This is the third article in a five-part series on risk management. Additional articles in this series can be found here: Part 1, Part 2, Part 4, and Part 5.

In our last segment, we discussed how important the "Pre-Hire" process was to your bottom line relating to various "on-boarding" activities companies should consider when hiring new employees.

The second step in the "4P" plan is known as the "Post-Offer" step. At this stage, you should be asking yourself this question, "What should we be doing after we've offered someone a job?"

That question leads to another very important question: Does your company use a Post Offer Health Questionnaire and a Conditional Offer of Employment letter after you've made an offer of employment?

If your answer was no, please realize you're setting your company up for potentially large losses to your profits. A manufacturing company offered a job to a 34-year-old male without using these two documents which ended up costing them an additional $76,178 in insurance premiums and $2,158,742 in lost revenue.

By having an applicant sign a Conditional Offer of Employment letter before putting them on the job, you at least give yourself time to conduct your background checks that should be done on all applicants. You're putting your new hire on notice of the various procedures you conduct during your hiring process. In having the new hire complete a Medical Health Questionnaire, they are documenting their past medical history that should show any issues that might be a red flag that could keep them from fulfilling their job description safely. You may want to consider having your applicant take a "Physical Abilities Test" to ensure they are able to fulfill all the physical requirements of the job safely.

Let me explain the importance of why the use of the medical health questionnaire is so important. In 1961, an important case known as "Martin Company vs. Carpenter" set the precedent which later became statute in 1994 (in Florida). It gives your insurance company the ability to deny workers' compensation benefits if an applicant commits fraud in their employment documentation and did not disclose material information.

In the case study above, the manufacturing company did not use the questionnaire which would have given the applicant the opportunity to share that he had back surgery 3 months prior, and due to his limitations, would have not qualified for the job and its physical requirements. The new employee re-injured his back which required more surgery which cost their company significant profits.

If an applicant were to commit fraud, the carrier has the ability to deny the claim. If the applicant were to disclose his previous injury, you'll need to evaluate the situation to see if accommodations can be made or if they are physically able to do their job safely.

As another point, please make sure you keep an applicant's medical questionnaire in a separate filing cabinet away from routine paperwork in order to be in compliance with HIPPA laws.

In our next post, we'll look at the third part of the "4P" plan — yhe Pre-Claim process and its importance to your profitability.

This is the second article in a five-part series on risk management. Additional articles in this series can be found here: Part 1, Part 3, Part 4, and Part 5.

Has your company had to deal with an employee lawsuit in the past few years?

If you have, you know they are frustrating and costly, and are a major loss of profits when they occur. Lawsuits can come from many issues. For this series, we'll reference lawsuits coming from Equal Employment Opportunity Commission issues or Workers' Compensation claims.

You first need to understand an underlying principle that reducing your business risk as a company is critical to your company's bottom line. If you reduce your risk, you will in turn help to increase your profitability as a company. Business risk can take on many forms such as:

1. Financial Risk: Asset price volatility (currency, interest rates, material & labor costs)
2. Operational Risk: Efficiency / productivity
3. Hazard Risk: Lawsuits, Insurance Claims (Work Comp, General liability, Fire)

In the last 10 years, the settlement costs of lawsuits have risen to over $310,000. If you were sued by one of your employees, and the settlement was a mere $15,000, how much do you think that would cost your company? Would you be surprised to learn a claim like that would cost your company over $50,000? If your profit margins in this example were 4%, it would take you $1,250,000 in additional sales to make up for that loss.

To better understand how risk impacts your bottom line, you need to know about the study of Total Cost of Risk (TCOR) which we will discuss later in this series.

In our previous article, we referenced a system for increasing your profitability called the "4P" plan. The first section of this plan is called the "Pre-Hire" process. It begins with an assessment of your hiring practices. What does your hiring process look like these days? Do you feel like you have a good water tight system in place for the hiring of new employees, or have you gotten rusty since you've not been doing a lot of hiring in the past several years? Do you feel like you're using good employment applications and asking appropriate questions?

What successful companies have come to realize is how effective you are in your hiring process can be a great indicator for your profitability in the future. It always pays to hire "good" people. Studies have shown that hiring the "wrong" person can be very costly in the loss of productivity from having to find someone new to take their place and can be fertile ground for higher Workers' Compensation claims when they occur.

In the Pre-Hire process, it is always wise to request a Motor Vehicle Report (MVR) on your potential candidates from a vendor who specializes in that service. A couple good sources for this are the Insurance Information Exchange or LexisNexis Employment Screening.

You may also want to consider having a Personality Profile processed for your potential candidates to help ensure you're hiring the "right" person for the job. Predictive Results and Zero Risk HR are two companies that specialize in this area and report a 96% success rate in helping you make sure you're hiring the best person for the position. Many people have hired the proverbial "dog that can point that can't hunt". I trust you know who those people are: they tell you exactly what you want to hear, but are just not a good fit for your company.

Background checks have become a routine part of the pre-hire process these days. You can reach out to First Advantage, Edge Information Management or National Crime Search as options for this important process.

In our next article in this series, we'll look at the second part of the "4P" plan — The Post–Offer process and it's importance to your profitability.

Someone once told me that when you become the leader of an organization, there is usually not a blueprint or map given to you to follow on a path to success. Indeed, it is healthy and good for personal and professional growth to step out of your circle of comfort to embark on new assignments and positions with more responsibility. How, though, can you ensure success?

"Best practices" is a cliché that means a lot of different things to various professionals. Analytics can mean different things to business and government executive leaders. When you leverage best practices and analytics together in insurance fraud investigations, however, a powerful tool and business model is created that will create significant results to reduce fraud and provide a great Return On Investment (ROI) in anti-fraud programs.

Corporate and government leaders are at a crossroads regarding risk management, social media, and the ever-sensitive ROI questions asked by stakeholders and governing institutions. Four key components to enhance the ROI for insurance fraud programs are:

• Risk Management
• Training
• Policies and Procedures
• Performance Evaluations

Hiring the right people, at the right time, for the right job are basic steps in any business process. Insurance fraud is not a simple crime to investigate. Indeed, there are basic schemes that have not changed much over time. Inevitably, though, professional white-collar criminals learn from the mistakes of others in their illegal activities (which led to their apprehension and conviction) to evolve their practice. Managing your daily risk to conduct investigations can be daunting, yet if you are training your staff in emerging schemes and trends, policies and procedures, and then documenting job performance through a meaningful performance evaluation process, they will deliver consistent and excellent results in your anti-fraud program.

So, how do you keep your investigative units current and efficient in operations? A working understanding of the power of analytics is the foundation for that expertise.

There are four key components to advanced analytics:

• Data — lots and lots of data
• Statistical and quantitative analysis
• Explanatory and predictive models
• Fact-based management to drive decisions and actions

People are communicating more and more through social media platforms like Facebook, Twitter, Foursquare, Google Plus and Pinterest. The number of social media websites is growing everyday in our flat, global economy. Risk is always the number one concern of the executive leader when it comes to operations and personnel. How do you know you are meeting your goals and objectives? Are you agile enough to change direction during a critical incident? In other words, can you predict (and prevent) an incident that will drain your resources?

Just utter the word "analytics" in an executive staff meeting, and someone will usually summon the Information Technology manager. A lot of people think of spreadsheets, database searches, dashboard style alerts and warnings about budget pressure points, or a due date for a big project.

Analytics is a lot more than that.

When Chiefs of Police and Sheriffs ask me to explain what analytics is, I tell them: "Analytics is a range of capabilities across the intelligence continuum." Law enforcement agencies exemplify this continuum, with differing levels of intelligence from the immediately actionable to prevent crime and disorder in our communities, all the way up to homeland security threats.

In the corporate world, analytics touches our lives everyday. For instance, the product you purchase in the grocery store, the fastest route that your package will be shipped and travel to you, and consumer sentiment about a product discussed in social media is all facilitated by advanced analytics. Analytics is not a single software solution, nor is it a single management or decision-making tool. Analytics is all about leveraging data with best practices that results in more informed decisions. Unfortunately, this power is all too often left unused or underutilized in our industry.

Top 5 Reasons Why Insurers Do Not Use Analytics
James Ruotolo, Principal for Insurance Fraud Solutions at SAS, recently wrote an article on why insurers do not use analytics to connect the dots. James, with poise and confidence, dispels the myths and sets the record straight on how and why insurance carriers (and I strongly urge government agencies, too) can use analytics to yield a significant ROI:

1. Myth: "We don't have enough data!" Fact: Not true. Insurance carriers and government agencies collect enormous amounts of data in their business process. A number of statistical approaches can be created to build a solid predictive solution. For instance, when you combine business rules, anomaly detection (outliers), and social media analysis together, you can identify suspicious claims even if there is no prior claim history.
2. Myth: "We don't have good data!" Fact: Data quality issues do not stop a successful implementation of technology solutions. The clich&eacute of "garbage in — garbage out" is alive and well in our business world; we all know this. Recent advances in data cleansing methodologies, though, allow all kinds of silo data sources to be combined in an advanced analytics solution.
3. Myth: "Our data is too fragmented!" Fact: You do not have to gut your existing technology platform to create a solid fraud detection solution. There are integration tools to bring together key elements of your various internal systems. Remember, the more data you have, the more powerful the analytics will be.
4. Myth: "It's all in the notes!" Fact: Text analytics can rapidly comb through unstructured text revealing facts and connections a lot faster, which means that the suspected fraud will be discovered a lot sooner.
5. Myth: "We can't handle any more cases!" Fact: It is not about processing more cases. It is all about working the right cases to make an impact to reduce fraud. I strongly advocate that if you do not identify the true cost drivers in fraud (the licensed professionals, administrators, cappers, stagers, and other individuals controlling the criminal enterprises), you will never truly reduce the amount of insurance fraud in our communities.

The key to analytics are the three "R's:" The right data, at the right time, to the right people. This complements the right people, at the right time, for the right job. All of these are the key ingredients to best practices in fraud investigations. We have to get better at preventing and identifying insurance fraud, and waste and abuse in government programs. Having the right staff, coupled with best practices and a robust advanced analytics system on the front end of your business process, will only ensure your success.

We all know that Yogi Berra was right when he said "It ain't over until it's over." That could not be truer than with workers' compensation claims.

Just when you thought the claim by your injured employee was finally over and closed with a voluntary resignation, you still might have to meet with him/her to discuss possible return to work. This is due to the Interactive Process (I/P) rules imposed on you by the Fair Employment and Housing Act (FEHA). You will all remember that failure to enter into an Interactive Process, where there are work restrictions, is a violation of the law itself.

All the plaintiff needs to do is show that you did not meet with him/her in good faith to discuss how you might accommodate the return to their usual and customary job. If you did not do an Interactive Process, then it becomes just a matter of how many zeros go on the check you will ultimately write. I need only point to the over $2.2 million dollar jury verdict against the Auto Club for failure to do an Interactive Process with Mr. Weisinger when his doctor recommended an accommodation and they ignored him.

Well, Yogi's saying is also true when it comes to liens. They are filed for everything you can imagine including medical costs, translators, investigators and even pharmacies. The problem has been that they take on a life of their own and have clogged the system to such a degree that other more important matters such as hearings and trials for claims are being needlessly delayed.

However, there appears to be a light at the end of the tunnel. The Director of Industrial Relations (DIR) and the Administrative Director (AD) for workers comp have been listening. Effective May 23, 2012, new court rules are now in effect that are intended to cut down on the number of continuances a lien claimant may request and reduce greatly the number of documents that can be filed in support of the lien. The intent is to help reduce the huge backlog of unresolved liens which do nothing more then keep claims open.

The new rules require someone filing a lien to request a conference before actually filing a Declaration of Readiness (DOR) for a trial date. Lien claimants will also be limited to only one continuance and of the greatest importance is the judge's ability to dismiss the lien if the claimant fails to appear at the required conference. Finally, there is also a rule that allows the claim to be dismissed if the lien claimant fails to file a timely request for trial after the conference if the claim is not resolved at that time. The bottom line — a quicker resolution to a problem that has plagued the system for too many years.

• Factor 1: Market Position and Brand
• Factor 2: Distribution
• Factor 3: Product Focus and Diversification

• Factor 4: Asset Quality
• Factor 5: Capital Adequacy
• Factor 6: Profitability
• Factor 7: Liquidity and Asset-Liability Management (ALM)
• Factor 8: Financial Flexibility

Christine Baker, the new California Director of Industrial Relations (DIR), has hit the ground running. She recently announced a series of statewide fact-finding meetings with the intent of hearing from all sides of the workers' compensation community. I was able to attend the Los Angeles session and listened to severely injured workers relate how poorly the system has provided for them.

There were also comments by insurance company claims professionals relating stories about how convoluted the system really is. We heard from healthcare professionals on the abuses they are seeing under the Utilization Review system which it seems has taken on a life of its own. And of course we heard from employers on everything from rising costs due to the lack of control over the medical delivery system to the outright fraud being seen when an employee is terminated for valid reasons and an industrious attorney files a cumulative trauma claim. It was to this issue I directed my remarks, and I thought it appropriate to share them with you in this article.

It is time to revisit and re-evaluate the value of this statutory condition (L/C 3208.1), which is rapidly becoming yet another undue burden on both employers as well as the workers' compensation system. Cumulative trauma claims are currently being used, and in many instances abused by disgruntled employees who are no longer on the payroll. By filing post-termination cumulative trauma claims, employees are circumventing the legitimate needs of businesses to make personnel decisions based on the employer's current financial situation and needs.

One need only look at the increase in cumulative trauma claims that are being filed after an employee has been laid off. While there has been no specific injury that they can point to, many are now claiming that "work" has worn them out and that they are therefore entitled to even more money than that which was bargained for as a part of their employment agreement.

I would not argue that there are not real and viable events that can lead to a compensable situation. Asbestosis would be the best example of a condition that was unknown to either management or their employees for many years. Litigation over asbestosis has been ongoing since then, and I believe that the compensation awarded to injured workers in such cases is justified.

However, when an employee who is hired to do a job that produces no discernible injuries and who has been laid off for legitimate, non-discriminatory reasons is able to work around the system by claiming a cumulative injury, it is time to reassess the value of that part of the Labor Code. We must decide if both parties to this equation are being properly served. Or, is this an abuse of the system that has been allowed to fester too long?

As a starting point for this discussion, when someone is hired for a job — whether it is brain or brawn — the employer is taking on the whole person as he/she finds them. When the employee arrives at the jobsite, he/she does not simply place their body in the corner to rest while they do their job. Employers hire the entire package as he/she finds them and is responsible for same.

I would then point out that whether or not we like it, all of us are "wearing-out" as the years pass. The question then is, "Why should an employer be responsible for the normal aging process vs. being responsible for a specific injury?" I argue that they should not.

I therefore offer three possible options for consideration. Any or all of these will allow legitimate cumulative injuries to be raised as part of the work bargain while at the same time making employees responsible for their own "wearing out."

1. Take cumulative trauma claims out of the Labor Code and allow employees to make cumulative trauma claims as they would a specific injury. This will place the burden of proof on the employee to show, just as they do with a specific injury, how this trauma is more than part of the "wearing out/aging" process.
2. Change the definition of a cumulative trauma injury to more closely mirror that of psych/stress claims. In other words, let the employee show how the preponderance of actual work, absent the normal aging process, had caused additional disability which should be covered.
3. Since the employer is hiring the entire package, we should set up a "depletion" allowance funded by the employee. There should be a percentage taken from each dollar earned which will be placed in a fund similar to a 401K. It will belong to the employee and will be portable so that it follows him/her throughout their working career. At the time they become eligible for Social Security they would have access to this additional fund of dollars. This would result in taking the burden of the normal aging process off the backs of employers.

Regardless of which of these you feel would be the best solution to a growing problem, the real point is that this is a further drain on employers, and therefore the California economy, and needs to be addressed. I only hope that all of that which was shared will not have fallen on deaf ears. Only time will tell, and I promise to keep you informed as we see positive changes to the system to make it fair for everyone.