Occupational Math: How Safety Professionals / Risk Managers Contributions Affect the Bottom-Line

Transcription

1 Occupational Math: How Safety Professionals / Risk Managers Contributions Affect the Bottom-Line Cathi L. Marx, ALCM, COSS, CHS-V President Aspen Risk Management Group

2 First Things First: Question:Should Safety Professionals be involved in company finances outside their department? Answer: #1 - Safety Professionals should stick to their own budgets and not meddle in company matters like inventory and receivables. #2 - I have seen what happens if the company safety professional does not become involved with the profitability of the enterprise. They and safety become irrelevant.

3 Pro s Mutual accountability If we understand the ROI / ROR we can make more financially sound safety recommendations Understanding the finances of a company makes me a better and more valuable employee As our company went into the lean manufacturing process all departments were evaluated on efficiencies. Cons It is challenging enough to run my own department. No one wants safety to meddle in their financial business Most safety professionals are fighting to keep their job along with fighting to get time and resources to do their job effectively, I say mind your own business.

4 Financial Moral Legal Safety Professional Contributions: Financial Impact / Bottom Line

5 Financial Impact Investment in Safety & Health Reduce costs of insurance Increase insurance options / Hiring better employees Opportunities to control potential losses Workplace Violence and Crisis Management Trending and Loss Data Analysis

6 Financial Impact Investment in Safety & Health Improve Productivity Provides opportunities for management, insurance professionals and safety professionals to work together from various perspectives Protects Corporate Image Loss of good will

7 This is a horrendous tragedy, Cal-OSHA spokesperson Erika Monterroza told the Daily News, adding that Bumble Bee could incur civil penalties if a probe uncovers violations. The company could face criminal charges from the Los Angeles County District Attorney s office as well. Time Newsfeed 10/15/2012

8 Financial Impact -Cost of Insurance Experience Modification Rate EMR EX MOD E-MOD Experience Rating Trailing Indicator vs. a leading Indicator Calculated every year; used to measure(past) safety performance Based on expected and actual losses over a three year period

9 Who calculates Experience Mods? California Workers Compensation Insurance Rating Bureau Most states use the National Council on Compensation Insurance (NCCI) to collect data and calculate the experience modification factor. NCCI is a private corporation funded by member insurance companies.

10 Numbers Three Years of data - Skipping the most recent policy year Claims and payroll Submitted by the insurer 6 months after the policy expiration in a unit statistical filing ( unit stat ) Bad Data = Bad Mods

11 Experience Modification Rate Aspen Risk Management Group Ratio of actual losses versus expected losses over a rolling three - year period average Measures loss experience using a baseline of 1.0 Rolling three year period ends one year before the EMR becomes effective, and each year the oldest loss experience year is eliminated Losses incurred during the 2010, 2011 and 2012 policy periods are still being considered in the 2014 workers compensation rates.

12 Actual Losses = EMR Expected Losses Aspen Risk Management Group Actual Losses = 1. Claims during rating period 2. Open (incurred amount) 1. Paid plus reserves 3. Closed Amounts Expected Losses = 1. Expected loss rate by class (ELR) Higher loss classes have higher ELR Lower loss classes have lower ELR 2. Payroll

13 Sample:..If expected losses are $150,000..and the actual losses are $200,000..$200,000/ $150, EMR 33% more for insurance

14 EMR INDICATOR Aspen Risk Management Group EMR Indication Effect on Base Premium >1.0 Poor Experience Increase in base premium = 1.0 Average Experience Base premium < 1.0 Good Experience Credit off base premium

15 XYZ Contractors Class Rate Payroll Premium Concrete $ 10,000 Carpenters ,000 Clerical ,000 Pure Premium $26,000 Ex Mod.75 $19,500

16 ABC Contractors Class Base Rate Per $100 of payroll Payroll Premium Concrete $ 10,000 Carpenters ,000 Clerical ,000 Pure Premium $26,000 Ex Mod 1.75 $45,500

17 Importance of EMR Pre-Qualification requirement for sub contractors to bid on jobs Lower Workers Compensation Costs: Better bid Is this truly an accurate indication of their safety performance?

18 Problems with theemr System Variations in state programs Workers Compensation is a No-Fault System Discrimination Against Smaller Employers Trailing Indicator Insurance Payroll Auditing Insurance claim reserving Rating Plan Changes Rising costs of medical insurance

19 More Problems With theemr Late reported claims Negligence Acts into the workers comp system Low TRIR and high EMR High TRIR and low EMR Not at fault - Vehicle accidents (Third Party claims) Employees seriously injured while traveling on business Product defect injuries / Lack of Subrogation activities Cumulative Trauma/ Soft Tissue Injuries

20 Top 10 Ways to Manage EMR 1. Engage a claims expert 2. Get your mod worksheet every year 3. Conduct regular claim reviews keeping in mind unit stat deadlines 4. Verify unit stat filings prior to submittal 5. Continue safety efforts the injury prevented is a claim that does not increase the mod!

21 Top 10 Ways to Manage EMR 6. Project future Ex Mods and use in budgeting 7. Provide modified work for all injured workers. Make it real work. 8. Use first aid claim paymentprograms allowed under the California Labor Code.

22 Top 10 Ways to Manage EMR 9. Pursue subrogation recoveries and make sure they are credited to claim reserve. 10. If more than 1.25 (125%) prepare for the Cal/OSHA High Targeted Inspection Program.

23 Alternatives to the EMR For Safety Leading Indicators Evaluation: Models and Management Systems & Methods Coaching and Mentoring Programs Employee involvement

24 Management Activity Safety Metrics IIPP Documented (system and method) Employee Safety Meetings Percent Complete Employee Safety Suggestions Reward Good ideas Accident Investigation Accident Reporting Timing Safety Inspections Percent Complete Safety Recognition & Communication Programs (caught being safe) Modified work

25 Safety Professional Contributions: Legal Impact / Bottom Line Financial Legal Moral

26 Legal Impact Investment in Safety & Health Control of OSHA fines and penalties Corporate Criminal Liability Act Decrease in fraudulent claims Decreasein litigated claims Decrease in EPLI claims Other regulatory requirements Insurance Requirements Claims handling Employee Rights Regulators within your industry

27 California Dept. of Industrial Relations California Division of Occupational Safety & Health Compliance Unit Criminal Unit (Bureau of Investigations) Consultation Unit California Appeals Board Decides on actions taken by the Compliance Division California Standards Board Promulgates Safety & Health Regulations

28 Cal-OSHA s Emphasis in Workplace Inspections: New Section 6432(b)(1): 1/1/2011 Before issuing a citation alleging that a violation is serious, the division shall make a reasonable attempt to determine, among other things, all of the following: (A) Training for employees and supervisors relevant to preventing employee exposure to the hazard or to similar hazards.

29 New Section 6432(b)(1): Reasonable attempt to determine, among other things, all of the following: (B) Procedures for discovering, controlling access to, and correcting the hazard or similar hazards.

30 New Section 6432(b)(1): Reasonable attempt to determine, among other things, all of the following: (C) Supervision of employees exposed or potentially exposed to the hazard.

31 New Section 6432(b)(1): Reasonable attempt to determine, among other things, all of the following: (D) Procedures for communicating to employees about the employer s health and safety rules and programs..

32 New Section 6432(c): The employer may accomplish this by demonstrating all of the following: (1) The employer took all the steps a reasonable and responsible employer in like circumstances should be expected to take, before the violation occurred, (2) to anticipate and prevent the violation, taking into consideration the severity of harm that could be expected to occur and the likelihood of that harm occurring in connection with the work activity, (3) The employer took effective action to eliminate employee exposure to the hazard created by the violation as soon as the violation was discovered.

33 Corporate & Criminal Enforcement Aspen Risk Management Group It is the policy of the Division of Occupational Safety and Health to implement the California Corporate Criminal Liability Act (Penal Code 387) by receiving notifications of serious concealed dangers, by maintaining appropriate records concerning any such notifications, by making a referral if the serious concealed danger falls within the jurisdiction of another governmental agency and by investigating any serious concealed danger which falls within the jurisdiction of the Division, as appropriate. California Labor Code 6425 and/or, California Penal Code 387 and/or, California Penal Code 192

34 Corporate Criminal Liability Act Definition under Penal Code Corporation, limited liability company, or person who is a manager with respect to a product, facility, equipment, process, place of employment, or business practice.. Definition under Labor Code Any employer and any employee having direction, management, control, or custody of any employment, place of employment, or control over any other employee, who willfully violates any occupational safety & health standard, order, special order, and that violation caused death to any employee, or caused permanent or prolonged impairment of the body of any employee...

35 Employers are selected for inspection Imminent Danger Death and Serious Accidents Complaints Programmed inspections

36 Safety Professional Contributions: Moral Impact / Bottom Line Financial Legal Moral

37 Moral Impact Investment in an Ethics Based Safety & Health Program Dr. Jan Wachter, Indiana University of Pennsylvania Safety Sciences Professor asks: Do you have the moral courage to embrace ethical, (not just regulatory) standards in your workplace Ethical safety standards are more sustainable -Agree? Disagree? Ethics are about doing the right thing, NOT about not doing the wrong thing An effective safety program is a Safety Management System Approach integral business function

38 Experience Modification Rates: Are They An Accurate Measure of Safety? Or How Safety Professionals / Risk Managers Contributions Affect the Bottom-Line Saving Lives Preventing Injuries & Illnesses Protect Our Companies from Financial Harm Financial Legal Moral

39 References Church, Rick Experience Modification Rate: An Accurate Measure of Safety Performance? California Constructor (AGC of CA) June 2010 Smith, Dave K Experience Modification: Problems and Pitfalls PROFESSIONAL SAFETY, September 1997 (available at