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Workers Comp Risk Management:
Carriers Can Play a Major Role in Creating a Win-Win Scenario

By Kenneth R. Rado, Director of Risk Management and Planning, ISO, and Robert J. Schneider, Managing Principal, Risk Management and Planning, ISO

A critical part of any workers comp carrier’s risk management strategy is knowledge of how well its insureds are handling risk management within their own operations. Essentially, carriers need a thorough understanding of the risks they’re insuring to correctly write the business and mitigate losses.

By gaining this knowledge and sharing it with their insureds, all parties win. Carriers want to insure the best risks and lower their losses. Companies want to cut their expenses and lower their worker comp premiums while protecting their most important asset — their workers.

To help insureds better manage their worker comp risk and control their losses, many carriers have been developing relationships with them by setting up programs designed to identify hazards in their operations, improve safety, and prevent losses. They have been assisting policyholders in evaluating their safety potential and helping them identify cost-effective controls. And they have been providing such services as:

  • hazard analysis, facility surveys, and operations evaluation
  • recommendations for hazard control
  • management and supervisory education programs to help reinforce best health and safety practices
  • employee safety training programs
  • hazard checklists and action plans for risk management and loss control

Preventing on-the-job injuries translates into more than just cost savings. While cost containment and lower premiums are clear goals of a solid workers comp risk management program, perhaps one of the strongest arguments for insureds to have such a program is the additional benefit of overall bottom-line improvement for the organization.

For example, let’s look at what Paul O’Neill, former treasury secretary under President George W. Bush, did during his time as chief executive officer at Alcoa.

For Paul O’Neill, implementing safety programs to cut costs was just part of the picture. To him, it didn’t matter that Alcoa’s safety record was better than most other aluminum companies. He believed that by reducing lost work days to zero and investing money to do so, Alcoa would not just cut expenses but actually boost annual earnings while protecting employees. He took a holistic approach to formulating a risk management plan to improve quality and safety throughout every function of the company. And he used analytics to help him accomplish it.

O’Neill started by visiting all of Alcoa’s 175 plants in 36 countries at the time and learning the processes of aluminum mining, crushing, smelting, coiling, and casting, as well as the associated perils for employees in every step of each process. He instituted computer technology tools throughout the organization so that, on a daily basis, he could monitor and investigate all accident incidents.1 Managers had to report every incident without exception. From those reports, he, his management, and employees learned how to prevent future injuries. In regular meetings, he instilled responsibility for safety at all levels and encouraged individual initiative in making Alcoa a safer place to work.

He also spent millions to make that happen. However, the results speak for themselves.

When O’Neill took over in 1987, Alcoa’s rate of time lost due to employee injuries was one-third the U.S. average. By 2001, it was less than one-twentieth, and Alcoa was five times safer than it had been ten years earlier. When O’Neill retired at the end of 2000, Alcoa boasted record profits of $1.5 billion on sales of $22.9 billion with a payroll of 140,000.2

The natural conclusion is that companies can learn a lot about the big picture of their organization by taking a close look at their workers comp experience. If properly measured and analyzed, workers comp results can be a proxy measure for overall performance in an organization’s operations. The reason: workers comp touches on virtually all the same issues companies need to focus on throughout the organization to achieve higher performance. Companies using sound risk management principles throughout their organization will need to worry less about cost-containment strategies and can easily show their workers comp carrier their results.

From a carrier’s perspective, insurers should be factoring in how their policyholders are managing their own risk. By helping their insureds promote safety, carriers can play a major role in producing a win-win-win situation — a situation in which employees are better protected, companies see boosts in productivity and profitability, and carriers curtail their workers compensation losses.

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