SUNZ Risk Management staff and Underwriters promote best practices with our Insureds, consulting on risk selection, risk evaluation, and risk improvement.
By Chris Sullivan, Director of Risk Management, and Jean Eydelman, Senior Risk Manager
Being on the “Insured” side of the workers’ comp equation, one of the most common questions the managers field are, “how are we doing in work comp this year?” The answer is, “I’ll tell you in three years.”
With a large comp program comes a lagging claims cycle that can stretch as much as 7 years before totally closing out, some claims even longer. Optimal performance and ultimate success of your WC Program can’t be 100% predicted, nor does the break always go your way.
Now is as good a time as any to know the reality of your Risk Management Strategy. Some examples of popular slogans often whirled loosely in the RM circles are we value “safety first,” we’re only keeping “profitable clients,” and my favorite — for us it’s all about “controlled growth.” These are terms that get thrown around more than one-liners. Leadership and management must honestly evaluate whether their organization exhibits the same actions as your tag lines boast. The best time is now for some self-reflection and constructive feedback — do we walk the walk or just talk the talk?
There are a multitude of factors that can influence and shape your risk appetite and your risk management strategy:
- Consistency and proven risk management disciplines are your way to sustained success year in and year out.
- A solid risk management plan is not an optional piece of this puzzle. Leadership and Operational Management should carefully evaluate their organizational strengths and weaknesses when deciding on the acceptable level of ongoing risk that’s a right fit for the company.
- Aggressive sales goals and fluid marketing which a company could quickly get over their skis in terms of embracing risk outside of their competencies, or what the insurance carrier underwriter may recommend.
- Strategic planning is an essential component of expansion when contemplating new states, industries, hazard groups, client size/range/types, growth plans, and service capabilities. Missteps and failed projections compounded by financial pressures can hamstring any company’s success or even jeopardize its survival.
Risk appetite changes dramatically with the type of WC program agreement you procure. The strategy with a Guaranteed Cost (GC) Program allows 100% risk transfer for the calculated policy premium, no matter where the losses end up. “Sleep well at night” is how some describe their business model when securing a GC Program. This, however, requires an operational discipline and a fairly narrow risk selection, often forgoing opportunities in some industries like construction and trucking. GC Programs do succeed with conservative consistency and an overall clean business loss performance. “Controlled growth” is a term often used when describing the activities around a GC Program. As an Experience Modifier (Ex MOD) lags four (4) years, it is imperative that controlling your loss performance, and in turn, your Ex MOD, allows for the ultimate market advantage for sustained profitability and favorable client pricing.
Conversely, a large deductible program (LD) lessens the emphasis on the Ex MOD and places significant priority on safety, injury prevention, and controlling the frequency of indemnity claims and associated costs. LD Programs, in a way, make your organization a mini-insurance company. Disciplines in finance to understand and properly collateralize the life of the program is essential. Underwriting, Claims, and Loss Control, require full-time professionals to execute the day-to-day functions to evaluate risk, prevent injuries, and insure post-injury cost containment. Choosing the appropriate WC program that fits your RM strategy is critical to your company’s overall financial performance and business success.
The risk management process is painful and not a natural act for most humans to perform, especially in a sales-driven, top-line revenue-focused organization. Even worse, there tends to be an “operational trap” that some Risk Managers fall into. There is a phenomenon that drives us to favor information that supports our positions (successes) and suppress information that contradicts them (failures). Risk Managers and Underwriters within the deal-making process can lose their risk objectivity (going rogue) and become a deal maker over a deal questioner, often moving away from the “why” are we doing this, and toward “how” to get it done regardless of the negative impact. Even worse, some do not recognize or learn from evident failure. Ultimately, groupthink and normalization of these mindsets could permeate and leave the entire organization exposed to unmitigated or undesirable risks and vulnerable to poor loss performance.
The good news is that a practical risk management strategy is not out of reach and incremental change is doable while promoting positive outcomes in short order. Risk Management functions are essential components of the business cycle ecosystem and must be allowed to be executed diligently by the professionals tasked with these responsibilities. With the unwavering support of organizational leadership and appropriate funding, a risk management strategy that embraces consistent activities and initiatives, with discipline, will bear fruitful outcomes for all organizations willing to commit to the process.
SUNZ Risk Management and Underwriters promote Best Practices with our Insureds, consulting on risk selection, risk evaluation, and risk improvement. From GC to LD, we are dedicated to supporting your risk management initiatives and cost containment efforts.