telltale changes in worker conditions.

Insurers were not required to pool their claims data despite plenty of money for it. While Gov. George Pataki wrestled for control over the commemorative site, his workers' comp agency sat on millions from Washington for these initiatives.

By now, you've likely heard that Mt. Sinai Hospital in New York City reported that 70 percent of workers voluntarily tested there showed respiratory systems in worse condition. About 20 percent showed very reduced lung capacity.

A single low score does not prove a disabling or fatal disease. Nor does it mean we cannot perform our chosen work. We are born with more lung capacity than we need. Still, worker advocates have been quick to wave the report like a bloody rag, in part because of their distrust of regulators.

I asked Gary Greenberg, an occupational medicine physician, what he would with the Mt. Sinai report. He told me he would first focus on workers with the worst lung exposure history prior to Sept. 11, 2001. These workers are most at risk of some form of pneumoconiosis, or miner's lung. Five years after Sept. 11, there is still no enforceable program for obtaining these tests.

Thousands of public-safety workers have been killed or injured from Sept. 11, and I'm afraid the trust-building task of learning from this will now be hidden behind in a cloud of litigation.

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In this column, I talk with experts on how to prevent a surge of claims when laying off workers.

How to manage layoff risk.
Published in Risk & Insurance Magazine, July 2009.

Labor Finders International is the granddaddy of day labor temporary staffing companies. Florida and California are its two largest markets. Its workers earn $10 to $13 an hour. In the best of times, the firm employed close to 200,000 workers. Now its workforce is down to under 100,000. I contacted them to find out if they have experienced a rise in workers compensation claims due to its turnover in recent months.

The company hasn’t, at least due in part to controls it has had in place for some time to control for layoff-induced claims.

And here a number of us (not me, I am vain enough to say) has been worry worts over the danger that when workers are laid off they have a greater propensity to file claims.

Wayne Salen is the risk manager of the Palm Beach Gardens, FL, company. He told me, “We have a 'best practice' that involves signing in and out each day. That signature confirms whether or not they were injured or had an incident that might warrant any medical treatment.”

“We've not had any problems with post-employment filings since we can go back to the date of alleged injury and find their signatures attesting to no injury or illness following that day at work with our customer. We bring the collaboration with our customer to bear as to witnesses and with site supervisor in charge of our temp placements.”

Salen says that the temp staffing industry, having been around for years, have long since learned how to control for this risk.

In search of further insights on how employers should manage in a time of layoffs, I contacted Kevin Foy, who is a Baltimore-based lawyer and principal in CompResponse, which advises insured employers on injury prevention, managing claims and keeping their insurers’ feet to the fire. Many clients are in the highly volatile construction industry.

Foy said the employer should do everything it can to encourage its workers to immediately file unemployment claims, “in fact, perhaps drive the employees down to the unemployment office.”

When filing for unemployment benefits, the worker usually has to say he is ready, willing and able to work. Foy, putting his lawyer’s hat on says that “This gets the worker to honestly answer those questions, usually under penalty of perjury that is in the fine print, before a lawyer teaches him to create an injury. The unemployment statements can be used, on the merits and for impeachment purposes, to defend against the comp claim.”
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And this: “A exit questionnaire where the worker states he has not had any work related injury might be helpful. The employer should have its legal counsel review it for legal advice before implementation.”

None of the above, Foy avows, can provide a guarantee that any claims without merit will not be approved by a judge.

Harry Shuford, the chief economist for NCCI, says flatly that “the conventional wisdom is wrong” – claims do not surge during recessions. He found that in six of the last seven recessions, workplace injury rates fell. In five of six expansions, they rose. “There is every reason to believe that this [recession induced] downward pressure will be observed in the current economic downturn.”

Have we hammered enough nails into this coffin?

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I identify the three most costly errors in treating injured workers.

Fixing comp by fixing errors

Published in the June, 2007 issue of Risk & Insurance

For four years, the time I have been writing this column, I have failed to address head-on a problem right at the heart of managing workers comp claims. The problem is the high error rate in decision-making involving medical professionals.

Some errors are made by doctors alone. Others implicate adjusters and employers. I have been long convinced that to control workers claims, we need to reduce these errors.

That’s because conventional workers compensation claims practice tacitly accepts a very high error rate. Superior practice aims, often without being fully aware of it, to reduce error rates. Setting up initial care networks using occupational medicine clinics is an implicit error-reducing strategy.

These errors are directly responsible for half the workers compensation claims costs in America. Out of a stack of large claims, you can pick out how half should have been small claims. There errors are far more costly than most mistakes by individual adjusters. Yet claims audits routinely overlook them.

Hardly anyone tries to keep track of the frequency of errors. One person who has paid attention is Bruce Sundquist, of Munich Re America. He is by training a chemical engineer. Maybe we need more engineers in our field.

We can in fact reduce three types of errors.

The first error type is technical mistakes in diagnosis and treatment. These happen when clinicians do not keep up with medical advances, or are distracted, or don’t collaborate well when several specialties are brought in. We lay people recoil from the reality that serious mistakes occur often. But this is the nature of today’s rapidly changing, extremely specialized medicine.

One of the most frequent serious technical mistakes is what is called poor patient selection. Will this particular patient benefit or be harmed by spinal fusion, or pain treatment?

Prudently assume that well over half of your claimants with surgery have been harmed by technical errors. Audit your files to find them. Then, with an eye to when and how these errors come into the claim, refine your use of case management, second opinions and peer consults. Utilization review fails to control this problem.

Clinicians usually listen to the right messenger. Lynne Rosen of Best Doctors estimates that only about one in ten claimants need to change provider. She says that consultation works more often than assumed.

The second error type is vocational mis-counseling with the patient. Every time a surgeon discusses possible operations with an injured worker, that patient has a largely incoherent but momentous interior dialog about her or his work future.

We do not pay or train clinicians to prompt or steer the patient’s thinking in constructive directions. The chances of the average clinician making an error, simply by doing nothing, approach 100%.

Find clinicians who have a gift for counseling. They often self-select into occupational medicine. Pay them appropriately. Train them along continuing education pathways.

The third error type flits through the other types errors but deserves it own label: co-morbidity misadventures. The majority of high cost claims involve organic (such as heart conditions) or psychological (such as depression) problems along with the primary diagnosis. Don’t ignore or dispel the co-morbidity: it’s part of the patient.

Co-morbidities crush coping capacity and sharply reduce recovery odds. They cause very high healthcare use. Their negative effect on disability builds over time, but can be forestalled. An error in managing co-morbidities is really a failure in orchestration among parties. The doctor is there; so is the work supervisor.

If we focus on controlling these three error types, we can avoid the paralyzing cynicism that indicts doctors as irresponsible and workers as malingers. Quantify. Learn the error rates, then act. One insurer has cut its loss ratio by ten points this way – phenomenal.

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the letters in the word PADRE designate the five key dimensions of superior injury management.

PADRE for superior injury management results

This article appeared in the January 2005 issue of Risk & insurance Magazine.

I hope you like snappy mnemonics as I am about to share one with you. A few years ago, I searched about for a simple means to summarize key tasks in injury prevention and recovery. I stubbed my mental toe upon the word "PADRE,"–meaning father in Spanish.

Each letter stands for the following tasks: prevention, avoidance, duration, relapse and economics. Each task comes with one or more methods to measure performance. PADRE has helped me. Perhaps it can help you.

P stands for prevention. We track injuries using OSHA standards of measuring the number of injuries per 100 full-time equivalent workers. We might be better served by peeling away further layers of prevention, to measure near-misses, discomfort and other phenomena which precede injuries. How many injuries could we prevent by delving into the root causes of complaints or minor mishaps? A is for avoidance of lost time. By lost time, I mean at least one work shift missed completely. Train your eye on the ratio of nonlost time injuries to total injuries. Some doctors think they can treat the vast majority of injuries among many workforces without workers missing a single shift. Improvement might require tighter worksite response, prompter treatment, and easier access to temporary work assignments.

Next is D, for duration of lost time. If you wish to track this for a population of injuries, you need to think how you want to measure D and set improvement targets. Beware of the inclination to measure average duration of lost time, for this may be impractical. We would then have to wait for all injuries to come to closure, which may take months or years, and then horribly skew the average.

Instead, think of calculating the share of all lost-time injuries that return to work within 30, 60, 90 and 180 calendar days. You can then aim to increase the return-to-work rate at 30 days, from say 70 percent to 85 percent.

Tracking duration of lost time by milestones has become a lot easier as risk management information systems acquire the power to do these calculations routinely. We are now at PAD. Two letters remain.

R stands for relapses, summed as the portion of cases that first return to work from lost time, then relapse back into disability. As with P, you want to obtain the lowest possible rate. We must first define the span of days after initial return to work within which return to disabled status is properly a relapse; and beyond which is a fresh injury. Although there is no set standard, the demarcation point appears to fall around the 30-day mark, and in any event no later than 90 days.

E, the last letter, stands for economic outcome of the entire prevention and injury recovery program. Steve Levine, the risk manager of Wild Oats, the retail food chain, pointed out to me that E comes in two parts. First, the worker. Is she made whole? Did she return to her preinjury income? Some large-scale studies of wage income after seeming recovery from injury show that many workers experience a decline of 10 percent or more in income. Second, the employer. What is the employer's economic gain in terms of ROI of prevention and injury management?

For the overall integrity of the workers' comp program, we need to apply the right methods to analyze both worker and employer economics, in fact each element of PADRE. This math can be difficult. Not only do we, but our colleagues also, need to understand the trends; which leads me of another word: LEADERSHIP.

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I examine the insurance cycle of the 1990s - early 2000s for lessons about how the cycle happens, and how to avoid the worst consequences.

A version of this article appeared in Risk & Insurance Magazine

The workers compensation market goes from boom to bust in cycles. Why, and how, do they happen?

Let’s start with case studies of two insurers. One collapsed from addiction to fatal management habits during the soft part of the cycle. A second, and wiser, insurer, avoided that fate and is now one of the great success stories among workers compensation insurers.

Following these case studies we will explain how the cycle works, using a compressed model of the soft market for workers compensation which started in about 1993 and ended in 2001. Finally, we will ponder briefly what causes executives to avoid taking corrective action when disaster appears on the horizon.

The table below tracks this cycle:

Workers Compensation Payments for Benefits and Medical Care and Employer Costs per $100 of Wages, 1989-2003

Premium benefits and medical
paid care paid
1992 $2.10 ................$1.68
1993 2.16 ................. 1.61
1994 2.05 ................. 1.51
1995 1.82 ................. 1.36
1996 1.66 ................. 1.26
1997 1.49 ................. 1.18
1998 1.38 ................. 1.11
1999 1.33 ................. 1.10
2000 1.32 ................. 1.04
2001 1.42 ................. 1.07
2002 1.59 ................. 1.15
2003 1.71 ................. 1.16

Source: John Burton, Workers' Compensation: Benefits, Coverage, and Costs, 2003, National Academy of Social Insurance, published 2005

Kemper: soft market fatality

Kemper Insurance once a respected and large workers comp mutual insurer, lost everything of value in under ten years. Its missteps are an extreme example of the entire market’s deterioration during the cycle’s soft phase.

In the mid 1990s top management hatched a scheme to shed its non-insurance business, dump some existing insurance lines (but keep workers comp), and grow into a specialty line powerhouse. It aimed in a few years to de-mutualize and sell stock on Wall Street. Some complicated reorganizations ensued. An AIG executive was brought on, with other big paycheck people, their incentives keyed to the company going public. The mantra soon became fast top line growth in new lines of insurance. The executive team launched over 20 new operating units, many in long tailed lines of insurance. It brought in hundreds of millions in new business almost overnight.

“You could only do that through inappropriate pricing”, noted a former Kemper executive. But, as another former executive told me, “the aroma of the premiums outweighed the stench of the losses.” The hazards of rapidly growing a large basket of long tail insurance often from nothing include the absence of actuarial history. A revealing term was used within Kemper to describe loose controls – the company “shot out all the lights.”

It wrote $3.7 billion in premium in 1997. With price discounting and changes in products, its writings slipped thereafter towards $2.5 billion. It struggled to get underwriting results and operating cash flow to break even. Then, in 2001-2002, it was hit with an almost $1.5 billion in loss reserve adjustments in product liability and workers comp claims. Kemper lost about a billion dollars in surplus between 1997 and 2001, and another $2 billion by the end of 2003. The company is now in runoff.

Zenith: a case of endurance

Zenith today is known as a virtually monoline workers comp insurer with business concentrated in California and Florida. Since the late 1970s it has been run by Stanley Zax out of Woodland Hills, California. The insurer arrived in the early1990s with roughly a half billion in revenues, half of which were auto and other non-workers comp commercial lines, and A or A- ratings.

To expand in Florida it purchased, on April Fools Day, 1998, the remains of Riscorp, an indictment-hobbled workers comp insurer out of Sarasota. Shortly a dispute rose between the new and old owners about unreported liabilities. While fighting this battle, Zenith sold off in 1999 its non-workers comp primary insurance business. By 2000 its revenues had declined somewhat, and it lost money in 2002 and 2001 due to prior year loss development. Its equity was roughly what it had been five years before.

However, concentrating on these two states, Zenith has since 2001 grown its top line revenue and profits during the hard market early in this decade. Revenues this year are trending will above one billion dollars, and equity has shot up by over 50% since 2002.
That year, Standard and Poors knocked its rating to below A-. Other rating agencies stayed with A- scores.

Zenith played in two of the most difficult workers comp markets in the nation. While growth through acquisition in Florida may not have been as easy as hoped, the firm protected itself by shedding multiple lines and focusing on its core business. In an interview in 2004, Zax revealed an intense will to maintain tight management controls. He and co-investors have brought a company valued at $10 million in the late 1970s to a current market value of about $1.5 billion through self-discipline.

What happened between 1993 and 2001?

I have built a model which takes us from 1993, the top of the cycle, to 2001, when the soft market ended abruptly. (Look at the year to year data in the table.) I am in effect compressing an eight year story into four years. Kemper performed worse then our model insurer; Zenith performed better.

Year One. Our insurer has $100 in premium revenue, $65 in losses, a combined ratio of 100, and investment earnings of $15. Profits are therefore $15. (To simplify matters, ignore taxes.) The insurer has plenty of equity, or policyholder surplus---$100 – reflecting the overcapitalized state of workers comp insurers as a whole.

Year Two. The number of injuries will decline by 3% annually, but costs per claim will grow at 8%, a net $3 increase in loss costs for the current year’s injuries. Premiums will automatically rise by $2 to reflect the incremental rise in covered payrolls. Let’s say that investment returns improve by 10%, or $1.50. Year Two, looking good, is now about to close out with an increase of profits of 50 cents to $15.50.

But loss cost inflation affects all open claims, especially in medical outlays. You have to figure in the second spinal fusion on a worker injured years ago, and increases in lifetime pain medication costs for many open claims. At the very end of Year Two, the insurer rolls up all these adjustments into a $5 increase in loss reserves. This reduces profits to $10.50, down 30% from the prior year.

It then examines the smoky deals it has made to expand market share, and calculates that instead of premiums rising by $2 they declined by $3 to $97. That drives net profit down by $5 to $5.50. Profits actually fell by over half!

Year Three. The fog surrounding loss cost inflation clears further. Current year claims costs increase again by $3, as cost inflation outpaces injury decline. The insurer tacks on an additional $5 reserve increase. Investment yields fail to rise, so investment income increases only by increasing the assets invested.

The sales force tries more intensely to beat out other insurers for a fixed amount of customers. (A few that decline to drink the market share Kool-Aid step back.) Premiums in Year Three drop $7 to $90. Based simply on payroll increases they should be $104. Insureds now enjoy a 13% savings. The insurer closes Year Three with a $3 loss – assuming that all the figures are accurately posted, rather than massaged to push some of the bad news into…

Year Four. Another year of increases in claims costs on diminishing revenue base. The chief actuary insists on a reserve adjustment of $10 for prior years. (A few years later, a third with be reversed.) Sales, though bridled, still reduces premium to $87. Loss costs plus reserve development are $84, and the combined loss ratio is 137. Insureds now enjoy a 18% reduction while the insurer reports a loss of $14.

The End. Net profits have declined from $15 to $5.50 to -$3 and -$14. The actuary wants to add to reserves. A rating downgrade? Looking at actual rating practices, one suspects that the agencies may pull their punches, especially with the big players. Insurers collectively push prices much higher very quickly, starting the hard market.

Why?

The key drivers in my estimation are idle capital; unrealistic sales plans; and, mediocre controls over claims and pricing.

In addition, there seems to have been with Kemper a pattern of denial of reality among top management. One person, such as the CEO, may be off base; why does the entire top management team behave the same?

The New York Times reported in May 2006 on a study which examined common traps that prevent executives from seeing and responding to the writing on the wall. I will quote from this article by Paul Brown, with some comments added about workers compensation insurers:

The project, business or division is hemorrhaging cash. All turnaround efforts have failed, but management continues to spend time and resources trying to turn the situation around instead of pulling the plug.

If you want to know why, reread Freud and not Drucker, argue the McKinsey consultants John Horn and Patrick Viguerie, and Dan Lovallo, a professor at the Australian Graduate School of Management at the University of New South Wales in The McKinsey Quarterly. When evaluating a failing business, there are four psychology traps executives often fall into, the authors write:

• Confirmation bias. Executives seek information to support their point of view and discount data that does not. [This is classic group think. Workers comp executives also seem often to be insulated from other industries, thus may not be able to bring into their work painful lessons experienced elsewhere. – PFR]

• The sunk cost fallacy. Managers add up all the money they have already spent and conclude it would simply be too costly to walk away. [Can sunk cost include personal investment in obtaining a position of authority? – PFR]

• Escalation of commitment. Executives decide to throw even more resources at the problem, convinced that is the way to resolve it. [Sales staffs will cling to their sales plan even in the face of disaster. One insurance exec told me that it took years for the sales force to buckle under. – PFR]

• Anchoring and adjustment. Estimates of the potential worth of the project or business are revised upward to justify all the spending. [In a workers comp environment, the costs of the tail are under dispute. – PFR]

One simple way around these biases, the authors write, is to have a senior executive who is not involved do a thorough assessment about whether it is worth continuing.

And who might that be?

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I example productivity breakthroughs through information technology.

A version of this article appeared in Risk & insurance Magazine

Here are more glad and disruptive tidings about how information technology has begun to change how we manage work injury risk. Key words: easier, faster, cheaper and, most notably, better. Driving these advances of course is information technology, or IT. Some have said that the performance-to-cost ratio of IT nationwide has been improving 30 percent a year for a long time. In the '90s we invested heavily in new client/server systems and databases. Today we are investing in Internet-based systems.

Costs of hardware have dropped like a rock. The grueling task of connecting different systems became much easier. Organizations have been changing their risk management information systems about every five to seven years. It is possible that this pace of replacement is speeding up.

I will describe three ways we get our work done at a fraction of the time it took just five years ago. Then I'll describe a new collaboration that may transform our field.

• Safety audit planning. If you are a safety manager in a restaurant chain, you need to schedule safety audits at dozens of locations based on recent claims. In the '90s, you would need to manually reconcile OSHA and claims reports, punching figures into a spreadsheet. This might take a day or more. But today's systems can give you automatic analysis, with reports and audit plans done for you. It takes just one hour, saving 90 percent in staff time.

• Sharing claims files. If you are a claims adjuster, you need to pull together everything about a claim and send the entire package to a colleague working for a servicing vendor. Fully electronic claims files are now feasible, with imaging technology and the ability to link via the Internet to medical clinics and service specialists. With a good claims system, compiling and sending should take about three to five minutes. Processing time drops by 90 percent.

• Checking for unapproved medical care. If you belong to a medical management team, you need to ensure that no medical provider is paid for services that were not preapproved. I am told that about six out of 100 issued medical invoices are for unapproved work. In the '90s, you might have spent a half-hour comparing invoices to a treatment plan. Today it will take you a few minutes.

Now for that new collaboration that may transform our field. Say your CEO sends word he or she wants to compare your company's injury experience with that of his or her peers, in lost time from work and nonwork causes.

This had not been feasible before the creation of Employer Measures of Productivity, Absence and Quality. EMPAQ is the brainchild of the National Business Group on Health. Heavies such as General Electric Co. and the Integrated Benefits Institute are involved. For the first time, companies have a standard set of data on disability.

Close to 200 employers are pooling data to create a standardized set of metrics on variables used in disability management such as operational efficiency, outcomes, satisfaction and costs. Vendors, employers and associations are building what may in a few years be a data utility for many users.

Marybeth Stevens, who leads workplace absence and disability operations for GE, expects that the number of participating employers will likely double next year.

I mentioned to Stevens that no workers' comp insurers appear on the participant list. Her response was, in essence, "Watch this space."

Posted by Peter Rousmaniere at 8:09 AM | Permalink | Comments (0)

This Woodland Hill, CA based workers comp insurer has prevailed in two tough workers comp markets. How does it do it?

A version of this article appeared in Risk & Insurance Magazine

In 1977 Stanley Zax with some colleagues bought Zenith National Insurance Company for $10 million. Wall Street’s market value of the Woodland Hills, CA based company in late 2004 was about one billion dollars. Premium revenue is approaching a billion dollars, making the firm one of the largest for-profit monoline workers comp insurers in history.* It issues only guaranteed plan policies. Most of its business is in two of the highest cost states in the nation, California and Florida. Zenith’s combined loss ratio (claims and related expenses divided by premium income) for its California business has trended about 20 points below the average for workers comp insurers. I met with him to find out he does it.

If there is a word to capture his success it is “transparency” in financial controls.

Each month, Zax receives each month a one-page report which he uses as a variance analysis to catch departures from targets for operating results. The report shows the expected incurred losses of fresh claims, the total of reserve increases, and reserve deceases that were recorded in the prior month. Separated out are reserve increases from reopened claims.

Zax holds that if the initial reserves are appropriately set, then he can apply a management standard that future reserve reductions should exceed, or at least match, reserve increases. If monthly reported reserve reductions come in increases, this is an adverse variance that must be accounted for. Initial reserving might have been too low. Laggard claims handling may have allowed costs to float up. Claims settlements may be too generous. Medical inflation, over which the company has limited influence, may be a factor. Zax uses the variance report to force a search for corrective action.

Monthly discipline has the effect of continually auditing and reporting on the integrity of the initial reserves placed on claims. This transparency helps Zenith to guard against two mortal sins of a workers comp carrier -- tolerance for low ball premium quotes in order to “get the business”, and denigration of claims as a back office clean-up operation.

Zax’s message is this: if claim reserves reflect the best estimates, policies are priced appropriately and claims are handled proficiently, satisfactory end results are almost assured. This formula works particularly if competitor’s internal laxity forces them to price higher. This has not always been the case in California, where recently a giant state-run insurer, low-balled the competitive market, ultimately contributing to the worst workers comp crisis of any major state since the early 1990s. While Zenith cannot immunize itself from the destructive forces of the marketplace, Zax holds out that Zenith can do relatively better in all market conditions. For instance, he says can make money in California regardless of what if any reforms take hold.

His way is a departure from the siren song, which transfixes many of whom Zax refers to as “the lunch club,” that a workers comp insurer is essentially a vehicle for sponging up premium dollars for investment. In this model the head of claims not much more than a human file cabinet which way stations claims files from their creation until their final internment. In contrast, Zax views each claim as a fountain of profit or loss.

I asked a claims executive, a veteran of several large insurers, to comment. In his view, so many factors drive claims costs that any simple formula comparing initial reserves to end claims cost is not very reliable. His performance is evaluated through several measures such as compliance with procedures, claims duration, and loss costs. A seasoned TPA executive in California told me that Zenith’s focus on claims reserve accuracy was right on – the lynchpin to profits, according to this executive.

Within the ranks of workers comp executives Zax is an acquired taste – a blunt talking contrarian, who has filled his board with luminaries far beyond the confines of insurance. Let’s see how he does as California’s workers comp market starts a new cycle of rate competition. Let’s see if he can grow this company to $2 billion in premiums by the end of the decade.

The article was written in late 2004. As of March, 2006, revenues were $1.3 billion and market capitalization was $1.85 billion.

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I show how safety can be pitched as a business improvement.

A version of this article appeared in Risk & Insurance Magazine

I present to you three sparkling case studies of worksite safety as a business investment. They illuminate, provocatively, how safety might mesh with good all-around working conditions to boost success of a business. Remove one, remove the other. Those of you who need to show how safety pays, look no further.

Consider this finding: for every ten ergonomic reviews of injuries, three of them will result in not just removing injury risk, but also in boosting productivity. Paul recovers from injury and returns to his now safer job, then produces more output than he did pre-injury. The Windham Group, a New Hampshire firm, arrived at the three out of ten ratio by analyzing the findings from several hundred post-injury reviews. The firm routinely searches for productivity improvement during ergonomic reviews. Safety experts at Marsh and elsewhere tell me they’ve noticed productivity dividends from safety projects.

So, inside every third work injury a productivity improvement struggles to get out. A good number of accidents must arise out of botched job and workflow plans. Of course accident records will likely not show this; only a few safety engineers think as business consultants. To find and exploit the connection between safety remedies and productivity, you need brains switched to “on” at the site of the accident, readied for seemingly serendipitous solutions.

A second fertile approach to safety analysis comes from a West Coast workers comp consultant. He associates high workers comp costs in part with defective manpower planning by management. A large share of the very few high cost claims involve workers who do not recover because for personal reasons they do not wish to recover. The consultant estimates that in a “tension” driven workplace these holdouts to recovery
comprise 4 out of 100 injuries, but that in a “support” driven workplace they comprise as little as 1 out of a 100 injuries. If you can shift the work culture from tension to supportive you’ll reduce the holdout phenomenon even if the count injuries fail to decline.

A culture of tension is often arises out of a company’s struggle to maintain its fluctuating flow of production in the faces of shortages in qualified workers. Labor shortages can cause overtime that workers view as excessively punitive on their other responsibilities and pleasures. If worker time schedules are arbitrarily juggled due to what the workers perceive as corporate incompetence, lot more injured workers are tempted to behave in a recalcitrant manner. A well-run safety committee can serve as a mediating instrument for better workforce planning.

Benefits of safety committees show up also in a survey-based study by a team led by Tim Morse of the University of Connecticut. He finds that safety committees are associated with both sharp reductions in frequency of injuries and higher rates of claiming for the fewer injuries that occur. The end number of filed claims may not greatly change. But the workers are far better off, and the employer has a much better understanding of its loss exposures and its safety agenda. Any business textbook on risk management will tell you, in straight English or elaborate math, about the economic value of reducing uncertainty. So will the underwriters of workers compensation insurers.

Take a non-union, non-manufacturing workplace without a safety committee of 1,000 employees. It might have about 140 plausibly work-related upper extremity incidents a year, a frequency of 14%. Of these only about 5% would become workers comp claims. So few claims, yet so much poorly understood problems.

This same workplace with a safety committee would have only about 65 upper extremity incidents a year. Of these 20% would turn into claims. If we add a union along with a health and safety committee, the number of incidents drops to about 30. Of these about 30% become claims. In the end, perhaps the same dollar cost but more insight into work injury risks and less uncertainty.

Posted by Peter Rousmaniere at 8:07 AM | Permalink | Comments (0)

I report on a survey among risk managers and a search for the best methods.

The cost of property and casualty risk of American businesses, non-profits and governments is roughly $200 billion, taking insurance and self-insured losses into the equation. How organizations account for these costs can range from a model of lucidity to a perverse maze. Thankfully, there are some best practices.

Many organizations charge operating units their fair share of risk and insurance costs. Most controllers and risk managers like to do so. About half seem to believe that getting operating units to budget for the cost risk will lower the cost of risk. Even executives who will not conjecture a cost savings still feel the practice is a good one.

In a recent survey of risk managers and risk consultants, about half confidently predicted that a well-run allocation system would generate savings in cost of risk of about 5% to 10%. Thus a company with a million dollars in annual P&C losses could save from $50,000 to $100,000, simply by making managers more financially accountable for the losses in their departments. The most popular candidates for allocation were workers compensation and liability exposures.

But getting the allocation system right is may not be easy. As one risk manager noted, the system “must be perceived as fair and impartial or it will cause those affected to thwart the system or to leave. It must also have a strong enough impact on the bottom line of those in the best position to reduce loss costs.”

Examples of flawed, even perverse allocation practices are easy to find. Some years ago, a division of a major paper products company assiduously reduced its workers compensation clams costs by 90% only to find that home office increased its assessment for the next year. Its allocation policy simply did not take recent experience into account. In another example, a renowned non-profit repeatedly assessed its local chapters for insurance at rates which were far in excess of what were prevailing market quotes. Without telling the chapters, home office was building up a large surplus in its captive.

Risk managers appear to divide into two camps about how to allocate. The primary concern of one camp is year-to-year stability in assessments to operating units. They aim to make these allocations as predictable as possible. The other camp is concerned mainly about the accountability of divisional managers. This group of risk managers tends to favor allocations which reward or punish behavior, fast.

Every method starts with an aggregation of costs called “cost of risk.” Since the mid 1990s, the Risk and Insurance Management Society and Ernst & Young, the accounting firm, using an annual survey, have tracked prevailing cost of risk for corporations. They count insurance premiums, retained losses, internal risk management, outside services, financial guarantees, fees and taxes. For organizations with $100 million of less in annual revenues, cost of risk has been about 3% of revenues. For those with revenues of over $1 billion, cost of risk has been under 1% of revenues. The vast majority of costs relate to workers compensation and liability.

Actuaries like Kevin Bingham, in the Hartford, CT, office of Deloitte & Touche, can come up with estimates of costs if contingencies are large and can only be guessed at by non-actuaries. Per Bingham, “We can use methods with great names like the Bornhuetter Ferguson method weight actual experience with expected experience, if need be.”

Once the base costs are counted up, the next step is to allocate, or charge back, the costs to divisions. A simple way to allocate costs is to spread the total cost of risk, by line, according to the appropriate common denominator for the line. Thus workers compensation costs could be allocated by full time equivalent employee count or payroll. Liability risk costs can be assigned by sales dollars or units of service. This approach emphasizes stability.

But the simple way can hardly be the best way. It fails to create any serious incentive to reduce the cost of risk. Divisional chief executives might have average tenures of, say, three years. Cost control investments, however fast-acting in cutting claims, are slow to trigger a reduction in allocation. From the perspective of the divisional chief, his or her next promotion in sight, spending scarce dollars on lowering cost of risk might even appear a waste of resources.

Bingham believes that charging back the cost of risk to operating units “can really help an organization drive down its costs by motivating line managers to focus on the importance of return to work initiatives.” “As I have observed at clients, nothing motivates managers more than a compensation system that weighs in the cost of risk when determining their final salary.”

Best practice

A search resulted in several finds of what one might call “best practice.” Aimed at self-insured organizations, with some modifications they can work well to for insured entities.

United Technologies deserves a gold medal with actuarial clusters for an ingenious approach. A since retired executive, David Bowen, originally authored it, and George Levin, a consultant, later refined it. What follows is a somewhat simplified version.

United Technologies values its claims shortly after the close of a period, such as a fiscal quarter. The total value of new claims for an operating unit is computed as a percentage of the new claims value of all operating units. The company then applies this percentage to an actuarially set total “premium” cost for the company, and allocates each operating unit its proportional share.

This approach allocates 100% of “premium” to operating units. This is an important goal as United Technologies maximizes indirect cost reimbursement from governmental customers, which have strict guidelines on indirect cost accounting. .

The focus on new claims cost promotes cost reduction. Even stronger incentives to reduce the cost of risk can be bolted in. For instance, to encourage reducing the frequency of claims, a corporation using this approach could base the premium allocation on a blending of an operating unit’s share of total new claims valuation and share of new claim volume. What about large single losses? United Technologies has a provision to cap large losses so that rare events do no wreck havoc on departmental budgets.

The United Technologies approach has ingredients that risk managers say they want in their allocation method.

• The allocations link to new claim trends. Division executives have a clear incentive to prevent and manage new claims.
• The methodology is acceptable under federal standards for charging risk costs to contracts and grants.
• Allocations can be computed frequently based on recent experience.
• 100% of the cost of risk can be allocated to operating units.

This approach has yet another virtue: it is easy for divisional executives to understand. In contrast, one public entity with over $100 million in annual losses uses an allocation method which one person alone is qualified to explain – if one has an hour to listen.

Lost Time Method for workers compensation

Many organizations tend to think of workers compensation differently than they do other risks. A special method for this line of risk may be a good idea. For example, focus attention on reducing lost time. A lost-time calculator can allocate not just workers compensation but also short and long-term disability costs. Total cost of unscheduled absences has been estimated by the Integrated Benefits Institute of San Francisco at 10% of personnel costs.

In one scenario, a corporation at the end of every quarter computes the accumulated lost time of every new lost time claim through the end of the period. It assigns a standard cost per lost day, derived from analysis of prior claims, reflecting indemnity, medical and other costs. For claims that remain out of work at the end of the period, it can add an additional standard cost per claim. (A claim with 5 lost days at the end of the period to date at period end could be assigned an additional cost much lower than a claim with 60 lost days to date.). The corporation can allocate the total cost of workers compensation risk proportionately.

An alternative method recognizes lost time claims from prior periods as well as new claims. All lost days incurred within a period are given a per day cost value. The corporation allocates total workers comp costs in proportion to the division’s share of total lost days for the entire corporation.

Accelerated Experience Mod Method

Want to inject the right incentives but must use an allocation system which does not quickly reflect recent loss experience? Then consider the following method. Massachusetts used it successfully in the 1990s to sharply lower claims costs in the workers compensation assigned risk pool. An Australian insurer is now using it. If it can work for an insurer vis-à-vis hundreds of insureds, it can work for a corporation with multiple operating units.

Step One - invite operating units to demonstrate competence in a portfolio of safety and claims management practices known to have very fast implementation times. Certify them through an audit process. Then, award them a “credit” to regular allocations. A typical formula for workers compensation is a credit for three years for 15%, 10% and 5%. By the third year the normal, slow-moving allocation system will have essentially recognized the improved loss experience.

The key to this method is that divisions often can produce fast, big improvements. In both the Massachusetts and Australian cases, the plan is designed to save twice the amount of the credit and thus create a big financial cushion. The risk management department acts as if it were an insurer. It makes an “underwriting” bet that the improved results match or exceed the discount.

Allocating cost of risk is today built into corporate culture. A huge share of managing risk is borne by corporate departments, not by home office executives. Is there any better way to spell “accountability”?

Posted by Peter Rousmaniere at 8:05 AM | Permalink | Comments (0)

Often small events signal big things.

A version of this article appeared in Risk & Insurance Magazine

The Disability Management Employers Coalition’s 2003 annual conference started off on the right foot with a keynote address by an executive with Dell, the computer firm. Dell has melded a vast deck of phone, computer and human assets into an integrated disability program. It reflects the company's service values. Nothing is left to chance, nothing too small to notice or fix. Problems are not solved so much as killed at birth.

If we look hard enough at minutiae, we can better predict losses. If we intervene early, we can prevent or break a pattern of errant behavior leading to losses. We can control these losses even though they may appear as random to actuaries sitting far away. Some risks appear random only until we find their secret.

We can find this happening in public safety, risk management, and even pastimes such as baseball.

In the area of policing, minutiae may be defined as illegal acts not worth the attention of a cop. Under Mayor Rudolf Guliani New York City Police Commissioner Bratton went after subway fare jumpers (theft of $1.50). Arraigning them in mobile units, the city prosecutors found that a third had open arrest warrants.

A consultant who does underwriting surveys for a multi-line insurer looks for subtle management defects that presage high losses in workers comp and business owner's insurance. Jon Coppelman says that the best single predictor of losses in small business is a manager not having a credible way of training replacements or additional workers.

An absence management and consulting firm, Nucleus, has studied incidental employee absences, so ephemeral that many payroll and attendance systems either aren't designed to record them or that supervisors paper them over. Like the employee who calls in at 9:13 to say he's unable to come to work due to fill-in-the-reason.

Nucleus reports that these overlooked absences can account for 40 % of total unscheduled absences for a workforce, and cost a lot more than a company's short term disability and long term disability programs. The firm says that an employer's experience with incidental absences is highly predictive of its LTD and workers compensation losses. It is as if incidental absences are major absences with training wheels.

How many workers compensation insurers know anything about the incidence of pain and discomfort preceding an injury claim? Probably about as many New York City cops who gave a hoot about fare jumpers, before Bratton changed the model of law enforcement.

Nucleus executive Larry O'Rourke, a former insurance underwriter, say actuaries could predict loss trends from small events that accumulate in short periods of time. Actuaries need to work with large sample of events. Contrasted to just a few years ago, personnel systems today can deliver vast and accurate databases of all classes of employee absences.

In the past it may have been impractical to assemble micro-incidents for actuarial study. Information technology has changed that. Today, incident recording is much easier. Wireless palm pilots will soon make it even easier. The average lost time compensable workers comp claim today is going ultimately to cost about $35,000 at the end of its life. If so much money were at stake, one would expect a lot of careful data collection and statistical analysis of contributing factors.

The scientist’s microscope reframed our view of the world. In the case of unscheduled absences, closer monitoring will yield insights into what is driving employee absence.

Baseball fans armed with PCs discovered the secret of that most prosaic of events, the walk. Historically, everyone viewed walks as a pitcher's failure. Some fans dug into the statistics, tested models of how runs are made, and found that walks are really batter successes, a result of good eyes at the plate. Walks lead to runs. Dan Miller an Aon consultant and baseball fan, says that the Oakland Athletics and Boston Red Sox are transforming game tactics and even player recruitment through laptop analysis of masses of data.*

Minutiae can be our friends, if we let them. Ignored, minutiae can hurt.

*The year after this column was written, the Red Sox won the World Series for the first time since 1918.

Posted by Peter Rousmaniere at 8:04 AM | Permalink | Comments (0)

This severely injured worker recovered quickly. Here's how.

A version of this article appeared in Risk & Insurance Magazine

In May, 2003 a 51-year-old New Hampshire male mason fell 20 feet from construction staging. Emergency room doctors found a fractured pelvis, fractured rib, contusion to his left knee, and extensive bone fragments in one forearm. By Thanksgiving, he was back at work–a successful recovery. And by any measure a relatively rare recovery given the worker's age, nature of work, and extent of injury. This could have ended as a permanent disability. Why did it not?

Consider what contributed to this happy ending. As reported by Lynne Heller, a therapist involved in this case, the mason, his clinical team and his employer had seven ways to botch it up. None of them happened.

He underwent surgery on the same day by a hand surgeon, who put back together the bones in one forearm, inserting a pin, and decompressed the median nerve at the wrist. He was then placed in a thumb cast for 8 weeks.

The clinical team led by the surgeon was unfailingly optimistic in talking with the worker. Thus they avoided the negative scenarios which many clinicians are tempted to convey, such as "You'll never work as a mason again." This is the first of seven possible ways to frustrate the worker's recovery.

He began physical therapy with his thumb cast on. If therapy had not begun while he was still in the cast, finger stiffness may have thrown a monkey wrench into rehab, derailing progress by several months. The team thus avoided a second pothole–lack of urgency in rehabilitation. “Chronicity” sets in fast and hard. I have estimated that the probability of long term disability for a recoverable injury increases at a compound rate of about 25% for the first ix months after the traumatic event.

Often a serious hand or wrist injury precipitates shoulder problems which can be overlooked or put off until the primary emerges from the acute phase. In this case the clinicians tackled the shoulder issues immediately, treating it as a separate diagnosis. The hand surgeon also worked on the patient's lower extremity problems, knee and hip pain. In short, the clinical team addressed all problems at the same time. Unfortunately, treatment of multiple conditions is often done sequentially, requiring less effort at team coordination, but at the cost of more prolonged recovery. This was a third avoided barrier to recovery.

The cast was removed mid-July, but before then the mason began to suffer from shoulder pain. Hip bursitis and knee pain settled in. The pin was removed in August. The next day he entered a more intensive physical therapy program while receiving limited doses of a pain drug. The clinical team avoided a fourth opportunity for failure: over-prescription of medication. A disturbing large share of disabled workers become psychologically if not chemically dependent on pain drugs.

After only a month of treatment, the clinicians – working always as a team -- introduced work simulations. The side-stepped a fifth risk of failed recovery, delay in job-focused reconditioning. After another month the clinical team discharged the worker to 12 three-hour reconditioning sessions.

According to Heller, the mason was exceptionally motivated to return to masonry, his profession for 19 years. He was not enervated by psychological trauma, a sixth barrier recovery failure. The employer was also motivated to bring him back. Thus a seventh possible complication, employer recalcitrance or indifference, was avoided.

I have a lingering question about this eventful story: Would the claims payer become aware of it, and be adept to use it as a teaching tool for its claims team?

Posted by Peter Rousmaniere at 8:03 AM | Permalink | Comments (0)

No lift technology can reduce injuries and improve quality of care. So why do only a minority of nursing homes use it? Read this case study.

A version of this article was published in Risk & Insurance Magazine

Nursing-home jobs involve lifting and moving of residents. This leads to worker injuries, high staff turnover and lower productivity. "No lift" or "low lift" devices have been marketed for years. Most nursing-home administrators do not buy the devices, and even then, many employees don't use them. Four barriers have blocked wide acceptance of this technology: lack of innovation budgets, staff resistance, external criticism and failure to acknowledge gained benefits.

From 1996 to 2003, an indefatigable nursing-home administrator wiled and bulled his way through these barriers, creating recurring yearly savings of $400,000 from devices he bought for $150,000.

Joe Jolliff, now retired from the Wyandot County Nursing Home in Ohio, knew nothing of this technology when three workers sustained serious patient-handling injuries in 1995. A representative from the insurer, the Ohio Bureau of Workers' Compensation, suggested no/low lift devices. A resident approached him with a $5,000 check to help pay, which opened other doors. His county board gave its financial blessing. Scarcity of innovation funding was the first barrier to overcome.

With the advice of an employee task force, he bought devices in January 1997. These didn't work well, for instance, with heavy patients. And they helped residents only with sitting and standing, not walking. Yet he measured moderate success by reduction of staff annualized turnover from 70 percent to 50 percent.

Then in early 1998 with the strong endorsement of his staff, he bought some walking devices from a second vendor. By late 2000, he bought more devices, including some ceiling lifts and beds that made lifting easier.

"You would not believe what happens to quality of care," Jolliff tells me. "I could see it at the end of the shift. Before, most workers wanted to sit and rest. Now they were dancing with the residents and taking them out for walks."

By 2001, staff turnover dropped to 5 percent. Workers' comp claims went from more than $100,000 to less than $4,000.

Jolliff surmounted the barrier of staff resistance, which he considers natural for change of this magnitude. This was in part solved by his inclusionary approach from the outset. It also drove him to gore what he calls "the lie" about patient care safety. Patient care workers are taught two-man manual lifting and body mechanics, and told that if they comply, they will not be hurt. Jolliff says the two-man technique is a myth; over time, it will fail just about every worker. He had to convince every employee. He had to make the use of no/low lift mandatory.

A third barrier was external criticism. The BWC and OSHA told him that employees would continue to lift manually and underreport their injuries. State public-health people objected that using ceiling lifts equated residents with beef carcasses. Jolliff weathered these criticisms.

Concerned about resident care problems, Ohio increased for all nursing homes a requirement for average care time per resident per day from 1.75 hours to 2 hours. Relying on his productivity improvements, Jolliff avoided this $125,000-a-year increase in staffing costs.

Jolliff saved each year $55,000 in sick time and overtime reductions thanks to lower disability days and staff wear and tear. The vast reduction in staff turnover saved $125,000 in training and orientation costs. His total annual savings: $400,000.

In part at his behest, the BWC is launching a no-interest loan program for no/low lift devices purchased by nursing homes.

Notes: The leading nursing home chains have vigorously invested in this technology. In early 2006, Oregon and Texas passed legisation promoting it among all healthcare providers.

Posted by Peter Rousmaniere at 7:24 AM | Permalink | Comments (0)

For most high risk work, opportunities exist greatly to reduce the odds of death or major injury.

This article was published in the May, 2006 issue of Risk & Insurance Magazine, and published with its permission © Risk & Insurance Magazine

Beware those published lists of “most dangerous” jobs. From year to year the order may change. And from year to year the lists continue to mislead.

The rankings obscure within occupations huge variances and contingencies in fatality risk, known to sharp-eyed safety professionals, insurance underwriters and researchers.

Subpopulations within an occupation may have strikingly different risk levels due to different work characteristics. Safety measures capable of drastically reducing fatalities may be readily at hand but used ineffectively. Ethnicity may enter into intramural variances.

In at least one occupation, for example, the primary cause of death is not traumatic injury as suggested by many reports, but a personal condition typically not thought of as work-induced.

Thus, a simple ranking, usually topped by loggers, miners, fishermen, airplane pilots and crews, and steel workers, forms a less reliable picture than boxes of puzzles with missing pieces.

The federal Bureau of Labor Statistics has been calculating fatality rates since 1992. It annually reports rates for more than 100 occupations, using the Occupational Safety and Health Administration's counts of fatal injuries and the government's periodic survey of the American workforce by occupation. The most recent summary report is for 2004. But the fatality rates in the table come from the latest in-depth report, issued for 2003, not the much skimpier summary 2004 report (in which the ranking is slightly different).

A fatality rate is the product of dividing the count of work deaths by a uniform measure of the number of workers in an occupation. In 2003, 109 loggers died; there were 79,000 loggers; thus there were 133 work deaths for every 100,000 loggers. The entire civilian workforce in America has a fatality rate of about 4.5 per 100,000. Loggers then had 29.5 times the risk of dying on the job in 2003 than did the average worker.

Because of the small number of reported work deaths — 5,575 in 2003 — a change from one year to the next in the absolute number of deaths in any occupation can greatly alter the rate. However, the reported ranking of risky occupations does not change by much from year to year.

But digging deeper suggests that these rankings may be unreliable once contingencies and subpopulations are accounted for.

Government researchers go to extraordinary lengths to make sure that both the number of work deaths and workforce estimates are reliable. Rarely, though, do they dig much deeper into the finer points of the statistics. If they did, their findings could have some important consequences for insurance carriers. An insurer or alternative risk program might, by puzzle-solving, devise programs that could be extraordinarily profitable.

Logging and fishing work can be extremely dangerous or moderately dangerous, depending upon adaptation of known safety solutions to the particular work environment. Loggers, for instance, usually die from being hit by falling limbs, caught between machinery or crushed while handling trimmed logs.

The industry has known for some time that investing in mechanization reduces the number of workers vulnerable to serious injury at the logging site. Mechanization can also slash the single greatest fatality risk, which is a chain-saw worker being struck by the very tree that he (rarely she) is cutting. Industry safety professionals know that intensive training can work, too.

Maine Employers Mutual Insurance Co., or MEMIC, may have one of the highest logging exposures of any nonspecialty workers' compensation insurer in the country, due to the size of the logging industry in Maine. Being a state fund, it can not avoid taking on this exposure.

Yet, since it opened its doors in 1993, the insurer has maintained about the same level of exposure. Since 1994, it has not incurred a single death from the primary fatality risk, that is, the chain-saw worker and his tree. MEMIC transformed the logging business into a more moderate risk. Dan Cote, who runs loss-prevention services for the insurer, asserts that every logging workforce in the country could enjoy the same result. MEMIC uses a simple, ingenious safety plan. A local area logging association must first endorse a program of ongoing safety certification for workers, which the insurer then delivers. The worker receives a week of training and after a month, spends a day in the field with an evaluator. If approved, he receives a certification. He must be recertified annually.

Cote's approach poses a challenge in some of the most dangerous jobs, such as owner-operated long-haul trucking, fishing and aircraft piloting: the isolated worker has to show a high degree of self-reliance in problem-solving but also must not bridle at intensive safety training.

Alaska's fishers in the early 1990s suffered fatality rates in the range of 200 per 100,000. A concerted effort reduced the rate significantly, in large measure by correcting poor preparation of the small coastal boater, commercial as well as pleasure, for the main event: rescue or self-rescue after a man overboard. The number of boat sinkings remained about the same, but the survival of people after falling in the water improved.

Thus, solving the fatality puzzle within a high-risk occupation may mean finding the root causes behind wildly different patterns of death and injury, and through vision and persistence getting employers and workers to change their ways.

Citing his work with the international forest products company Weyerhauser Co. and other corporations in North America and Europe, Wolfgang Zimmerman argues that it is possible to predict if and when the losses in high-risk exposures will decline.

He is a Canadian who went from a career-ending logging accident — he walks with the aid of two canes — to founding a nonprofit international program on disability management. Zimmerman says that radical reduction of losses in an industry like forestry happens if the involved parties — workers, employers, insurers — explicitly agree in advance to ambitious goals. If one party is not up to the challenge, then that flagging party's expectation sets a limit on improvement.

Zimmerman makes a point of learning the total cost of fatalities and injuries. High fatality rates may persist because their cost is lost in a haze of part-time employment and uncoordinated workers' compensation and long-term disability plans, personal-injury suits, work stoppages and subrogation. Consolidating the cost data may reveal that permanent injuries (such as his) may cost far more than deaths. His is a call for better accounting: greater transparency down to the individual accident.

High fatality rates, such as those among air-transport and construction workers, may not be so susceptible to change through radical applications of safety standards.

Aircraft deaths are high partly because small planes often crash with more than one worker in the plane. Almost all multiple fatality accidents involve commercial aircraft. (Deaths of passengers not employed in air transport are not included in the pilot and crew fatality rates.)

Crop dusting appears to be by far the most dangerous of commercial aircraft work. Federal researchers calculate that a pilot who expects to devote an entire career to full-time crop dusting has a 30 percent chance of dying on the job.

Risk of death among construction laborers varies greatly by ethnic background and, more deeply, the immigration status of the worker. There are today about 7.5 million illegal immigrant workers in the United States.

Most are Hispanic. Many of them work in high-risk residential construction jobs. By a nice piece of detective work using employment data, researchers estimate in early 2006 that more than a quarter of roofers and construction laborers in America are illegal immigrants.

Juan, an illegal immigrant roofer, is more likely to be a rurally reared Mexican, young (hence less experienced), with poor English language skills, and working for a subcontractor who skimps on safety measures and cheats on payroll obligations and the workers' compensation insurer. A few years ago federal researchers determined that Hispanic construction workers had sharply higher fatality rates relative to their age, education and tenured peers who were non-Hispanic.

In the New York City metropolis, an illegal immigrant construction crew is more likely to look like the United Nations. A few years ago a construction industry task force in New York City referred to “two cities” of safety culture. Anyone can visit these two cities in the space of an hour.

Go visit some large commercial construction sites in Manhattan, which are tightly controlled and have full-time site safety managers. Then drive past the smaller residential construction underway in the boroughs, where using protection equipment is more of a personal virtue and New York City's scaffolding rules are routinely violated. A safety professional once discovered scaffolding constructed out of bamboo.

Solving the fatality puzzle in construction requires a multipronged public campaign, a challenge for which state regulators so far have not been fully prepared. These efforts can rebound to the detriment of insurers. Massachusetts began recently to make construction contactors financially accountable for workers' compensation coverage failures of their subcontractors.

The net effect, according to some prime contractors, has been to greatly increase their, and their insurers', exposure to high claims rates.

Probably no occupation has been subjected to as relentless an examination of fatality risks as firefighting.

But it has paid off, through the discovery of a silent killer lurking beneath the formal cause of death figures.

More firefighters die at the scene from heart attack than from falling structures, suffocation or burns. During the drive to or from a fire, as many firefighters die from heart attack as die from trauma from vehicular accident.

These vignettes of the grim reaper at work point to a few lessons for insurers and alternative risk managers on how to prevail against great risks:

* First, approach fatality risk and permanent injury risk together.
* Second, search for solutions in the job itself, in the job holder and in the environment. Safety training by itself may not matter as much as you think.
* Third, never agree to underwrite without a customized safety improvement plan.
* Fourth, have trust in safety improvements, but verify.
* Finally, know when to fold.

Posted by Peter Rousmaniere at 7:53 PM | Permalink | Comments (0)