How accountable care measures are transforming our health care system

Ron Calhoun, Managing Director, National Health Care Practice Leader, Aon Risk Solutions

Ron Calhoun, Managing Director, National Health Care Practice Leader, Aon Risk Solutions

As accountable care programs are implemented, health care providers are going through significant financial, clinical, operational and strategic transformation. This has profound effects not only on health care providers, but also on those touched by health care delivery.

Payment transformation, re-admission penalties and demographic shifts are creating a perfect storm where health care providers have to be very skilled, says Ron Calhoun, managing director, national health care practice leader, at Aon Risk Solutions.

“Providers are going to have to get it right,” he says. “They’ve got to be clinically integrated, and a majority of them are not.”

Smart Business spoke with Calhoun about the risks health care providers are facing in this new environment.

What are the impacts of payment transformation and re-admission initiatives?

Numerous payment reform programs are moving providers toward payment for value and outcomes, as opposed to volume or service. The Patient Protection and Affordable Care Act has increased emphasis on Medicare/Medicaid outcomes, which has in turn led to more commercial sector payment transformation. The fundamental question is how are health care providers going to clinically manage a population in a non-clinical environment with all of the quality measures by which they’re assessed?

In 2012, Medicare’s Hospital Re-admission Reduction Program started penalizing hospitals for re-admission of certain acute myocardial infarction (heart attack), heart failure and pneumonia patients. Reimbursement penalties are expected to be $280 million in year one, and to increase as penalties go up and the program expands.

With financial risks tied to reducing re-admissions, there is de-emphasis on acute care — short-term medical treatment — and emphasis on post-acute care. This puts more demand on non-physician clinicians like registered nurses. Hospitals also are managing discharged patients to reduce exposure by either pushing a patient into a post-acute setting earlier or managing that patient more aggressively. However, this has direct and vicarious liability implications.

How are demographic changes creating risk?

As Medicare and Medicaid grow, payment transformation models will proliferate, placing more emphasis on outcomes and value. Roughly 44.3 million Americans are on Medicaid, which will increase by 10 to 20 million, depending on how many state Medicaid programs expand. Michigan Gov. Rick Snyder included an expansion of about 320,000 residents in his budget proposal. Also, 60 percent of the 169 million with employer-sponsored health care are ages 40 to 65, so the Medicare population will double to 88.6 million by 2035.

The Centers for Medicare and Medicaid Services is bundling reimbursements with outcomes, which shifts liability to the provider. Health care providers need to adhere to established clinical protocols, narrow physician practice pattern variation, be highly communicative between specialties and with patient hand-offs, and have sophisticated clinical decision support capabilities within electronic medical record platforms. The tighter the clinical integration, the more confident the health care provider will be in participating in bundled or value-based reimbursement.

Why are family caregivers so important?

About 45 million Americans are unpaid, informal caregivers for those with dementia and/or the top 15 chronic conditions. In the next three to five years, care will systematically go into the home, increasing the demands on home health. Health care providers must connect to caregivers to drive outcomes, such as decreasing re-admissions or increasing medication compliance.

What’s the impact for consumers?

As health care providers move toward value-based or bundled reimbursement, health care networks may become narrower and include only the highly effective providers in a given geography. Consumers with higher deductible, more consumer-driven plans will demand that all providers demonstrate an ability to comply with quality measures. Group health plan providers are certainly going to demand quality, as well. Population management will only become more critical. Consumers and employers will want relevant medical data pushed beyond the hospital’s four walls and into their hands.

Ron Calhoun is a managing director, national health care practice leader, at Aon Risk Solutions. Reach him at (704) 343-4128 or [email protected]


Website: Aon’s health care reform microsite can help businesses navigate this complex issue. Visit to learn more.


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How to set up a safety committee and reduce workers’ compensation claims

Kevin Forbes, Sales Executive, ECBM

Kevin Forbes, Sales Executive, ECBM

An effective safety committee will lead to fewer workers’ compensation claims and reduce your company’s experience modification factor and premiums.

“With lower claims your company may be able to obtain quotes from insurance carriers with lower rates than you could in years past,” says Kevin Forbes, sales executive at ECBM. “Lower claims may also provide alternative sources for coverage, such as captive programs and retention programs for companies that can effectively control their workers’ compensation claims.”

Smart Business spoke with Forbes about setting up a safety committee and driving down your workers’ compensation costs.

What’s the goal when forming a safety committee?

Employers who form safety committees are attempting to reduce injuries and meet compliance requirements of federal and state regulations. However, the overall goal should be to enforce and expand current safety procedures and continue to promote the organization’s safety culture.

Safety committees also are an effective tool in analyzing and ensuring regulation compliance. Making sure your company guidelines meet Occupational Safety and Health Administration (OSHA) minimum standards in the facility, yard, on job sites and over-the-road is a key function of every safety committee. Training can be provided by outside, certified instructors, and then committee members are responsible for passing on their training and monitoring new procedures.

Does a safety committee give you an insurance discount?

Depending on what state you are domiciled in, credits may be available. Pennsylvania offers a 5 percent credit to any employer who qualifies. New York and Delaware also offer credits, but New Jersey does not. To qualify, the safety committee has to meet guidelines laid out in the state’s workers’ compensation manuals and become state certified.

What ingredients do you need to set up a successful safety committee? 

To get the best results, any safety committee must have complete support and involvement from top management. And once procedures are implemented, they need to be communicated to employees, strictly followed and monitored for effectiveness.

The committee must meet regularly — typically once per month and at the same time for maximum involvement. Meetings shouldn’t always be in a conference room; some of the most effective meetings take place at job sites or on the factory floor.

The committee should be formed with volunteer members — management and employees — who show an interest in making the workplace safer. Since these individuals identify safety issues, develop new procedures and communicate them to the rest of the workforce, they should be from positions that will be directly affected.

Bringing on your insurance broker or risk manager as a member can be valuable. These individuals have the ability to analyze exposures and identify where the company is experiencing the most loss.

How important is employee buy-in? 

Without it, the safety committee will never help create an effective safety culture. By getting employees who are leaders from each level in the organization involved, the views formed in the committee can be transmitted throughout the organization.

Typically, when employees see a company invested and committed to keeping them safe, getting their buy-in is pretty easy. Management should also encourage employee involvement and suggestions. Employees have a much better outlook on participating when they see their suggestions being taken seriously.

Are there any risks you should be aware of when establishing a safety committee?

Be sure to comply with the jurisdictional law that has been established regarding the creation of safety committees and follow the rules. Once the committee is established and the plan is in place, it’s imperative to continue to run the committee in line with the mission on which it was established, which will include accurate record keeping.

Kevin Forbes is a sales executive at ECBM. Reach him at (610) 668-7100, ext. 1322 or [email protected]


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How to manage risk and control insurance costs

Derek Hoch, president, Leverity Insurance Group

Derek Hoch, president, Leverity Insurance Group

Every business experiences risk, but determining the true cost of risk can be difficult.

“It’s much harder to calculate the impact that negative publicity has on your revenue versus lost productivity due to equipment downtime,” says Derek M. Hoch, president of Leverity.

“To develop the most appropriate risk management program for your organization, business owners should approach insurance through a variety of cost control strategies. These include identifying exposures, implementing control measures, transferring risk and managing your exposures,” Hoch says.

Smart Business spoke with Hoch about developing a strategic action plan to effectively monitor and manage risk, ultimately resulting in reduced costs.

How do you identify exposures?

Exposures are both qualitative and quantitative. Partnering with an insurance agent who understands these aspects of your business will provide important details that help to solidify a game plan. What keeps you up at night? If your biggest concern were to occur, would you be prepared to keep your business viable? How would your income or cash flow be affected if there were unforeseen depletions of capital or a shutdown in the plant? Is the company in a financial position to take on risk or would you rather transfer that risk to an insurance carrier? It’s also important to consider your industry, market position and competition in developing a risk management solution that fits the changing needs of your business.

Quantitative analysis supports the qualitative interview. Look at the hard numbers and review losses to identify:

• Average incurred costs per loss.

• Top loss drivers and trends.

• Fraud behaviors.

• Reporting lag time.

• Frequency and severity ratios.

• Occupational Safety and Health Administration (OSHA) recordable performance.

Both qualitative and quantitative analysis is important, as they help identify your total costs of risk and lead to the price of your risk management program.

What control measures can be implemented to reduce risk?

Once you’ve identified exposures, focus on control measures — an estimated 75 percent of commercial insurance expenses are claims-driven. A business can control and reduce this percentage through pre- and post-loss control measures. This process should help to establish a safety program that will deliver a comprehensive employee safety education campaign to address your exposures.

How do you decide what risk to transfer?

A trusted insurance adviser can help you balance how much risk you’re willing to take versus the cost of transferring that risk. Important questions to ask are:

• How much risk can I afford to assume in-house?

• How can a business insurance provider assist with contractually transferring that risk to a third party?

• What portion of the exposures do I want to finance through an insurance policy?

Answers to these questions provide direction on how to approach the proper placement of insurance policies. You also need to consider current cash flow needs. If you have a mature loss control program and financial reserves to cover shock losses that occur, self-insurance retentions are also a consideration.

How do you manage exposures?

Roughly 25 percent of businesses that sustain a major catastrophe go out of business within a year. You have to be prepared to respond if there is an interruption in your operations. Planning ahead and developing a comprehensive business continuity plan is vital to achieve this goal and keep your business viable.

Implementing risk management strategies will reduce costs, because the total cost of risk is synonymous with price.

Derek M. Hoch is president at Leverity. Reach him at (216) 861-2727, ext. 517 or [email protected]

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How to understand flood insurance and avoid policy pitfalls

Linda Cook, Vice President, Personal Insurance Division, ECBM

All companies that own, rent or lease a building may need flood insurance, regardless of whether the business is near a body of water or it is a requirement of a lender.

“Even if your business has a low risk of flooding, it’s wise to obtain a quote on flood insurance. Twenty-five percent of all flood claims occur in areas that are considered low to moderate risk,” says Linda Cook, vice president, Personal Insurance Division at ECBM. “Flooding can result from sources such as broken water mains, runoff water, storms, melting snow and other natural causes.”

In the aftermath of Hurricane Sandy, many property owners were unsure of how their flood policies would respond.

Smart Business spoke with Cook about what you need to know about flood insurance, including what is covered and not, to take back control.

What’s the National Flood Insurance Program?

The NFIP was established to provide a means for property owners to financially protect themselves against flooding in participating communities. A participating community agrees to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding.

Why do you need flood insurance, especially if there’s federal assistance?

Most homeowner and business property policies do not cover flooding conditions or floods. A flood policy can be purchased through your insurance agent or directly through NFIP. All rates are set by FEMA and do not vary from one insurer to another. The premium for a flood policy averages about $700 annually, with maximum limits of $500,000 per nonresidential building and $500,000 for nonresidential contents. The maximum limit under a residential flood policy is $250,000 per building and $100,000 for contents. If higher limits are needed, they may be purchased under an excess flood insurance policy.

As for federal assistance, most forms of assistance are only available after the president declares an area a disaster, and less than 50 percent of all flood incidents are declared official disasters. In addition, most federal disaster assistance to businesses comes in the form of a loan.

How is property-flooding risk assessed?

There are several factors involved in assessing the degree of risk, but a prominent one is the flood zone of a property. This is an area that FEMA has defined according to varying levels of flood risk. An elevation certificate, acquired through a licensed surveyor or engineer, will be able to provide information on the flood zone, the base flood elevation of an area and how a building is elevated. For a favorable flood insurance rate, the building insured should be elevated above the base flood zone.

If you rent commercial space, does that mean you don’t have to do anything?

No. You will need to purchase flood insurance in your business name to provide coverage for your contents. The building owner should have a separate policy to cover the building and whatever contents he or she needs covered.

What else do you need to know when buying or using flood insurance?

A flood policy only provides coverage for direct physical loss by or from flood. Losses are paid on actual cash value (ACV), not replacement cost value. So if, for example, the cost in today’s market to replace your contents is $80,000 but the ACV may be determined to be $50,000, you may only receive the ACV amount, or $50,000.

One particular area where contents coverage is limited is in the area under the lowest elevated floor, which may be a basement, finished or unfinished, as well as an elevated area with lattice or walls. It is important to read your policy.

Some important items that a flood policy does not pay for are:

  • Loss of revenue or profits.
  • Loss of access to the insured property.
  • Loss of use of the insured property or location.
  • Loss from interruption of business or production.
  • Damage caused by mold, moisture or mildew over a period of time.

A list of excluded items is available from a licensed agent or consultant.

Linda Cook is a vice president, Personal Insurance Division at ECBM. Reach her at (610) 668-7100, ext. 1288 or [email protected]

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Mike Berlin; Planning for the unexpected

Michael Berlin, Founder, Briteskies LLC

In 2000, I founded Briteskies LLC, a Northeast Ohio technology company. While we’ve had our share of challenges, we had experienced steady growth and success for more than a decade, and I felt significant pride in my leadership role in the organization.

However, on Easter Sunday 2011, with little warning, I experienced a sudden, serious side effect of my Crohn’s disease. I woke up with a 106-degree fever that we ultimately found out was caused by e-coli in my bloodstream. Diagnosis and a subsequent nine-plus hour surgery to replumb my “insides” left me hospitalized for the next 30 days. All told, with the addition of another surgery, my recovery took over five months.

So for five months and without any time to plan, I was unable to return to work. The company I had founded, built and helped run day-to-day needed to go on without me. There was no certainty regarding when — and in what condition — I’d return.

Having suffered from Crohn’s disease since my 20s, I should have seen it coming. I had been told about the warning signs. Of course, as humans, and especially as entrepreneurs, we believe that it won’t happen to us. Additionally, as successful leaders, we feel that we are bulletproof. Otherwise we wouldn’t take the kinds of risks necessary to build a successful business or demonstrate the dogged persistence it takes to overcome obstacles in pursuit of a vision.

Those factors combine to make us a group of people who are less likely than most to consider, and plan for, the fact that one day the buck really may stop here.

Plan for ‘getting hit by the bus’

Now that it happened to me, I would like to let you know that there are several ways you can plan.

First, talk about the what-if scenarios with your team. By sheer chance, my co-founder and I had that very discussion four days before I got sick. We verbally agreed to a pay structure should anything happen to either of us.

Although verbal agreements are nice and worked out for me, I would still recommend that everything is put in writing. Meet with advisers or attorneys to determine what you need in place should you become incapacitated.

Next, ask yourself, ‘Can my company run without me? If I didn’t show up tomorrow, does someone know how to pay the bills? Sign paychecks? Are client projects being documented in a way that they can be easily handed off? Does my management team know where long-term projects stand?’

It is hard to carve out time to ask these questions, but if we as leaders build them into every aspect of our business, time will ensure the answers to these questions become part of how we operate.

What I wish I had known

I learned a lot of life lessons from this experience, but one tactical lesson sticks with me now more than a year later: While it’s important to plan the exit, it’s even more important to carefully plan your return.

Five months is a long time to be away. I didn’t take calls or respond to emails, and to be honest, I didn’t care. My goal was getting back on my feet and spending time with my family. In turn, the team at Briteskies rallied to make sure that our clients got the same level of stellar service they had come to expect.

I finally arrived back at the office with a mentality of, “I’m here, I’m back, let’s get to it.” But the company’s success in my absence meant that things had changed. There were different ways of doing things, conversations I had missed and judgment calls that had to be made and, consequently, were made.

It’s important for both sides to be patient and to communicate openly about the challenges of re-integrating back into the business. While it’s not possible to rewind and plug in exactly where you left off, it is possible to ensure a smoother transition.

Please don’t wait until you get hit by the bus. At times, we may forget how many people depend on us. Go above and beyond as a business leader and consider that it may happen to you and plan for what it will mean for your business, your clients, your employees and even their families. ●

About: Michael Berlin is the founder of Briteskies LLC. He can be reached at [email protected] or (216) 369-3600.

How Robin Sheldon’s evolution as a leader kept Soft Surroundings poised for success

Robin Sheldon, founder and president, Soft Surroundings

Robin Sheldon had reached a critical point in the life of her business.

Through her strong will and determination, she had built Soft Surroundings from a small business that produced a single catalog for women’s clothing in 1999 to one that has seasonal catalogs, a chain of retail stores and an e-commerce website.

She didn’t do it entirely on her own, but Sheldon was definitely the driving force behind the company’s growth. However, she was beginning to realize that if she wanted the company to continue to expand, she was going to need some help.

“When you are part of a creative process as well as the traditional business side of the business, it’s very hard to let go of getting your fingers into absolutely everything,” says Sheldon, the company’s president and founder. “But there comes a point when you realize that you’re putting your business in jeopardy by doing this.”

Sheldon needed to get more people involved in the management of the 530-employee company. She also had to find a way to prioritize the really important things that needed to be done and separate those from the tasks that either could wait or didn’t need the same amount of effort to complete.

“So what that led to was the assessment of the type of people we needed to be hiring with what particular skill sets,” Sheldon says. “For myself, it was a matter of setting up my goals with parameters and guidelines that would get me to the point where I could let go.”

The challenge for Sheldon would be setting up that structure so she could get more comfortable with delegating tasks.

Know your priorities

Part of the problem Sheldon has when it comes to delegating is the high level of confidence she has in herself.

“I have an expectation of myself that is probably way too perfect and hard for anybody else to achieve,” she says. “I’m going to expect more from myself than I am from anybody.”

The result is that Sheldon believes she can do it all. And she saw no reason why it couldn’t be done to the absolute best of her abilities. But she finally started to understand that perfection isn’t always necessary.

“I realized I have to be satisfied with ‘good enough,’” Sheldon says. “I have to identify the few areas where it had to be great.”

There are certain tasks in any business that don’t have anything to do with the customer and have a negligible effect on the bottom line. These are tasks that just need to be done.

“You’re not going to drive yourself over the edge of the cliff trying to make it perfect,” Sheldon says. “You can get it ‘good enough,’ and that’s going to be good enough.”

Then there are things such as the photography that appears in her seasonal catalogs.

“We spend a great deal of money and time on our photography to give the customer an aspirational experience that is emotional so she forms a connection with the product,” Sheldon says. “She understands we are trying to do more for her than just sell her stuff. That’s a place we don’t give. You don’t want to settle on things that are integral to your brand.”

The solution for Sheldon to determine what requires maximum effort and what just needs to get done is a formula known as good, better, best.

“When people come to me and say, ‘I have 10 things that I’m supposed to have done in 48 hours,’” Sheldon says. “I’m being told that all of them are equally important. I ask them to go back and discuss it and come back and tell me if it’s a good, better or best. That helps people a great deal. Sometimes you have to talk to other people involved to see if you’re headed in the right direction.”

It was a lesson Sheldon wanted to impart on her team, but one she also needed to try to follow herself.

Have a plan for delegating

The next step for Sheldon was to accept that within those priority tasks that need to be done right every time, it would be OK to delegate.

“It’s a process,” Sheldon says. “You have to put some good planning behind it. But in order to do that, you have to have the right people. You have to have a very clear understanding of what motivates each individual person. They are not the same. You can’t treat them the same.

“You have to learn each person and figure out how you’re going to make them happy in what they are doing, productive and wanting to do more.”

One of the biggest mistakes you can make in business is assuming that with a few brief words in your office, an individual can take a task and run with it.

“You can ruin a perfectly good career if you take somebody who is a super performer for you and you elevate them into a management position and don’t give them any management training,” Sheldon says. “Before you know it, you have a perfectly good person who has such good skills, but now is floundering in the job because you didn’t give him or her any management training.”

Develop a plan for the person you want to give responsibility to and then share your plan with that person. Take the time to see how the person feels about it and go over areas that you’ll need to work on with the person.

“I have high hopes for being able to give you some new responsibility and I know you’re up to it,” Sheldon says. “I’m thinking this is the area that we will work with and here’s the goal. Let’s sit down together and come up with how we’re going to do this.”

A key barometer that helps Sheldon know if she’s done her job training or if she needs to do more, or perhaps has chosen the wrong person, is whether she hears her name invoked as tasks are being worked on.

“‘Robin says,’” Sheldon says, repeating the phrase she doesn’t want to hear. “If I’m hearing that too much, it means people aren’t taking responsibility for their own work and they aren’t becoming their own experts. They are having to rely on my name to get their jobs done.”

Sheldon’s goal is to make sure the person has all the knowledge and skills to make it happen on their own.

“They don’t need to use my name,” Sheldon says. “They will build their reputation and their confidence by saying, ‘This is what we need to do, and I believe this is the way for us to do it.’”

Help your people

If you run into a situation where you have a leader who isn’t invoking your name but is struggling with the role of leadership, you need to step in and give them some support. Sheldon recalls a manager he was training who wasn’t getting respect from the people she was trying to lead.

“She had to follow up on projects and things that needed to be taken care of regularly,” Sheldon says. “She just couldn’t get their respect. We worked on that for six months together.”

What Sheldon found was that this new leader was struggling with the language she used to engage people in tasks.

“One of the areas we dug into was, ‘How do you get your point across in a pleasant way? How do you get people to want to help you and want to do what you need them to do?’” Sheldon says. “There’s a whole psychology there, and we studied it. Now she is a power negotiator, and she’s still here.”

The act of delegating has to be about more than just you saying to your employees, ‘Hey, you need to do this now.’ It’s a process that you have to be actively engaged in if it’s going to be successful.

“For me, things get tested,” Sheldon says. “It could be our clothing design. It could be our creative print design. It could be copy. It could be many things. As soon as I can get to a comfort level where I’ve seen it go the way I’d like it to go three or four times in a row, then I back off. I only check every now and then.”

When you do check in on how your people are doing, don’t just look for problems.

“None of us probably give positive feedback as often as we should,” Sheldon says. “If your business is moving fast, chances are you might be leaving that out and that’s so important. Along with positive feedback is making time to care about these people.”

The numbers show Sheldon is making the right moves with her business as the company hit $120.8 million in 2011 revenue. Two new stores were announced in Boston in September, and Sheldon feels good about the future. She says keeping it fun will be a big key.

“If you don’t allow people to feel they are having some fun in their job, you may lose them sooner than if you give them a little relief now and then,” Sheldon says. ●

How to reach: Soft Surroundings, (800) 240-7076 or


The Sheldon File

Robin Sheldon

president and founder

Soft Surroundings


Born: New York


Education: University of Denver. I was actually working on an English lit degree, which had nothing to do with what’s happened the rest of my life. I wanted to write, but not in journalism. I was not a business person or thinking about business much at that time. It’s an unusual situation, not one that most women would find themselves in today. It’s interesting how somehow the business finds you.


What was your first job?

I was a research assistant to a newspaper in Long Island, N.Y. I started to fall in love with the written word. I have a book that I’m working on and I do it when I get a moment to breathe. Maybe I will get to finish it someday. It’s a mystery, certainly fiction.


What is the best advice anyone ever gave you?

In the world of business, it’s, ‘Know your customer.’ I guess that came from Dennis Pence, who is president and chairman of Coldwater Creek. If you can put yourself in your customer’s shoes and see what you’re doing from their perspective, it will change the way you do things and it will make you more successful. We all get lost in our own little world and think we know why we’re doing things. Sometimes we’re doing things that the people we’re trying to do them for don’t want.





Know what tasks require maximum effort.

Help your people achieve their potential.

Make sure you praise a job well done.

How to administer your workers’ compensation claims to reduce your costs

Brian Chance, Vice President, Claim Services, ECBM

Workers’ compensation claims and insurance are not things an employer can leave to chance. The company’s managers need to actively work to manage the direct costs of workers’ compensation insurance, as well as indirect costs from lost productivity.

Brian Chance, vice president, Claim Services, at ECBM, says workers’ compensation insurance cost is based on a fairly strict pricing model that is heavily regulated by states. An employer’s actual claim expenses play a large role in the calculations that are done in order to price their insurance.

“An employer’s workers’ compensation claim experience has a direct impact on the cost of workers’ compensation insurance,” he says. “Larger employers may be self-insured to some extent and pay every dollar of their claims, and therefore, time and energy should be spent to reduce claim costs. Each dollar saved could be their own or will reduce the impact the claim will have on their insurance pricing.”

Smart Business spoke with Chance about the best techniques for managing workers’ compensation.

Are there certain industries where managing workers’ compensation is more critical than others?

All employers are subject to the same insurance pricing model, and therefore, all employers benefit from managing their claims. However, in certain industries — especially construction — a company’s claim experience may be reviewed in order to qualify it for contracts. Companies with worse than average claim experience may find themselves precluded from bidding on certain projects. Consequently, employers that ignore their workers’ compensation claims will spend money they would otherwise be saving, and some may find they are precluded from working.

If a company doesn’t effectively manage its workers’ compensation claims, what can be problematic?

The direct impact of not managing workers’ compensation claims is an increase in insurance costs or the out-of-pocket expenses paid by larger employers. However, there are many indirect costs employers suffer when an employee is injured. Studies have shown that for every dollar paid for a claim, the employer suffers $5 in indirect costs. Some of these costs are lost productivity due to the missing employee, the cost of errors or rework caused by inexperienced replacement employees, and poor employee morale.

Another misstep is that many employers assume that their role in the claims process ends after they report a claim. Employers that take a proactive role in managing their claims and the actions taken by their insurance carriers see lower costs as a result. Employers should have an ongoing dialogue with their injured employees and their insurance carrier in order to ensure that all steps are being taken to facilitate a return to work and reduced costs.

What are some best practices to use when managing claims?

The first thing you, as an employer, can do is report employee injuries as quickly as possible after an injury. Injuries reported more than three days after they occur cost more for each day the report is delayed. When you ignore an employee’s injury, the employee might find his or her way to an attorney and feel as though you are trying to avoid responsibility for the injury.

You also should return injured employees to work as quickly as possible by utilizing a transitional duty return-to-work program. Employees working in a modified duty capacity tend to heal faster, return to full duty quicker and are less inclined to use their claim as a way to punish their employer.

Additionally, you should identify local medical providers to treat your injured employees. Medical provider partners are most important to the ultimate cost of the claim because they determine the need for treatment and the extent of the disability. Medical providers who specialize in occupational injuries and understand your transitional duty program are critical to your ability to manage your claim costs.

Are certain areas within workers’ compensation becoming more critical to monitor?

Yes. As all employers know, the cost of medical insurance goes up every year due to inflation. That same inflation impacts workers’ compensation treatment costs, as well. Therefore, it is critical for employers to partner with providers that offer high-quality care at a discount. Employers with transitional duty return-to-work programs enjoy lower medical treatment costs on their claims because employees who are working tend to seek less medical treatment.

In addition, the U.S. government has spent a great deal of time and money in order to protect the interests of the Medicare system. Claims involving Medicare beneficiaries must be handled properly; otherwise, the employer and its insurance carrier could be subjected to extraordinary fines and penalties.

Once you put management techniques in place, how should you measure their effectiveness and then adjust accordingly?

Once you, as an employer, begin to manage your claims, you should see a reduction in the number of lost workdays you record on your Occupational Safety and Health Administration log. You will also observe a reduction in the payments being made on your claims and have fewer employees out of work.

Brian Chance is a vice president, Claim Services, at ECBM. Reach him at (610) 668-7100 or [email protected]

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

How to ensure your company is ready for the next Hurricane Sandy

Neil Harrison, AGRC, Group managing director, Risk Control, Claims & Engineering, Aon Risk Solutions

Roland Laury, CFPS, Senior risk consultant, Aon Risk Solutions

Learning how to deal with disaster during a crisis is probably not the right way to go. In the aftermath of Hurricane Sandy, employers are reminded of the importance of insurance, disaster planning and claim preparation.

“Always at a time like this, organizations who were not affected need to take a step back and ask themselves, ‘What if?’” says Neil Harrison, group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions. “We are spending a lot of time talking to organizations and helping them to say, ‘OK, what if it was us? Would we have been ready? Were we prepared?’”

Smart Business spoke with Harrison and Roland Laury, CFPS, senior risk consultant at Aon Risk Solutions, about some best practices business owners can use to help them ride out any disaster.

How did Hurricane Sandy affect the overall insurance industry?

An event like Sandy gives the insurance industry an opportunity to demonstrate why it exists. Too often, businesses look at insurance purely as a cost, but the industry is playing a role in business specific and general economic recovery. From the perspective of brokers and insurance companies, they expect to be judged in terms of their performance and how they respond to clients. There is a lot of resource pressure, as the number of claims is significant, so already busy staff is suddenly taking on increased workloads. Resource scale and leverage become key, and operational efficiency is a prerequisite for success.

It’s too early for anyone to comment on the longer-term impacts of insurance pricing or coverage availability for individual businesses or industry segments. When these events happen, almost everybody has an opinion of the cost, and those opinions vary widely. The reality is nobody knows at this early stage. Property damage, business interruption and contingent business interruption all come together to create the overall cost. In addition, just because an organization is based in St. Louis or somewhere not in Sandy’s way doesn’t mean businesses didn’t have customers, suppliers or vendors who were affected. This may indirectly affect them in terms of business interruption or contingent business interruption.

What should business owners know about their insurance policy for an event like Sandy?

There are some key things that organizations should look at. The first step is making sure you’ve got the right insurance coverage — the terms, the conditions in place, definitions of perils — for this kind of event and that you understand it. Business owners need to understand limits and exclusions. They should aim to have claims preparation coverage on the property cover, meaning there’s the opportunity to engage an expert for some of the accounting work critical to quantifying and making the claim. With this coverage in place, and with a relevant expert engaged, generally speaking, a claim is better prepared and the process runs more smoothly.

Linked to that is the need to make sure that the values at risk — asset values and business interruption values — are well understood and accurate. Too often, an organization has a claim and then is found to be underinsured or overinsured. A best practice is having an external expert work with you on assessing those values during your policy renewal process. The business interruption is particularly important because it’s far more complicated to work out in post-loss panic mode. If you think about the economy since 2008, everybody has different values at risk now than they did then. Organizations may have just continued to index link their values or sums insured.

Looking beyond insurance, what can businesses do to respond well to disasters?

The organizations that have responded well are those with business continuity plans which are well defined, kept up to date, frequently tested and broad. The plans cover not just the direct issues of building damage but also employee safety and welfare issues, supplier issues, customer issues, etc. There’s no alternative to investing the time, and probably some money, in a far-reaching business continuity plan because it gives the balance sheet the best protection possible.

Insurance is an outcome in many ways of business continuity. Take a broad look at the business, plan for every eventuality, make sure everyone knows what to do when an incident happens, have restoration firms on contract so you’re first in queue when an incident happens, and have access to generators or additional alternative power.

How can a business best submit claims if it does suffer damage?

When a significant incident hits, the company has some responsibility to mitigate the damage and the cost of the loss. Much of it is common sense, but common sense is easier to apply when it’s written down and people know what they are responsible for. Make sure that:

  • Everyone knows to report the loss to a broker or insurer immediately and there are clear lines of communication.
  • Immediate action is taken to minimize loss.
  • You keep the documents, invoices or receipts for any vendors brought in for restoration or to provide alternative power, etc. Later, this will become a part of the insurance claim.
  • You take photographs of the damage. It’s surprising how many people get everything repaired and then try to make the insurance claim without proof.
  • You engage an external expert, if needed. Sometimes when a business is in trouble mode, it’s all about recovery. Outside expertise allows the business leader to talk to customers and suppliers and deal with staff, while the expert handles the more tactical, and somewhat more mundane, issues.

It’s important for businesses to have continuity planning, follow best practices for insurance, consider a claim preparation clause and ensure common sense is applied when a loss occurs. Recognize that disaster response, claim response and claim preparation are specialist technical disciplines, and many organizations find that their investments in those areas have a positive return.

Neil Harrison is the group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions. Reach him at (312) 381-5660 or [email protected]

Roland Laury, CFPS, is a senior risk consultant with Aon Risk Solutions. Reach him at (314) 719-5120 or [email protected]

Insights Risk Management is brought to you by Aon Risk Solutions

How to manage and overcome the risks inherent to the retail industry

Lynn Serpico, Managing Director, Aon Risk Solutions

In some grocery stores, your smartphone uses GPS to ping you when you’re near items on your shopping list. Other retailers allow customers to order something online, and when they arrive to pick it up from the store, the item(s) is already bagged and ready to go. Others still provide customers with options of where to buy, where to pick up or have delivered, and have price guarantees in order to create a positive customer experience and resulting sales.

With the retail industry facing challenging times, savvy risk managers are helping their companies manage costs and allocate capital strategically while finding ways to stay ahead of market trends, says Lynn Serpico, managing director at Aon Risk Solutions.

“These risk managers have the opportunity to help shape the business as they manage operations and costs,” she says. “At most retailers, risk managers are responsible for mitigating — for keeping the operation efficient, making sure that the use of insurance, self-insurance and alternatives are in line with overall company objectives, and that the treatment of risk is agreed to by all internal stakeholders. At a retailer, these stakeholders can include treasury, legal, logistics, marketing, merchandising or IT.”

Smart Business spoke with Serpico about the current risks that retailers face and the best ways to mitigate them.

What is new in the retail industry with risk?

Aon compiles a retail industry analytics report annually, collected from proprietary data and client interviews, identifying the top 10 risks. Retailers say the global economic slowdown is the No. 1 risk. With consumer discretionary spending as the biggest driver of retail sales, the industry constantly battles variables that are out of its control, such as gas prices.

Second, retailers worry about damage to their reputation or brand. For any retailer, the worst possible scenario is that customers stop shopping in their stores. The third-biggest risk is a market of increasing competition, one of the biggest retail trends. How are people making their shopping decisions? What does this mean for retailers, and how can they respond? For example, how do they prepare for a situation in which a customer walks into the store, and tries something on before buying it at a lower price on their mobile device?

Other risks include:

  • Distribution or supply chain failure.
  • Regulatory and legislative changes, particularly surrounding workers’ compensation, normally the largest contributor to a retail risk manager’s total cost of risk.
  • Technology failure.
  • Failure to innovate and meet customer needs.
  • Failure to retain top talent and, therefore, manage crime, theft, fraud and employee dishonesty. With plenty of turnover, there is a need for safety training and internal loss control to ensure not only a good store experience for customers but also employee safety and that employees are behaving in ways beneficial to the company.

What risks are critical priorities to manage?

Most retailers have gotten really good at managing the more traditional risks — property, workers’ compensation and general liability. For example, they know how to get their stores running after a natural disaster and have programs to get associates back to work after an injury.

Emerging and changing risks are the new focus. These include network security, product liability for vendors, and wage and hour litigation. Network security is key, as this feeds in to a retailer’s reputation. It has customer data, employee data, financial information and, in some cases, medical data, and the risk is ever evolving because bad actors are getting craftier and losses are high profile.

Vendor/supplier contract management also is critical. A store might have products from 50 countries, so how does it control and manage contracts and litigation while understanding its exposure? Additionally, employment practices liability policies exclude wage and hour claims. However, this often drives a retailer’s exposure. Finally, retailers must continuously innovate and drive down costs so savings can be passed on to customers.

What best practices address common mistakes for retail risk managers?

As an industry, margins are thin, so retail risk managers need to carefully analyze their portfolios to determine the best use of capital. For example, should you have higher retentions on certain programs because the loss history is predictable? Or perhaps you might be buying too much insurance on other programs. Maybe there is a way to self-fund a certain amount of loss and buy excess capacity, which could reduce fixed costs. Is there an alternative that has not been considered?

If you have a loss that is not insured, have you vetted the process internally? Do you know how it will be funded? Risk managers ask these questions while working to create operational efficiencies for their companies. Asking questions helps avoid buying too much or too little insurance. Risk managers can also identify maximum capacity for loss across multiple lines of business. For instance, a $10 billion retailer may be able to absorb a penny per share of loss in a given year. However, you need to know what would happen if you have losses totaling five cents a share in a worst-case scenario year with a fire in your main distribution center, a customer death in a store and a security breach that compromises customer data. It is important to get feedback internally, and ensure that all stakeholders understand decisions being made around insurance and the effect those have on the business from a financial perspective.

Know your overall retentions and whether they are aligned with the corporate strategy. Some companies are extraordinarily risk averse, so retentions are low, while others are very comfortable managing their own risk. It is up to risk managers to know the company appetite and make decisions that align with the financial objectives. In addition, whenever there’s a loss, multiple internal stakeholders need to be involved in the process.

Lynn Serpico is a managing director and the National Retail Practice Leader at Aon Risk Solutions. Reach her at (203) 326-3464 or [email protected]

Insights Risk Management is brought to you by Aon Risk Solutions

How to maximize indemnity clauses — an important risk management tool

Paula Devaney, Director, Claims Services, ECBM

Indemnity clauses are included in contracts to provide a means by which the contracting parties can shift the responsibility of risk.

“Indemnity clauses can expand, limit or even eliminate the obligations of one party to another with regard to property damage, personal injury and contractual obligations,” says Paula Devaney, Director, Claims Services, at ECBM. “Indemnity clauses are drafted in order to establish the terms and conditions upon which one party can shift risk associated with the performance of the contract.”

Smart Business spoke with Devaney about how to make indemnity clauses work for you, shifting risk away from your business.

What’s an example of how indemnity clauses work?

Here’s an example: Company A owns a building and retains Company B to complete parking lot repairs. As a result of the activities of Company B, a visitor to the building falls and sustains an injury. The visitor files a claim for damages against Company A. Pursuant to the indemnity clause in the contract, Company A demands that Company B respond to the claim since it arose out of their operations. If the contract did not include a properly drafted indemnity clause, Company A would have to bear the risk and costs of resolving the claim on their own behalf.

Do indemnification or insurance provisions apply first?

Indemnification provisions are evaluated first, as these clauses establish the parameters that will govern the risk being shifted. Insurance provisions are then evaluated to determine if the circumstances of the claim or demand will fit within the purview of the insurance coverage requested to be purchased. Not all of the risk that is shifted by an indemnity clause is or can be covered by insurance.

Both indemnity clauses and insurance are risk transfer vehicles. In a contractual relationship where an indemnity agreement exists, the parties will also include insurance language to support the indemnity. In the insurance world, the indemnity clause is commonly referred to as the ‘belt’ and the insurance provisions are referred to as the ‘suspenders.’

If the indemnity clause and insurance provisions are successfully drafted and implemented, the insurance purchased by the indemnitor will provide the indemnitee with a certain level of comfort that there is a means by which the indemnitor will be in a position to pay for the risk that has been shifted to them.

How does the language of the indemnity clause affect the end result? 

Language that must be thoroughly evaluated is anything in the clause that establishes very broad terms of the risk being transferred. Both parties who are depending on the viability of an indemnity clause should draft indemnity language that is specific to their relationship, complies with the jurisdiction in which the clause will be interpreted and clearly, or as best as possible, defines the proposed intent of both parties entering into the agreement. Effective communication is paramount to ensure that intent is clearly understood.

What must you include when creating a contract’s indemnity clause to provide the most protection for your company?

One way to establish a high level of clarity is to include or create definitions of key terms in the indemnity clause. Terms such as claim, damages and contractor/vendor conduct can be included in a definitions section of the contract so that there is little to question as to what type of act constitutes a breach, what constitutes a claim and what damages are subject to indemnification. Simplifying and defining the terms can allow a more clear and concise interpretation of the indemnity clause against the circumstances giving rise to the demand for indemnity.

The identification of the parties to be indemnified is also crucial. The party potentially granting indemnity will wish to limit the parties to be indemnified, whereas the party requesting indemnity will seek to expand or broaden the list of potential indemnitees.

The duty to defend and associated costs must be clearly established and can also include issues such as which party controls and/or must consent to defense, the degree to which one party must consent to settlement and the remedies available if there is a refusal to defend an indemnified claim.

Other factors to be addressed are:

  • Losses/damages or limitations on types of damages. Issues such as attorney’s fees must be included as a recoverable cost, while consequential damages should be contemplated along with fines and penalties.
  • The period of time in which an indemnity clause survives the contract.
  • Including and/or defining the type of event that can trigger the obligation to indemnify.
  • Insurance procurement. The indemnity clause in a contract should not rely on the viability of the entity granting the indemnity. If the indemnitor goes out of business, their insurance may still be in effect.

When your business is signing a contract that includes indemnity clauses, what should you watch out for?

It is crucial for both parties to read the contract, and specifically the indemnity provisions, carefully. Every indemnity clause is different. There is nothing standard, and many times nothing fair, about an indemnity clause. If you do not read the clause and carefully consider the implications, you can be accepting a tremendous amount of risk you never intended to undertake.

The indemnity clause should be drafted in a manner that carefully considers the intent of both parties. When negotiating indemnity provisions, you may win some battles and lose others. However, with effective communication between both parties and effective review of the contract by legal counsel and, just as importantly, your insurance broker, the intent of the contract will at least be understood. Therefore, you can enter the contractual relationship with an understanding of the risks and liabilities.

Paula Devaney is a Director, Claims Services, at ECBM. Reach her at (610) 668-7100, ext. 1216, or [email protected]

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants