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Brain Drain: 22 Steps to Reduce the Impact of Retirement and Increase Employee Retention

Is your organization ready to lose as much as 25% of its intellectual capital in the next decade? You need to be, because more than one quarter of the U.S. working population will be old enough to retire in less than three years, according to the U.S. Bureau of Labor Statistics.

This may lead to a shortfall of nearly 10 million workers. Add this flight to an average job stay of four years, where today’s employees switch to a competitor without so much as a backward glance, and businesses in America are at risk.

America is poised for a brain drain so dramatic that many companies will find themselves unprepared to face the coming talent shortage. Yet it appears few companies are taking steps to deal with the crunch. 

This article explores actions companies can take to manage looming intellectual losses. Some are straightforward; some will take more planning. Any organizational change comes from the top, and industry leaders must deal swiftly and strategically with the changes our work force will undergo in the coming years.

As companies increasingly rely on intellectual capital, the value of work force intelligence to an organization cannot be overstated. There is little doubt that the insurance industry, so reliant on intellectual capital, should be at the forefront of addressing the looming loss of intellectual capacity.

Where Did All the Experts Go?

Brain drain historically has been defined as the loss of human skills in developing nations, usually because of the migration of trained individuals to more industrialized nations or jurisdictions. However, as baby boomers begin to retire, the term is increasingly used to describe the loss of intellectual capital at U.S. organizations. Downsizing also takes its toll on work force intelligence.

The U.S. work force has changed dramatically. A baby boomer’s parents may have held one job in their entire careers; experts estimate a typical young American will hold from seven to 10 different jobs before retirement. Insurance organizations are experiencing brain drain as long-term employees retire, switch employers or change careers. There is little doubt—insurance organizations are about to see drastic changes resulting from this exodus.

Future employment demographics should sound an alarm to insurance companies in America. Over time, the lack of top talent can be devastating to an organization, especially in an industry as complex as insurance. Add an increasing dependence on technology, and future employee skill deficits are a certainty, not just a theory. While this exodus is beginning to hit the insurance industry now, it will accelerate greatly in the next few years as aging boomers, those best placed to assume senior management roles, retire. This talent shrinkage must be managed now, before organizations find themselves in crisis.

Penny-Wise, Pound Foolish?

It may seem profitable to replace an older, more costly employee with a younger person. However, organizations may lose a great deal more than they bargained for with that replacement. With the departure of these highly experienced employees, companies lose more than their individual expertise. Also lost is what psychologist Daniel Wegner calls “transactive memory.”1 Transactive memory is information a person accesses that is outside of his or her own memory, information routinely called up by using another person’s memory.2 Groups where this transactive memory is understood and valued function better than groups that lack this trait.3

Take co-workers. On a difficult property claim, an adjuster may turn to a co-worker and ask, “What is the name of that engineer we used a few years ago in Georgia on that storm-surge claim?” Our brains can store only so much information. If we have access to people around us who may be more suited to remember a particular type of information, then we don’t have to work as hard to remember items that we don’t understand, don’t recall or don’t need at the time we hear it.

Brain drain slows the work process and impairs a company’s product quality. It can result in inefficiency because of the time it takes employees to find new co-workers with the information they may need. It can also result in costly mistakes resulting in lawsuits, lost subrogation opportunities or claims paid that, with a thorough investigation, would have been denied. Probably most importantly, a work force lacking robust intellectual capital loses its strategic advantages and abilities to respond quickly to business opportunities.

Insurance professionals are concerned about brain drain, yet even a casual review of insurance literature shows that much of the focus in industry research centers on improving technology to enhance operations. Even the term “human-resource management” seems to be morphing into a robot-like term, “human-capital management.” This disembodied approach seems to negate the fact that we’re still dealing with people; yes, they may be “capital’ to a company, but most employees would be offended to hear themselves referred to in that manner. “Talent management,” the new euphemism for recruiting and retaining employees, again seems to dehumanize the worker. Few people appreciate being “managed” or referred to as “capital.”

The emphasis in insurance companies seems to have shifted away from quality toward quantity. How much faster can we complete a process, appears to be the question. Can we settle a claim in 30 days, even if we have to throw more money at it? Has customer service and quality been forgotten in the effort to improve company operations? Have we, in an effort to increase profits, driven much of our brightest talent right out the door?

The Devalued Older Worker

Insurance message boards are filled with complaints from older, highly experienced insurance professionals who cannot find work, some with two to three decades of knowledge. “I have a solution to the brain drain in the insurance industry. Hire me and all those still looking for work … and some of the people whose resumes are posted on the Broward County RIMS website, among others,”4 one frustrated professional said in a June 2007 on-line risk management discussion. If these complaints are true, the widespread reluctance by insurance organizations to hire older, experienced workers may backfire because of the lack of new talent breaking down doors to enter the industry.

Nowhere is brain drain felt more acutely, it appears, than in claims departments nationwide. According to Conning Research & Consulting,5 70% of the nation’s adjusting staff is age 40 or older. “I have found this [talent leakage] particularly true in the claims arena,” according to James Brittle, a producer in the National Accounts division of Cobbs, Allen & Hall in Birmingham, Alabama.  “Coming from the highly engineered chemical and energy field, try to find one carrier that still has experienced and knowledgeable adjusters to handle property claims. There are two options — young and inexperienced or experienced and independent. The latter group is getting smaller and smaller. It’s not real comforting.”

How can companies prevent brain drain? Here are some possible solutions.6

1. Analyze current workforce strengths and talents to determine core competencies.

If an employee’s store of knowledge is known only to a few co-workers, then it is largely useless to the organization as a whole. It becomes an information silo, a vertical information cluster that is not transmitted laterally to co-workers, usually to the detriment of the organization. Analyzing employees’ expertise and knowledge and categorizing it so that it becomes accessible by other employees and departments is critical to improving and strengthening the work force.

2. Determine, through surveys or informal meetings or email queries, where employees go for specific information.

Who are your employees’ “information agents” in given areas? Imagine this scenario—a Lloyd’s underwriter wants to issue a binding authority to an agent in Florida. Before agreeing, however, the underwriter must determine wildfire hazards in the counties where the agent wants to write business. If the underwriter can, with a few keystrokes, search a database that shows Lloyd’s experts who understand catastrophe modeling and perhaps understand wildfire exposures particularly well, the decision to issue the binding authority can be made more easily and accurately, not to mention more quickly.

Knowledge Asset Mapping, written about extensively by British researcher Bernard Marr, allows organizations to locate and diagram internal knowledge. This visualization of intellectual capital, which Marr states is the “principal basis for competitive advantage,”7 can then be used as a strategic planning tool so that organizations can predict future intelligence gaps before they occur.

Today’s organizations must be agile to compete. Classifying employee knowledge to make it more accessible to others in the organization can help companies make decisions rapidly. It goes without saying that companies like Apple have seized marketplace opportunities to catapult themselves into leadership positions. Without sufficient intellectual capital, however, a company may not be robust enough to respond to opportunities as they arise.

3. Prepare to replace exiting information agents when those employees retire.

In smaller organizations, this process may not be formal. It may be as simple as acknowledging that an employee who is an expert on a subject is leaving. Notify all employees of the loss of this person, then direct them to another employee who may not have as much knowledge, but has some knowledge in that area. The company must develop incentives and time frames so that newer information agents can become experts on specific topics as gaps arise, and even before they arise.

4. Determine which employees are potential flight risks, whether to retirement, recruitment or family pressures such as aging parents.

Talk openly with employees who are considering retirement or having home/work difficulties to determine how you can retain them. Flexibility is the key—the employee may need more time off or greater leeway to work non-core hours or to work at home. If the Family and Medical Leave Act (FMLA) is voluntary, your organization should consider allowing FMLA leave.

5. Hire retiring employees as consultants on a part-time basis to retain their expertise.

With increasing cost of medical care for retirees, many welcome a supplement to their retirement income. Adding benefit package components that appeal to older workers, such as long-term care insurance or prorated health coverage for part-time work, may help retain them, as well.

6. Provide incentives for employees to consider postponing retirement.

When an organization considers the total impact of losing a long-term employee, it is generally cheaper to retain that employee than to hire and train a replacement, especially if the employee’s knowledge routinely saves the company money. Consider the following scenario:

A claims manager will retire in two years, after working more than 30 years for just two carriers. He is one of the top arson investigators in the Midwest, taking dozens of arson claims to trial or to closure. Currently, there is no one else in his company who handles arson files without his supervision, and no one who remotely approaches his level of expertise.

What happens to this company when he leaves? How much will his departure cost the company in terms of claims payments that might have, with his expertise, been compromised or denied? Can this organization really afford to lose the employee’s expertise without a solid exit strategy?

7. Use technology to drive intra-company communications.

Intranets, videoconferencing, peer-to-peer technology and podcasts are information ways that allow workers to communicate over distance and varying time zones. Encourage disparate and divergent workers to develop virtual relationships to share ideas and solve problems using these tools. Why not take advantage of your global work force?

8. Establish “practice communities” where individuals from various departments — claims, underwriting, marketing and reinsurance — meet regularly to solve problems.

According to James Surowiecki, author of The Wisdom of Crowds, a crowd is a group of diverse people with differing levels of intelligence and information who collectively make smart decisions. A good example of this wisdom, as many claims managers have found, is “round tabling” a claim. Allowing a group of adjusters with varying amounts of experience to determine a claim’s value or to develop a plan of action to kick a stalled claim forward often provides excellent results and acts as a learning tool for less experienced team members.

Surowiecki defines four elements that make a smart crowd. He recommends a diverse group because each person will bring a different set of experiences to the process. The crowd should have no leader, so that the group’s answer can emerge. But there must be a way to articulate the crowd’s verdict. Finally, people in the crowd must be self-confident enough to rely on their own judgment without undue influence from other group members.

With today’s sophisticated technology, organizations don’t have to rely solely on local talent. A company-wide initiative can be implemented readily with some help from your organization’s information technology department. Practice communities build virtual relationships that, in turn, make employees more connected to the organization.

9. Organize and memorialize your practice community results with wikis, a decade-old web application that allows many people to collaborate on a single document.

There are several sites dedicated to collaborative writing, including https://www.zoho.com/docs/. Visit http://www.wikipedia.org, the on-line encyclopedia written by collaboration, to view an example of wiki technology at its finest.

10. Implement a formal mentoring program.

Some insurance organizations have implemented mentoring programs. The National Association of Catastrophe Adjusters formed a mentoring program in 2005. While not online, it matches new adjusters eager to learn CAT adjusting with experienced field adjusters.

Aon Services is almost a year into an ambitious mentoring project. With 600 Aon employees in the pilot program developed with assistance from Triple Creek Associates in Colorado, Aon expects to roll out the program companywide. The program was not limited to senior manager mentors; anyone in the organization with good performance was eligible to participate. “This challenged our operational paradigms, to have a junior person mentoring a senior person,”8 according to Talethea M. Best, Aon’s director of U.S. talent development.

The results have been positive, she reports. 86% of the mentees and 62% of the mentors who responded to a recent survey felt that the process improved their own performance. 85% of the mentees and 78% of the mentors would participate again if asked.

“We encouraged a protégé-driven process,” Ms. Best said. Potential mentees used a computerized platform with specific parameters to search for what they wanted in the mentor relationship. “It was a win/win for all involved,” Ms. Best said.

“This [mentoring project] was an opportunity for us to think more strategically,” Ms. Best reported. “To retain employees, it is critical to make people feel invested and engaged. How do you make folks feel like they make a significant contribution? Mentoring is a way to address that,” at a cost of pennies per employee, Ms. Best said.

Not all managers are mentor material. To be effective, mentors must receive some training. Aon addressed this concern with initial employee development workshops.

To ensure the highest quality mentorship for your employees, it is critical that mentors are carefully selected not only for their technical skills, but for their ability to communicate effectively in an increasingly diverse work force.

11. Pool knowledge across organizations.

Your Encore, founded by Procter & Gamble and Eli Lilly, is a society of retired research scientists and engineers who “continue to provide value―at its highest level—to companies on a consulting basis,” according to its website. The insurance industry is particularly well-suited to this approach because risk pools changed the face of insurance, so the models to implement this approach are already well-accepted by our industry. Don’t be unreasonable with information, but do set some ground rules and ensure employees comprehend which information is proprietary and which can be shared.

12. Cross train employees.

“A former employer of mine combined the loss control and underwriting functions,’”9 and it worked out well, reports Mike Benisheck, director of risk management for Pacific Tomato Growers. “They had a historical loss ratio of 30–32% annually for about 15 years.” When the functions were separated, losses spiraled, Benischeck reported.

Cross training can limit employee burnout and provide new motivation for employees who feel stymied in their careers. It also strengthens an organization’s operational team.

13. Cultivate a culture that values expertise.

To prevent brain drain, an organization must provide an atmosphere that values aging workers and the knowledge they possess. Recognizing, but more importantly acknowledging, their contributions to the organization, not just the number of claims they close or the amount of new business they produce, may mean keeping employees a few years longer. Small changes in any organization, as anyone who read the book The Tipping Point knows, can mean enormous changes overall.

Younger workers should be made aware of demographic trends and what they mean to their careers. Many younger workers are eager for career advancement. The demographics pointing to a sharp talent drop are in their favor if they prepare themselves, and organizations help them prepare, to take supervisory and management positions. Few younger workers recognize this trend. Organizations that speak frankly of these developments and what they mean to each person, not just the organization itself, will build loyalty and perhaps help to cultivate patience in generations that are used to quick answers and quick solutions.

14. Encourage employees to join online insurance groups like RiskList or PRIMA-Watch.

Insurance professionals are notoriously generous with their time and information when it comes to helping their counterparts, as any insurance industry employee knows who belongs to a professional organization. Insurance server lists have been online for many years with a faithful membership. List members will respond to just about any inquiry with an impressive depth and breadth of knowledge, with some humor thrown in, as well.

15. Support employee membership in professional organizations like your local claims association, Insurance Women, RIMS or CPCU Society.

“Support” means paying dues and supporting the absences necessary for employees to both attend conferences and to hold committee positions. This gives employees a strong network to turn to for information and support. There has been a mindset in the industry that allowing employees to network outside the company increased the employee’s flight risk. More enlightened managers realize that if employees feel valued for their expertise and encouraged in their professional development, they are generally more loyal to their employers.

16. Offer incentives for obtaining professional designations. Offer greater incentives for attending classes rather than online participation.

According to the CPCU Society, in 2006, 88% of CPCUs were age 40 or older. Taking a class from an experienced instructor with students from other companies and disciplines gives students a much broader experience. It also exposes them to others with whom they can network or seek advice. Designations are a clear indicator that employees see insurance as not just a job, but a career.

17. Avoid the human resources “silo.”

An information silo is a pool of information that is not well-integrated in an organization. Human resources departments often act as “silos,” gatekeepers in the hiring process, by determining which applicants get interviewed. Forming inter-departmental hiring panels, teams that develop job descriptions, review applications and give input on general hiring and other personnel issues like employee retention, can greatly improve a company’s work force.

18. Don’t underestimate the impact that younger generations and their different work standards have on older workers.

There are four generations of workers in today’s increasingly diverse workforce. With Millennials, Gen Xers and Yers in the employment mix, many young people are either intimidated by older workers or are downright contemptuous. Older workers, in turn, often cannot comprehend their younger peers’ thinking and may be intimidated by their ease with technology.

Forming intergenerational teams can bring divergent employees together so that they can benefit from each others’ strengths, not just complain about their weaknesses. Utilizing younger workers who are good communicators and technologically proficient to train older workers in new technology can bridge two gaps—the generation gap and the technology gap. In turn, older workers can mentor younger employees and model appropriate and ethical behavior.

19. Consider the Total Cost of Jerks (TCJ) to the organization.

Verbal abuse, intimidation and bullying are widespread in the American work force.10 But some companies are taking notice. There is a growing trend in companies to consider the TCJ impact on the work force, including several organizations on Fortune’s “100 Best Places to Work.”

Robert Sutton, Ph.D., professor of management science and sngineering in the Stanford Engineering School, views “jerks” in a much more explicit light. Sutton wrote The No Asshole Rule, a business bestseller that provides steps organizations can take to quantify the cost of jerks and eliminate them.

He lists the “dirty dozen,” the top 12 actions taken by those who use organizational power against those with less power. “It just takes a few to ruin the entire organization,” Sutton writes.11

Older workers may have seen it all, but they don’t always have the patience to put up with twits. That jerk in the cubicle next to a long-term employee may be the final nudge that pushes a valued older worker out the door. Most employees who have options like retirement tolerate jerks for just so long, and then they clean out their desks.

Eliminating toxic employees can improve more than the organization’s internal structure, because if an employee treats coworkers badly, how is he treating your customers?

20. Make the most of the existing work force.

Studies have found that as much as 40% of the time spent handling a claim can be spent in administrative tasks that don’t affect the claim’s outcome significantly. It makes sense, then, to drive work down to its lowest possible level of the organization. Are adjusters still issuing checks, composing the same letters over and over and answering calls that could be delegated? According to employment consultant Peter Rousmaniere, some corporations are outsourcing their claims-support systems.  “[Outsourcing] offers the potential of injecting into the claims management process some very intelligent, well-educated people who are very motivated to perform functions [that], due to global information systems, they can do proficiently.”

21. Don’t overlook diversity.

Many employees are overlooked in the promotional process because they are of different nationalities, ethnicities or gender than the dominant makeup of an organization. Whites follow a different career path than their non-white counterparts, according to David A Thomas, author of an article on minority mentoring that appeared in the Harvard Business Review. Whites frequently get more attention from their managers and hence more opportunities.

Thomas’s research showed that the one common attribute people of color who rose to the tops of their organizations had was mentorship, but mentorship that went beyond what he termed “instructional.” They had mentors who provided a deeper relationship that increased their mentees’ confidence and did not shy away from frank discussions about race.12 If we fail in our organizations to see beyond employees’ gender, skin color or religious beliefs, we may overlook our brightest talent.

22. Address the problems of brain drain strategically.

To date, there is a great deal of discussion on brain drain in the insurance industry, but little empirical evidence to use to determine which methods might avoid this loss. Many insurance executives are talking about the problem in conferences and trade journals, but what are insurance companies doing to address it?

To create organizational change, an organization must start with a vision. What are the problems we face, and what are their consequences both short-term and long-term? Where will our work force needs and realities stand in five years?

Effective Organizational Change Begins with a Plan

Without a roadmap, even the savviest traveler occasionally gets lost. To address brain drain strategically, a company must develop a strong vision and a stronger plan. This plan can be implemented over time, but it must have clear goals and time frames to avoid becoming mired down in processes.

From top management to line supervisors, there must be a shared sense of urgency about this problem, because any critical initiative can go astray because of the competition that all organizations face in today’s highly competitive global market. To solve the coming talent crunch, organizations must commit the resources to tackle this problem strategically, while there is still time.

1 Wegner, Daniel, Paula Raymond, and Ralph Erber. “Transactive Memory in Close Relationships,” Journal of Personality and Social Psychology 61 (1991): 923––929.

2 Gladwell, M. (2000). The Tipping Point: How Little Things Can Make A Big Difference. New York: Little, Brown & Company.

 3 Ibid.

4 RiskList Users Group, June 23, 2007.

5 “Generational Talent Management for Insurers: Strategies to Attract and Engage Generation Y in the U.S. Insurance Industry,” Deloitte & Touche, 2007.

6 Private communication.

7 Marr, Bernard, and J.C. Spender. “Measuring Knowledge Assets – implications of the knowledge economy for performance measurement.” Measuring Business Excellence 8(2004): 18–27.

8 Private communication.

9 Private communication.

10 Lutgen-Sandvik, P., Tracy, S. J., & Alberts, J. K. (in-press). Burned by bullying in the American workplace: Prevalence, perception, degree, and impact. Journal of Management Studies.

11 Sutton, Robert. The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn't. 1st. New York: Warner Business Books, 2007, p. 180.

12 Thomas, David A. “The Truth About Mentoring Minorities: Race Matters.” Harvard Business Review April 2001.

3 Reasons Why Millennials Should Embrace a Career in Insurance – And Why Insurance Needs Them

The insurance industry faces an urgent need to attract a new generation with new talent. According to the U.S. Bureau of Labor Statistics and AARP, within 15 years as much as 50 percent of the current insurance workforce will retire. In addition, the industry is changing so fast that it can no longer rely on traditions and standard practices; insurance requires new ideas and new skills.

While all industries eventually face a time when there is a passing of the baton from one generation to the next, insurance is taking a hit now because we have an older than average workforce. So, we must engage with so-called Millennials to show that insurance is, in fact, an innovative and rewarding industry to work in.

In the early 1990s, when the California dairy industry faced a similar dilemma, it came up with the “Got Milk?” campaign. The campaign resonated with an important demographic, kids aged 12-18, who were being drawn away from milk by massive brand campaigns from providers of other beverages. The campaign was wildly successful, reinvigorating milk sales after three decades of declines.

The insurance industry needs the equivalent of a “Got Milk?” branding campaign. It needs to contain three key messages:

1. Insurance is an increasingly savvy industry.

Insurance carriers have had to adapt and evolve for centuries. Today, insurers are incorporating cutting-edge technology, including big data and predictive analytics. Tech is becoming a mainstay in the industry.

Companies such as Vodafone and Burberry have shown how data can transform marketing, and insurers will follow their example. As a whole, the industry will become much more innovative.

So, the industry should be enticing not just to young talent who are inherently tech-savvy and creative but also to those students who have a history in STEM (science, technology, engineering and mathematics).

2. Insurance is a sustainable industry.

In an unstable and uncertain economy, insurance has longevity on its side. As long as people continue to drive cars, buy homes and, simply, work, there will always be a need for auto and homeowners insurance and workers’ compensation. Insurance offers job security for Millennials who may be nervous about the fluctuating job market.

The insurance industry also provides a unique opportunity for young people to establish a solid foundation for a career with room to grow. Whether someone wishes to be an underwriter, an agent, or an actuary, there is a little something for everyone. Millennials tend toward “job hopping,” and insurance can provide young people with enough internal mobility to maintain their interest while keeping them within the industry.

3. Insurance is a service industry.

The insurance industry serves an important common good by allowing all of us to share risk for a small fee (premium) so that an accident or a storm does not ruin people financially. Without insurance, most people wouldn’t be in the financial position to start a business, own a home or even have a car. The core purpose of insurance meshes well with the interests of Millennials, 63% of whom volunteered for a nonprofit in 2011, according to the Millennial Impact Report. People who have a passion for helping others might welcome being a customer service representative and being the first point of contact at an insurer or might enjoy being an underwriter and ensuring that insurance policies are accurately written to provide a customer with the best protection.

Moreover, as young people’s talents and passions are brought into the industry, insurance carriers can expect to become better at what they do. In other words, the expertise stemming from new generations will allow for more accurate and, most importantly, more responsible insurance practices when handling scenarios such as relief from natural disasters.

The insurance industry truly makes a difference in people’s lives, often during difficult times. Young people can transfer their compassion into a career that delivers tangible results not only for themselves but for other people, too.

How will we attract and lead the new generation?

Where do we go from here? How do insurance companies draw talent when the competition is so fierce?

The first step is to use the tools we have – each other. The insurance industry can unite to overcome this talent crisis and collectively focus on appealing to the Millennial generation. An example of collaboration is Tomorrow’s Talent Challenge – an initiative involving industry leaders to motivate college students to explore the career potential in insurance analytics and technology.

We must also recognize that Millennials are looking for leadership they can relate to. Insurers need to hire people with titles such as chief decision scientist and chief data officer to head new departments of digitally savvy experts, if insurers are to draw young, tech-savvy talent. Creating and filling these roles will not be easy. According to McKinsey, by 2018, global demand for technical and managerial talent will exceed supply by 50 to 60 percent. We need to start working on the problem now.

If we as an industry can attract the right senior-level talent, can effectively communicate the professional and personal benefits we can offer to young people, and can articulate the creative contributions they offer us, then we will be on the right track for everyone to be asking the important question:

Got Insurance?

What An Employer Can Do To Reduce Soft Tissue Injuries In The Transportation Industry

The trucking industry accounted for nearly 20 percent of all days-away-from-work cases in 2011. Correspondingly, trucking was among the seven occupations which had an incidence rate greater than 300 cases per 10,000 full-time workers and who had greater than 20,000 days-away-from-work cases.

OSHA defines a Musculoskeletal Disorder (MSD) as an injury of the muscles, nerves, tendons, ligaments, joints, cartilage and spinal discs. They identify examples of Musculoskeletal Disorders to include: carpal tunnel syndrome, rotator cuff syndrome, De Quervain’s disease, trigger finger, tarsal tunnel syndrome, sciatica, epicondylitis, tendinitis, Raynaud’s phenomenon, carpet layers knee, herniated spinal disc, and low back pain.

The average cost of a work-related soft tissue injury in the trucking industry exceeds any other industry. According to the U.S. Bureau of Labor Statistics (BLS), Musculoskeletal Disorders nationwide typically account for 33% of work-related injuries, while the incidence of Musculoskeletal Disorders in the transportation industry is 60-67%. The Bureau of Labor Statistics also noted that there were 1.4 million total transportation workers, and each year 1 in 18 is injured or made ill by the job.

These higher rates of injury can be attributed in part to several factors. Due to the nature of their work, many drivers maintain a poor diet, rarely get enough sleep, and are sedentary. As a result, they find themselves more susceptible to heart attacks and diabetes, as well as a myriad of strains, sprains and various other Musculoskeletal Disorders.

Additionally, the percentage of older workers is higher in transportation than in most industries, with the Transportation Research Board estimating that up to 25 percent of truck drivers will be older than 65 by 2025, translating into more severe Musculoskeletal Disorder claims.

These factors are contributing to more workers’ compensation claims for drivers which increase employers’ costs. As part of the job, many truck drivers are required to unload the goods they transport, leading to serious sprains and strains. Heavy lifting after long periods of sitting can increase the likelihood of severe sprains and strains. In addition, drivers often rush at the delivery site in an effort to meet the demands of tight schedules. This combination contributes to 52% of the non-fatal injuries in this industry, with trunk and back claims accounting for 70% of these cases.

Due to its unique workplace circumstances, the commercial transportation industry is at higher risk for increased frequency of injuries and costs to the industry. The following describes the framework of this dilemma:

  1. Commercial transportation jobs expose workers to high physical demands and extended hours of exposure.
  2. The transportation industry experiences one of the highest work-related injury rates among all workplace sectors.
  3. The transportation industry experiences a high level of turnover on an annual basis, which results in a high number of newly hired employees exposed to unfamiliar and physically demanding tasks.

While this is an industry-wide issue, we will focus on California in order to illustrate how problematic it truly is. In March of 2010, the California Workers’ Compensation Institute (CWCI) issued its latest scorecard for the California Trucking Industry. Over eight years, $480 million dollars was paid in medical and indemnity costs alone. The study found that, even though this industry accounted for only 1% of all California industrial claims, they accounted for 1.8% of the state’s workers’ compensation paid benefits. It was also found that medical and indemnity payments were higher than any other industry. The average lost-time direct claim cost at $18,587 is 41% higher than the industry average in California. The indirect costs in this industry range from a 2x to a 10x multiple, and in an industry known for low profit margins, controlling costs is critical.

It should also be noted that California can retain jurisdiction of a workers’ compensation claim even if the injury did not occur in that state; the employee only has to live in California, drive through California or have been hired out of California. This is such a significant problem that in 2010 the U.S. Department of Transportation initiated the Compliance Safety Accountability measure of driver’s fitness. This is specific to transportation, is publicly available, and the ratings are tied to insurance rates and letters of credit.

With the numerous reforms taking place in 2013 and the Centers for Medicare and Medicaid Services (CMS) Mandatory Reporting Act, it is now essential that employers become proactive and only accept claims that arise out of the course and scope of employment. Medicare has mandated all work-related and general liability injuries be reported to CMS in an electronic format. This means that CMS has the mechanism to look back and identify work comp-related medical care payments made by Medicare. This is a retroactive statute that will ultimately hold the employer and/or insurance carrier responsible for these payments.

Should CMS have to pursue the employer in court, the amount owed is doubled. The insured or employer could pay the future medical cost twice — once to the claimant at settlement and later when Medicare seeks reimbursement of the medical care they paid on behalf of the claimant. There is no statute of limitations on compliance with the MSA requirements. CMS can review claims closed last year, five years ago, or even longer to check for compliance. Penalties and fees for noncompliance are $1,000 per day if medical care is not paid within 30 days.

Historically, soft tissue injuries have been difficult to diagnose and even harder to treat due to the broad spectrum of disorders related to soft tissue. Most diagnostic tests are not designed to address Musculoskeletal Disorders and are unable to document the presence of pain or loss of function … two key complaints.

Employers need a way to manage their Musculoskeletal Disorder exposure and provide better care to their injured workers. The key to managing this problem is for employers to obtain the ability to only accept claims that arise out of the course and scope of employment. The only viable solution for employers is to conduct a baseline soft tissue assessment in order to establish pre-injury status. The baseline must be job and body part specific and objective to comply with the Americans with Disabilities Act Amendments Act of 2008.

The baseline assessments are not read or interpreted unless and until there is an injury. By not identifying a potential disability, employers are able to conduct baseline assessments on new hires as well as existing employees while maintaining compliance with the Americans with Disabilities Act Amendments Act. If there is a soft tissue injury, the employee is sent for a post-loss assessment to determine what and if there is any change from the baseline assessment. If no change is noted (no acute pathology), then there is no valid claim. This proven baseline program is known as the EFA Soft Tissue Management Program (EFA-STM Program), which utilizes the Electrodiagnostic Functional Assessment to objectively provide this data.

Internal Vs. External Benchmarking Of Insurance Claim Data

Data-driven analysis is a critical decision-making tool for Construction Financial Managers and other industry leaders.

Decision-making is arguably the most important responsibility of company leadership.

Companies that make better decisions make fewer mistakes, and achieve a distinct competitive advantage in the marketplace.

The underlying purpose of benchmarking is to continually improve the quality of organizational decision-making.

Overview
As construction risk management consultants, we help contractors prevent accidents, mitigate claims, and reduce the total cost of risk through a continuous improvement process.

We believe companies must instill management accountability for continuous improvement by linking performance measurement to both prevention activities (leading indicators) and operational results (lagging indicators). As the adage goes:

“What gets measured is what gets done.”

In our consulting roles, we frequently help companies establish realistic performance measures by conducting various types of claim and loss analysis.

This type of data analysis is usually the starting point in a performance improvement process — and a common practice among insurance agencies, brokerages, carriers, and risk management consulting firms.

In addition, we are often asked to conduct a benchmarking analysis that compares one company's claim and loss data against peer companies or to the construction industry as a whole.

Benchmarking
The term “benchmarking” refers to the comparison of a company's performance results against those of similar peer companies. Benchmarking evolved out of the quality improvement movement in the late 1980s and early 1990s.

Its initial intent was to identify leading companies regardless of industry sector, and apply their best practices to improve one's own company. Over time, benchmarking has become synonymous with process improvement.

The traditional view of benchmarking required two separate disciplines focused on performance improvement: measures and methods. Identifying and capturing performance indicators (the measures) is only the first step; developing and implementing performance improvement (the methods) is the second and most important step for the benchmarking process to be truly effective.

The Health Club Analogy
There is limited value in benchmarking without applying new methods to address continuous performance improvement. Performance improvement requires more than the measurement of performance indicators; it requires the implementation of changes in management disciplines to attain improved operational results.

Using only performance indicators without implementing new methods to improve operations is akin to joining a health club and expecting the benefits without actually using the equipment or committing to an exercise program.

Merely jumping on the scale and gauging your weight relative to others doesn't help you achieve your own weight loss goals anymore than comparing your pulse and respiration rate to others helps you attain your aerobic or cardiovascular fitness goals. What matters most is that a person embarking on a weight loss or fitness program stays committed to the process and monitors his or her own progress.

Similarly, we believe the ongoing monitoring of claim and loss data specific to an individual company is even more important than the initial measurement of insurance claim and loss data relative to other companies.

Baselining As Benchmarking
The term “baselining” refers to the internal benchmarking process that occurs when a company compares its performance against its own results year after year. Ongoing, internal monitoring allows a contractor to determine if the company's claim and loss trends are improving or deteriorating, and to make the critical performance improvement decisions necessary to facilitate a change in results.

Referring back to the health club analogy, baselining does not compare an individual's weight and aerobic fitness to that of the other health club members. Instead, individual fitness goals and measures are established, monitored, and tracked to verify continuous personal improvement.

Similarly, a construction company can develop a baseline analysis of its loss cost performance by reviewing loss and claim data for a minimum of 3-5 years. Company results are compared from year to year, and ideally are broken down by operating entity, division, project, manager, or even crew levels.

Exhibit 1 provides a sample of a baseline analysis that compares one company's relative claim and loss performance within all of its operating divisions.

2001-2006 Total Claim Cost per Man-Hours Worked by Division

 

This analysis reviews the historical loss cost data for the entire company and breaks it down into meaningful data relative to each operating division. The total workers' comp, Comprehensive General Liability, and auto liability incurred claim costs (sum of paid and reserves) for each company division over a five-year period were compared to the total man-hours for each division, producing a cost per man-hour figure.

The results illustrate dramatic differences in total claim costs per man-hour for each division. This baseline analysis was the first step in raising awareness of the predominant loss leaders within the company. This increased awareness led to a detailed analysis that established plans of action and realistic cost targets by company division for the upcoming year.

External Benchmarking
We acknowledge that there are numerous benefits to measuring the frequency, type, and cost of insurance claims compared to peer groups and/or the entire construction industry. Such analyses provide the ability to:

  • Identify leading types and sources of claims
  • Establish strategic objectives to prevent the occurrence of common industry claims
  • Increase knowledge of industry best practices
  • Determine operational performance improvement priorities
  • Create awareness among managers and employees about the costs of claims and the impact on profitability
  • Post positive results on company websites and for use in other marketing materials

The Bureau of Labor Statistics provides safety-related data so that companies can externally benchmark injury and illness data against specific industry groups. (Check out the Web Resources section at the end of this article for more information.)

In addition, Bureau of Labor Statistics data is used to calculate and compare OSHA Recordable Incident Rates and Lost Workday Incident Rates, both of which are common construction industry benchmarks. This data is useful when making high-level comparisons within construction industry segments relative to injury and illness rates.

We also use external benchmarking analyses to establish risk reduction, loss prevention, or cost containment goals. In “Risk Performance Metrics” by Calvin E. Beyer in the September/October 2007 issue of Building Profits, a sample benchmarking comparison shows a representative contractor's duration of lost workdays workers' comp cases in median number of days compared against the median duration for the industry. Results such as these can highlight the importance of an increased focus on injury management and return-to-work programs.

The benchmarking analysis in Exhibits 2A and 2B compares a contractor's workers' comp claim and loss performance to an established group of peer contractors in the same specialty trade. (These companies engaged in similar work, and performed in states with similar insurance laws and legal climates.)

WC Claims Per $1 Million WC Payroll by Company

The analysis was based on total incurred workers' comp costs and total number of workers' comp claims as compared to payroll for each entity. Overall, Company D had worse results than the other three companies.

This prompted an in-depth review of Company D's workers' comp losses by division and occupation. As shown in Exhibit 3, the company experienced significant claim frequency and severity issues within the first six months of employment.

WC Claim Count & Cost by Length of Service

These findings triggered the development and implementation of specific activities designed for Company D's new employees.

Below are some of the activities that were incorporated into the formal improvement plan:

  • hiring processes
  • new hire skills assessments
  • orientations
  • daily planning meetings
  • formal training

Other Sources Of Benchmarking Data
Professional associations and industry trade/peer groups also provide comparative data for benchmarking purposes.

The Construction Financial Management Association's Construction Industry Annual Financial Survey is an excellent source for understanding the key drivers of contractor profitability. We use the survey data to determine comparative profit margins for different types and classes of contractors when we calculate a revenue replacement analysis to show the additional sales volume needed to offset the cost of insurance claims. (This technique was highlighted in the “Risk Performance Metrics” article previously mentioned.)

Similarly, the Risk and Insurance Management Society (RIMS) conducts an annual benchmarking survey that reviews insurance rates, program coverages, and measures of total cost of risk.

An example of a peer group data source for benchmarking is the Construction Industry Institute (CII). The Construction Industry Institute is a voluntary “consortium of more than 100 leading owner, engineering-contractor, and supplier firms from both the public and private arenas” (www.construction-institute.org). It develops industry best practices and maintains a benchmarking and metrics database for its participating members.

Another peer group example involves members of captive insurance companies sharing and comparing claim and loss data for the group as a whole. There is a major advantage when a true peer group shares benchmarking data: Such data sharing often leads to peer pressure in the form of increased ownership and accountability for improvement by the companies shown to be the poorest performing members.

We continue to search for more new sources of industry best practices and comparator data. A possible emerging source for the construction industry is the National Business Group on Health. This organization has developed standardized metrics known as Employer Measures of Productivity, Absence and Quality™ (EMPAQ®).

EMPAQ® helps member companies gauge the effectiveness of their injury and absence management and return-to-work programs. The founder and principal of HDM Solutions, Maria Henderson, served as a project sponsor for EMPAQ® from 2003-2007, and co-presented with Calvin E. Beyer on “Return to Work as a Workforce Development Strategy” at CFMA's 2008 Annual Conference & Exhibition in Orlando, Florida.

Limitations Of External Benchmarking
We fear that the increasing popularity of external benchmarking analyses may indicate that it has become a “quick fix” solution or a management fad. When asked to conduct an external benchmarking analysis, we always ask the following questions:

  • What is your purpose in seeking these comparisons with other companies?
  • Who are you trying to convince and what are you trying to convince them to do?
  • What specific peer companies should be used for comparative purposes?
  • Are these companies (and their operations and exposures) truly similar enough for a fair comparison?

Beware Of Pitfalls
There are many hurdles to surmount in locating suitable companies for external benchmarking comparisons. Generally, when benchmarking comparisons can be made, more often than not the greatest value lies in the workers' comp line of insurance coverage.

Here are some key factors to consider when choosing contractors for external benchmarking comparisons:

  • Percent of self-performed work vs. subcontracted work
  • Payroll class codes and hazard groupings of selfperformed work
  • Differential geographic labor wage rates
  • Payroll rate variances between union and merit shop operations
  • Size of insurance deductibles
  • Claim reporting practices

For example, claim reporting practices must be similar in order to minimize distorting the frequency or average cost of a claim. If one or more comparison companies self-administers minor claims or does not report all claims to their carrier, using carrier loss reports for the comparison is an invalid method.

We also find that comparing the frequency of claims and total loss dollars divided by thousands or millions of dollars of payroll (exposure basis) is a helpful workers' comp benchmark between companies of similar operations in similar states.

Likewise, a suitable benchmark for auto liability performance compares the frequency of claims and total loss dollars per one hundred vehicles.

When benchmarking fleet-related claims, ensure that the number and size of fleet vehicles — as well as the type of driving (urban vs. rural) and the total number of miles driven annually — are similar among the contractors whose claims are being compared.

Benchmarking comparisons of Comprehensive General Liability insurance results are especially challenging due to delays in reporting third-party bodily injury and property damage claims, in addition to the expected long tail of loss development for these claims.

All of these factors are compounded by vastly different litigation trends and liability settlements in various states and regions of the country.

Common Limitations Of Data Sources
Whether or not you intend to develop a baseline of your company's claim data or to benchmark your company's performance against a peer company, there are several issues that must be successfully resolved regarding the data's quality and integrity.

Based on our experience, we classify the key challenges associated with exposure and claim/loss data into the categories shown in Exhibit 4: availability, accuracy, accessibility, standardization, reliability, comparability, and date-related problems.

Seven Data Challenges

Value Of Multiple Measures
Evaluating data from various sources and different angles is also valuable. Why? Because it's possible to gain a better understanding of the whole by dissecting the parts. This practice illustrates the principle of multiple measures.

This approach is substantiated by 2006 research, which concluded that the “simultaneous consideration” of frequency and severity provides a more comprehensive result than performing analysis based solely on one factor.1

This is similar to our approach when we conduct a “Claim to Exposure Analysis” and review historical frequency and severity vs. the relative bases of exposure for each line of casualty insurance coverage.

Returning to the health club analogy, when starting a formal exercise program, you often begin with such general baseline measurements as height and weight; this is usually followed by additional measurements, such as BMI, body fat content, and the girth of arms, legs, and chest (the baseline).

As we all know, weight alone is not always the best indicator of success in fitness efforts. In fact, since muscle weighs more than fat, an increase in total body weight may actually occur after beginning and maintaining a fitness program.

Although you might not experience a dramatic weight drop, you could see a reduction in waist size and BMI — positive changes that would not be evident unless multiple measures were being used and reviewed.

Benchmarking insurance claim and loss data performance is like comparing one person's height and weight against the ideal height and weight charts based on the entire population.

Wouldn't it be more effective to establish your baseline weight and other multiple measures initially so you can see the progress you are making?

This is similar to the baseline measurements that a company should take (as well as the multiple measures) that are necessary to meet your company's performance improvement goals for financial success, operational excellence, or risk reduction.

Web Resources:

  1. U.S. Department of Labor BLS Incidence Rate Calculator and Comparison Tool
  2. National Institute for Occupational Safety and Health Work-Related Injury Statistics Query System
  3. Risk and Insurance Management Society, Inc. Benchmark Survey
  4. Construction Industry Institute Benchmarking & Metrics
  5. National Council on Compensation Insurance, Inc. (NCCI Holdings, Inc.) Benchmarking Tools
  6. Employer Measures of Productivity, Absence and Quality EMPAQ
  7. CFMA's Construction Industry Annual Financial Survey with Benchmarking Builder CD

Authors
Cal Beyer collaborated with Greg Stefan in writing this article. Greg is Assistant Vice President, Construction Risk Control Solutions, at Arch Insurance Group. As a member of the Southeast Regional team in Atlanta, GA, Greg supports underwriting and claims in risk selection, claim mitigation, and risk improvement activities. He is also responsible for high-risk liability risk reduction initiatives including contractual risk transfer, construction defect prevention, and work zone liability management.

1 Baradan, Selim, and Usmen, Mumtaz A., “Comparative Injury and Fatality Risk Analysis of Building Trades,” Journal of Construction Engineering and Management, May 2006, pp. 533-539.

Repetitive Stress Injury Has Become Cumulative Trauma for Employers

According to the medical dictionary, Repetitive Stress Injury (RSI) is defined as an injury that occurs as a result of over or improper use. According to the U.S. Bureau of Labor Statistics, nearly two-thirds of all occupational illnesses reported were caused by exposure to repeated trauma to workers’ upper body (the wrist, elbow or shoulder). While one common example of such an injury is carpal tunnel syndrome, in the workers’ compensation area RSI can also be claimed for shoulder, and back injuries. According to the Occupational Safety and Health Administration (OSHA), repetitive strain injuries are the nation’s most common and costly occupational health problem, affecting hundreds of thousands of American workers and costing more than $20 billion a year in workers’ compensation costs.

In the past, if an injury didn’t result from an accident, there was no workers’ compensation claim. Those days are gone and now it is understood that cumulative trauma injuries and occupational injuries that develop over time are eligible for workers’ compensation. Even if an injury cannot be tied to a single event, workers’ compensation benefits can be claimed.

According to the January 2012 joint publication by WCIR and IAIABC, every state allows workers’ compensation claims for cumulative trauma with the following limited exceptions:

Arkansas — limited to rapid repetitive motion for back or neck and hearing

Hawaii — not in the statue but handling like any other claim

Louisiana — only when considered an occupational disease

Tennessee — with limits to carpal tunnel only if it is arising out of the scope of employment

Virginia — only cumulative hearing loss and carpal tunnel are covered as “ordinary diseases of life” and subject to higher “clear and convincing” evidentiary standards as opposed to the “preponderance of the evidence.”

This widespread acceptance of RSI claims is becoming traumatic in in itself for employers, especially when one considers the requirements by CMS that were established to protect Medicare from future medical expenses for workers’ compensation and general liability claims. With these new mandatory requirements that all workers’ compensation and general liability claims be reported in electronic format, CMS has the mechanism to look back and identify workers’ compensation-related medical care payments made by Medicare. When CMS/Medicare learns (and they will) that it has been paying for workers’ compensation-related medical care it will seek repayment. The insured or employer could pay the future medical cost twice; once to the claimant at settlement and later when Medicare seeks reimbursement of the medical care they paid on behalf of the claimant, i.e. the cumulative effect.

Let’s focus on a key state, California, where this has become a pressing issue. Under California Labor Code Section 5412, the date of injury in cases of occupational diseases or cumulative injuries is that date upon which the employee first suffered disability therefrom and either knew, or in the exercise of reasonable diligence should have known, that such disability was caused by his present or prior employment.

The wording of this statute is proving to be very problematic for employers, as there is no clear-cut timeframe to hold an injured worker accountable to report said injuries. Even more so since cumulative trauma disorders are difficult to diagnose and treat and causation plays an important factor in determining AOE/COE. The magic bullet would be to determine if the injury is AOE/COE or to be able to age the injury. One of the only tools that has been proven effective is the Electrodiagnostic Function Assessment. The EFA is the only FDA-registered device that can age and diagnose this type of injury and its definitive registration allows the monitoring of the necessary frequency response that characterizes a repetitive stress injury. Additionally, it is the only device of its kind that has changed the face of RSI litigation.*

* U.S. District Court, 980 F. Supp, 640, 64-48 (E.D.N.Y., 1997): Geressy v. Digital Equipment Corporation. The EFA changed the face of repetitive stress injury litigation when Judge Weinstein overturned what, at that time, was the largest product liability verdict ever for RSI because of the EFA.