Public Risk May/June 2010

Published by the Public Risk Management Association

www.primacentral.org

May/June 2010

Nebraska State Risk Manager Becomes PRIMA’s 32nd President

Meet Laura Peterson, JD, MPA Keeping Students Safe on the Road Annual Conference Preview

Risk Management: It’s Quite the Ride!

A Decade in the Life of Property Values DODGEBALL: A dodgy proposition for public entities?

Workers’ Compensation Self-Insurance:

Avoiding the Pricing Pitfalls

You go above and beyond. So do we.

To learn more about our products and services, stop by booth 431 at the 2010 Annual PRIMA Conference.

When it comes to protection, government entities require solutions that respond to their evolving needs. Consider one source — OneBeacon Government Risks. Our programs include a full range of property and casualty protection solutions — First Dollar Insurance, Self-Insured/Excess Insurance or Assumed Reinsurance.

What’s more, OneBeacon Government Risks delivers the added value of Claims and Risk Control specialists serving only government entities. Whether you need protection for a midsized municipality or county, special district including water and sanitation, non-rail transit authority and other publicly funded agency, consider OneBeacon Government Risks.

Contact us at governmentrisks@onebeacon.com or visit www.onebeacongov.com for more information.

Volume 26, No. 5 | May/June 2010 | www.primacentral.org

The Public Risk Management Association promotes effective risk management in the public interest as an essential component of public administration.

Executive Director Lisa Lopinsky, CAE

Contents

President Ron Hayes Risk Manager Calcasieu Parish School Board Lake Charles, LA Past President Sarah Perry, ARM-P Risk Manager City of Columbia Columbia, MO

6 6 Nebraska State Risk Manager Becomes PRIMA’s 32nd President

16

President-Elect Laura Peterson, JD, MPA State Risk Manager/Agency General Counsel State of Nebraska Lincoln, NE Directors Dan Hurley, ARM-P, CSP Sr. Director, Risk Management & Safety Norfolk Public Schools Chesapeake, VA

By Jennifer Ackerman, CAE

Mary Sue Linville, ALCM, ARM-P Director of Risk Management and Operations Washington Schools Risk Mgt. Pool Tukwila, WA

12 Keeping Students Safe on the Road

Cindy B. Mallett, AIC, CWCP, ARM-P Risk Manager City of Gainesville Gainesville, GA

Meet Laura Peterson, JD, MPA

By Robin Leal and Deb Denker

16 Annual Conference Preview Risk Management: It’s Quite the Ride!

By Jennifer Ackerman, CAE

19 A Decade in the Life of Property Values

By Shaun Callahan

24 DODGEBALL: A dodgy proposition for public entities?

By Joann Robertson, CSP, ARM, CPCU

28 Workers’ Compensation Self-Insurance: Avoiding the Pricing Pitfalls

By Glenn Backus

In Every Issue 4 News Briefs | 31 Advertiser Index | 32 Member Spotlight

John J. Nacht, ARM Risk Management Program Administrator State of Washington, Employment Security Dept.

Olympia, WA Dave Parker, ARM-P Risk Manager Pima County Sheriff’s Department Tucson, AZ Marilyn Rivers, CPCU, ARM, AIC Director of Risk and Safety City of Saratoga Springs Saratoga Springs, NY Editor Jennifer Ackerman, CAE Senior Manager, Communications 703.253.1267 • jackerman@primacentral.org Advertising Donna Stigler 888.814.0022 • donna@ahi-services.com

Public Risk (ISSN 0891-7183) is published 10 times per year by the Public Risk Management Association, 500 Montgomery Street, #750, Alexandria, VA 22314 tel: 703.528.7701 • fax: 703.739.0200 email: info@primacentral.org • Web site: www.primacentral.org Opinions and ideas expressed are not necessarily representative of the policies of PRIMA. Subscription rate: $140 per year.

Back issue copies for members available for $7 each ($13 each for non-PRIMA members). All back issues are subject to availability. Apply to the editor for permission to reprint any part of the magazine. Periodical postage paid at Alexandria, VA, and additional mailing offices.

POSTMASTER: Send address changes to PRIMA, 500 Montgomery Street, #750, Alexandria, VA 22314.

Copyright 2010 Public Risk Management Association Reprints: Contact the Reprint Outsource at 717.394.7350.

May/June 2010 | Public Risk

1

9F< AF L@AK ;GJF=J$ O=A?@AF? AF EM;@ D=9F=J L@9F D9KL Q=9J&&& Don’t let lightweight budgets and staffing levels keep you out of the ring — knock out heavyweight claims, loss control and efficiency challengers with help from Aon eSolutions.

Public agencies are expected to do more with less.

For risk managers, that means containing costs and improving claims administration while achieving efficiency gains—even as budgets and staffs shrink.

More than 100 of your public-entity peers have risen to the challenge with an integrated, single-source technology solution. We’re referring to the counties, cities and towns—including many of the nation’s largest—that rely on automated software applications from Aon eSolutions to deliver strong return on investment by: •

Improving claims administration efficiency, claims outcomes and claims expenses

•

Improving organizational oversight by consolidating data, improving data analysis and enhancing reporting

•

Reducing overall liability and workers’ compensation costs by automating fraud detection, medical bill review and return-to-work processes

•

Complying with demanding state and federal regulations, including electronic data interchange, MMSEA and other CMS reporting, medical-utilization review, data security and injury reporting

Visit us at booths 105 & 107 at the 2010 PRIMA conference.

To schedule a visit and for public-agency client case studies, visit aon-esolutions.com/prima or call 1.800.299.2711 ERM | BUSINESS INTELLIGENCE | RMIS | CLAIMS & POLICY ADMINISTRATION | OSHA & SAFETY MANAGEMENT

Message from PRIMA President Ron Hayes

PRIMA Presidency:

It’s (Also) Quite the Ride!

A

s you know, this year’s Annual Conference theme is, Risk Management: It’s Quite the Ride. That same theme could apply to serving as PRIMA’s president! The last year has been exciting, emotional, challenging and rewarding—quite the ride, indeed.

This is my last column as president and I am honored to pass the baton to incoming PRIMA President Laura Peterson, JD, MPA. Her years of experience serving on PRIMA’s committees and board, as well as working as a public risk manager, have more than prepared her for the task. You can read more about Laura on page 6 of this issue of Public Risk.

I have enjoyed every minute of my presidency and I could not have done it without the other members of PRIMA’s board. Thanks to all of you for your support, counsel and good humor. I think we accomplished a lot together and we did it as a team. I applaud you all! A special thanks also to the talented PRIMA staff and their excellent work during the year.

At this year’s Annual Conference, we welcome two new members to PRIMA’s board: Betty Coulter, risk management director for the city of Asheville, NC, and Matt Hansen, director of risk management for the city and county of San Francisco. These two newcomers to the board bring expertise and insight that will be

invaluable to the leadership of this Association.

I encourage you to get to know Matt and Betty, and all of the members of PRIMA’s board. Let them hear from you about what you need to do your job better, what challenges you are facing in your entity and what PRIMA can do to support you.

While I am sad to see this ride come to an end, I am excited for the future of PRIMA. I encourage you to take advantage of all PRIMA has to offer that you cannot get anywhere else—the PRIMA Cybrary, PRIMAtalk, RiskWatch, Public Risk magazine. These are just a few of the things that make PRIMA unique.

My sincere best wishes to each of you as we all continue down the pathway of our chosen profession i.e. public entity risk management. God bless you and thanks for helping make special memories for me this past year.

Sincerely,

I have enjoyed every minute of my presidency and I could not have done it without the other members of PRIMA’s board.

Thanks to all of you for your support, counsel and good humor. I think we accomplished a lot

Ron Hayes 2009–2010 PRIMA President Risk Manager, Calcasieu (La.) Parish School Board

together and we did it as a team.

May/June 2010 | Public Risk

3

News Briefs

News

Briefs Sacramento Transit Agency Considers Cuts in Its Security Force Board members postponed making a decision when transit agency staff presented them with deep bus and rail service reductions. Instead, several board members asked staff to bring them a broader range of money-saving measures, including plans for how the agency might cut its police force and security guard service, as well as recommendations for deeper staffing cuts, reports the Sacramento Bee. The agency already has notified employees that up to 300 of them—30 percent of the work force—will be laid off this year. Despite those layoffs, the agency remains nearly $11 million in the red.

Regional Transit (RT) General Manager Mike Wiley said he will offer his board several scenarios for up to $2 million in cuts from the agency’s $6.6 million annual security budget. Those could include eliminating nine of the 27 city police and county sheriff’s deputies on loan to RT. But Wiley said he intends to tell the board he doesn’t want to reduce security. The agency already plans to achieve savings in its security budget connected to plans to no longer start new bus and light-rail runs after 9 p.m.

What’s the Riskiest City for Web Surfing?

You probably won’t be mugged in smaller cities like Portland, Ore., but you’re more likely to have your cyberwallet picked, reports Fox News.

Those same factors that are likely to boost a city’s civic pride—prevalence of Wi-Fi hot spots, a cyber-savvy populace and so on—also make citizens more likely to be at risk for cybercrime, finds a new study released recently.

The data comes from Symantec’s Security Response group, which in conjunction with research firm Sperling’s BestPlaces, just released a list of the 10 riskiest online cities. In the study, the company compared the number of cyberattacks against several potential risk factors, including the prevalence and speed of Internet access, usage, how much citizens spend on computer gear, and how likely they are to shop online.

Regardless of the size of the city, score high on those marks and the crooks will find you.

Seattle tops the list, a city with high marks in all four areas.

4

Public Risk | May/June 2010

www.primacentral.org

Mayor Scolds Police Chief Over Raises Each January the City of Harahan, La., tries to give its employees three to five percent cost of living raises.

Because of a budget shortfall, the mayor and council decided there would be no raises for any city employees, although police Chief Peter Dale gave some anyway, reports WVUE-TV.

Arizona Rancher’s Killing Sparks Calls to Beef Up Border Security Homeland Security Secretary Janet Napolitano is under pressure to beef up border security in the Southwest in the wake of the killing of a rancher in southeastern Arizona. Three members of New Mexico’s congressional delegation have asked for an increase in the Border Patrol’s presence in the Boot Heel of New Mexico, about 10 miles from where the rancher was shot to death, reports Fox News. U.S. Sens. Jeff Bingaman and Tom Udall, along with Rep. Harry Teague, say Napolitano’s agency needs to take more security steps.

And former Colorado Rep. Tom Tancredo, an outspoken opponent of illegal immigration, called on Napolitano to “reject politics and do the right thing” by dispatching the National Guard to the Arizona border.

Cochise County Sheriff’s Office deputies and detectives responded to an area northeast of Douglas after searchers found the body of 58-year-old Robert Krentz inside his all terrain vehicle on his property. Detectives were able to determine that Krentz apparently came upon one person when he was fatally shot and his dog was wounded.

“I had promotions that I had to give through civil service and in order to meet the liability of those raises, I had to let my custodial guy go. That freed up $12,000 and I needed $6,000 to cover the new captain and new lieutenant that had to be promoted,” said Dale.

Dale says he also gave small raises to his department’s two civilian employees and he defends his decisions.

Johnston fired off a strongly worded letter to the chief, writing that Dale is “destroying the moral of the employees” who didn’t get raises.

“I go back to principal. I don’t care if it’s a dollar. It’s a raise. I talked about in the beginning of the year. The council was very, very strict, they did not want raises until we visited the budget in six months to see where our revenues were at,” said Johnston.

Dale says some of the raises were out of his control because of civil service rules.

May/June 2010 | Public Risk

5

Meet PRIMA’s 32nd President

Nebraska State Risk Manager Becomes PRIMA’s 32nd President

Meet Laura Peterson, JD, MPA

By Jennifer Ackerman, CAE With eight years of experience as risk manager for the state of Nebraska, Laura Peterson is more than ready to take over the reigns of the Public Risk Management Association (PRIMA). Peterson will be sworn in as PRIMA’s 32nd president on June 9 at the Association’s 2010 Annual Conference in Orlando, Fla. “I believe that the strongest asset PRIMA has is its members, with their breadth of knowledge and experience and their willingness to share that with others,” Peterson said. “Being involved in PRIMA’s committees and its board has been an opportunity to harness that experience and knowledge for the betterment of PRIMA and more importantly, the betterment of risk managers and risk management programs in public entities.”

Peterson served on several PRIMA committees, including the External Affairs Committee (co-chair and chair), the Conference Planning Committee and the Finance and Audit Committee (chair).

6

Public Risk | May/June 2010

www.primacentral.org

The Challenge Ahead

Where PRIMA Comes In

The state of Nebraska, like most public entities, is feeling the economic pinch caused by declining tax revenue and unemployment.

“This is where PRIMA is a huge asset,” she said. “PRIMA provides and enhances its educational offerings and documentation for risk managers to help them understand and be able to communicate the importance of risk management programs within public entities. Moving forward, with the help of its External Affairs Committee, PRIMA will continue to stay abreast of changes such as federal rules, marketplace practices, etc. that impact risk managers and risk management programs and keep its members informed of the changes as well as provide education and resources for dealing with those changes.”

“The challenges for risk managers are the challenges of their entities and while I wish it were not so, I think the biggest challenge for public entities in the next year is budgetary concerns brought about by continuing economic challenges nationwide,” said Peterson. “While there are some positive signs to be found in the economy, I still think there are challenges in the near future. In my experience, recovery for public entities can be slower than other segments of the economy.”

Peterson points out that risk management has a lot to offer entities in the way of managing risk for the financial benefit of the entity. Risk management programs run properly, she said, can contribute to the financial well being of the entity. However, risk managers need to have a seat at the decision-making table and need to have an opportunity to show how important the contributions of their programs can be.

“I think risk managers today need a broader understanding of their organizations that they may not have needed in the past, when many risk management programs focused primarily on insurance,” said Peterson. “They also need to be able to communicate the value and importance of their programs to a wide variety of audiences, including workers and management who are vital to operational risk management, budget and finance people who assist with and influence decisions on entity financing and elected officials who make decisions about the program and the entity and are vital to the success of risk programs.”

“The challenges for

One of Peterson’s goals as 2010–2011 PRIMA president is to make sure PRIMA stays in close contact with its stakeholders and listens to their needs and concerns.

“By listening to what our members need, we will be in the position to be responsive to those needs and concerns and provide resources and training in the most efficient and convenient ways possible using traditional methods but also using technology to increase availability,” said Peterson.

risk managers are the challenges of their entities and while I wish it were not so, I think the biggest challenge for public entities in the next year is budgetary concerns brought about by continuing economic challenges nationwide,” said Peterson. “In my

Her other goals for her term as president are, first, to ensure PRIMA remains solvent and stable during these challenging economic times. Second, Peterson hopes to ensure PRIMA is focused on both its vision “to be the recognized leader in public risk management” and its mission “to advance the knowledge and practice of public risk management.”

experience, recovery

What Benefits You

the economy.”

As a long-time PRIMA member, Peterson knows firsthand all of the resources the Association offers its members. The problem, she says, is making sure all of the members know the benefits PRIMA offers.

for public entities can be slower than other segments of

May/June 2010 | Public Risk

7

Meet PRIMA’s 32nd President

“(PRIMAtalk) is one of my favorite things about PRIMA, but a number of our members do not sign up for or actively participate in it…No matter how long you have been a risk manager, you can learn from PRIMAtalk and you have experiences from which others can learn. The more everyone participates, the better we all become.”

“I think members need to continually review the benefits of membership and take advantage of every opportunity to get engaged,” she says. “PRIMA has so many valuable resources available to its members; it is very difficult to point out the ‘best things.’ The important thing is that PRIMA has resources available in a variety of formats and mediums to hopefully meet members’ needs when and where they need them.”

For example, Peterson says, “if you are working on something in the middle of the night or on the weekend and you need examples so you do not have to recreate the wheel, you can log on to the PRIMA Cybrary and find a lot of examples of the good work done by your colleagues.

If you receive a call with a question you’ve never thought of or don’t know the answer to and the individual wants a response right away, you can send a message out to your colleagues on PRIMAtalk and often get a ready response from a variety of perspectives.”

PRIMAtalk, Peterson says, is the benefit that members don’t take advantage of enough.

“This is one of my favorite things about PRIMA, but a number of our members do not sign up for or actively participate in it,” she says. “No matter how long you have been a risk manager, you can learn from PRIMAtalk and you have experiences from which others can learn. The more everyone participates, the better we all become.”

“Public entity risk management has its own unique challenges and opportunities and the entity representatives of

8

Public Risk | May/June 2010

our PRIMA members are an endless supply of best practices for dealing with those challenges as well as capitalizing on those opportunities,” Peterson continued.

How can PRIMA members get the most from their membership?

“Whether you are receiving training, using PRIMAtalk, submitting or downloading documents to the Cybrary, or networking with other members, you are contributing to the advancement of your career, your public entity’s risk program and risk management,” said Peterson. “It is through those important advancements that PRIMA recognizes its mission and vision and leaves a strong risk management legacy for those who follow and face the ever-changing challenges of the public sector.”

“Also, you, the PRIMA member, need to provide feedback to the leaders of PRIMA through member surveys or by picking up the phone and calling any board or staff member. We have to hear from you to be your organization.

PRIMA is only as good as the participation and feedback of our members and I know PRIMA will be strong through the current economic challenges and any challenges the future holds if every member makes a commitment to participate in the way that suits them best and takes a moment periodically to let us know what’s working, what could be better and what their entity needs from their organization to succeed.”

Laura Peterson can be contacted at laura.peterson@nebraska.gov.

www.primacentral.org

To see whether a risk poses a threat, don’t we have to see the big picture?

The future is like an iceberg. Most of the time what we can see before our eyes is only half the story. So how do we know the unknowable? Only those with relentless drive, expertise and foresight can see the whole picture — the risk that lies beyond.

At Munich Re, seeing more is what we do. We work in interdisciplinary teams, each pair of eyes viewing something from a different perspective, all focusing on the best solution. With our worldwide network we can pinpoint complex global patterns when they arise. When it comes to grasping our future, we are never satisfied with half the story.

To find out what lies beyond, visit our U.S. website at www.munichreamerica.com

Products and services provided by Munich Reinsurance America, Inc.

PRIMA Institute The Industry’s Premier Risk Management Training Program September 13–16, 2010

Do you manage risk for:

Cities

Counties

San Antonio, Texas

Municipalities

Schools

Parks and Recreation

Pools

And have less than two years of experience?

The PRIMA Institute Foundations of Risk Management Program is for you!

T

his four-day program is a first-class, best-in-the-industry training program for those with less than two years of experience in the risk management arena who wish to get grounding in the technical and management aspects of their jobs. This comprehensive program provides the core competencies of risk management. The five-step risk management process applies to every risk in your entity—liability, property and workers’ compensation. A look at the big picture will show you how risk management fits into your organization’s overall structure.

Registration is now open for this exciting program. Register by July 19 to receive discounted rates!

Visit www.primacentral.org for more information.

We can help you avoid unexpected twists, turns and face-plants.

It’s easy to get turned around when insuring public entities—street signs one day, a school or maybe even a water park the next. At Travelers, we have dedicated risk control and claim services for any project that lands on your desk. Every step of the way, we’ll be your trusted partner to spot and minimize risks, efficiently handle claims and help you make informed decisions. For a partner who’s in-synch with the twists and turns of your community’s needs, contact your local independent agent. ©2008 The Travelers Companies, Inc. All rights reserved. The Travelers Indemnity Company and its property casualty affiliates. One Tower Square, Hartford, CT 06183

travelers.com

Keeping Students Safe on the Road

Keeping Students Safe

By Robin Leal and Deb Denker

When a college athletic team is on its way to a regional competition or a school class is on an outing to a local museum, educators hope the experience is both enjoyable and broadening for students. Unfortunately, accidents do happen and the journey can sometimes end in injury to faculty and students, opening the door to liability for the educational institution.

Not all accidents are avoidable. However, leaders of educational institutions can take steps to manage the risk of student transportation, increasing the chances of a happy ending and reducing exposure to liability. By working closely with the institutionâ&#x20AC;&#x2122;s insurance agent and carrier, educators can create an effective plan to manage the potential risk of student travel.

On the Road to Trouble A recent crash involving a college dance team on its way to an out-of-state performance illustrates a few of the issues that can arise when transporting students. The crash occurred when eight students were driving through the night in a van to a dance competition 400 miles away. Shortly after 2:30 a.m., about 300 miles into the trip, the sleepy driver drifted off the road, overcorrected and slammed into a guardrail on the other side of the road. Two students who apparently were not wearing seatbelts were thrown from the vehicle.

Officials undoubtedly will conduct an investigation to understand exactly what went wrong and the college involved is likely to review its procedures to determine if policies need to be changed. Several aspects of this accident should be

12

Public Risk | May/June 2010

www.primacentral.org

In short, your school may be held responsible for verifying that a vehicle is in sound operating condition, the driver is competent and that the planning for the trip (route, timing, etc.) is reasonable. If those elements are not well-handled (and sometimes even when they are), your institution may bear the costs of damages to property, injuries to people and potential punitive damages.

considered by those with risk management responsibility.

These include:

employee, the institution has responsibilities to ensure safe performance. But exposure to liability can occur in other ways:

• Overnight driving when tired drivers are more prone to make errors.

• The involvement of a van, which may have been more difficult for the driver to handle.

• The use of a student driver, rather than a professional or more experienced driver.

• The lack of seatbelt use by passengers.

• If a personal vehicle is used by a school employee.

• If a school-owned vehicle is loaned to a non-employee.

• If a personal vehicle is used by a non-employee (a student or parent, for example) to transport students to a schoolsanctioned event.

• If an outside vendor is hired (a chartered bus or professional driver, for example) by the school.

All of these are red flags that increase the opportunity for things to go wrong. It happens more frequently than anyone would like, although statistics are fragmented and difficult to track. A 2007 resource guide, Safety in Student Transportation, found 45 deaths and 80 injuries in campusrelated road accidents from November 1999 through March 2006. The National Highway Traffic Safety Administration (NHTSA) reported that 1,564 people died in school transportation-related crashes between 1998 and 2008, an average of 142 fatalities per year.

In addition, there are many risks that can be encountered on a trip that make an accident more likely. Bad weather, uneven roads, night-time driving, long-distance trips, heavy traffic, student behavior in the vehicle and driver fatigue can all contribute to unsafe conditions.

Of particular concern to those who track student safety issues are vans used to transport mid-sized groups (more than can travel in a car, but fewer than would necessitate a bus). After issuing a safety alert about 15-passenger vans in 2003, the NHTSA continued to track their performance, reporting in May 2009 that 473 occupants had been killed during the five years ending in 2007.

Liability from Multiple Directions In assessing the potential liability you face, it is important to recognize that exposures may be broader than first appearances indicate. Common sense tells you that if a vehicle is owned by a school or college and the driver is an

In short, your school may be held responsible for verifying that a vehicle is in sound operating condition, the driver is competent and that the planning for the trip (route, timing, etc.) is reasonable. If those elements are not well-handled (and sometimes even when they are), your institution may bear the costs of damages to property, injuries to people and potential punitive damages.

Reducing Transportation Risks The situation for every educational institution is unique, and a transportation safety plan should be customized to meet the institution’s needs. The goal should be to reach a balance between “no trips” and “every trip” that allows students to broaden their horizons without taking unreasonable risks.

In general, effective transportation safety plans will cover driver selection, vehicle choice and, when appropriate, risk transfer.

May/June 2010 | Public Risk

13

Keeping Students Safe on the Road

 Require Qualified Drivers If an employee is either allowed or required to drive as part of his job, your hiring process should include screening for the appropriate classification of driver’s license and history of accidents and tickets. You should not hire those with poor driving records. All new hires should be provided with defensive driver training before they begin driving on the job, and the training should be refreshed every three years.

Those on staff who are involved in a preventable accident should be required to take remedial driver training, as well as be subject to disciplinary measures. A ride-along assessment/coaching program will allow you to catch poor practices early and help drivers improve their performance.

If you are contracting out for transportation services, you should require the vendor to provide proof of the driver’s licensed status, verified driving record and any special

training. If parents or other non-professionals are driving, their license should also be documented.

If a special type of vehicle will be driven on a trip, such as a 15-passenger van, only specifically designated and qualified drivers should be permitted to operate these vehicles. The driver should receive specific training, including maneuverability issues, safe handling, evacuation training and managing students with special needs. Drivers who will be in charge of large groups should be trained on how to load and offload baggage, secure cargo and handle passenger emergency exiting.

When possible, avoid using student drivers as they typically lack the years of experience that contribute to good driving skills.

You may wish to establish a certain number of years experience as a requirement, or set limits on the number of passengers a student can drive, or the number of hours they are allowed to drive. In order to reduce driver distractions, it may be helpful to designate the front seat passenger to assist the driver by reading maps, caring for passenger needs, etc. Further, and especially in instances when longer trips are planned, the use of multiple drivers is recommended to help control driver fatigue.

Regardless of who is driving, you should institute a policy that forbids the use of cell phones during vehicle operation.

Insist that drivers pull over to either answer or make calls.  Use Safe Vehicles Because of the scrutiny 15-passenger vans have received and their documented performance issues, you may wish to limit or eliminate the use of them. Some of these vans have shown a propensity to roll over and inexperienced drivers appear to have trouble controlling them under some conditions. Experts have advocated limiting capacity to only

14

Public Risk | May/June 2010

www.primacentral.org

10 passengers, removing the rear seats to provide a weightfree area and avoiding rooftop loads in order to reduce the tendency for rolling over. The National Transportation Safety Board recommends that special care be taken to inspect tires for wear, check tire pressure and require all passengers to wear seat belts.

For institution-owned vehicles, you should have a routine vehicle inspection program that is managed by your mechanic or a designated service provider. Routine maintenance should be performed according to the manufacturer’s recommendations and documented as completed.

To assist in operating vehicles safely, have a designated driver assistant who can help when backing up or parking in tight spots is required. You may also consider installing electronic sensing equipment that helps drivers back up safely or alerts them when they begin to drift out of their lane.  Arrange for Adequate Insurance Educational institutions should carry appropriate liability coverage. With the trend toward large awards for personal

injuries in vehicle accidents, carrying excess casualty coverage is wise. Typical business automobile insurance may have an upper limit of $1 million, which can quickly be exceeded if several people are injured.

Regardless of who is driving, you should institute a policy that

Drivers who are not affiliated with the school or college should be required to provide proof of insurance that meets liability limits that you designate as adequate. Similarly, vendors with whom you contract for driving services should certify that they have insurance that covers your exposure.

forbids the use of cell phones during vehicle operation.

Students benefit greatly from experiences that are outside the narrow confines of their institution’s grounds. By planning ahead and taking control of travel conditions, your college or school can manage the risks and safely send them on their way.

Insist that drivers pull over to either answer or make calls.

Robin Leal is the product director for public K-12 educational entities for Travelers Public Sector Services.

Deb Denker is the senior director, product for private and higher educational institutions for Travelers Commercial Accounts.

We help protect your assets – GREAT and small.

Reducing claims does more than eliminate financial losses, it also ensures greater safety for those you serve. At Carl Warren & Company, we help you spot claims trends and potential problems that could lead to claims. Our claims veterans, expert loss-trend analysis, and online claims tracking system help you see the issues and institute corrective measures to protect the people who count on you.

Carl Warren & Company. We do more than process claims – we protect people.

VISIT US AT BOOTH 2 2 0 AT PRIMA IN ORLANDO

and

SPIN TO WIN

GOLD

To find out more about our award winning employeeowned company, visit us at www.carlwarren.com or call 1-800-572-6900.

1-800-572-6900 www.carlwarren.com

May/June 2010 | Public Risk

15

Risk Management: It’s Quite the Ride

June 6 – 9, 2010 | Orlando, FL For more information, visit www.primacentral.org.

RISK MANAGEMENT:

By Jennifer Ackerman, CAE

Sunny Orlando, Fla., is the destination for PRIMA’s 2010 Annual Conference, “Risk Management: It’s Quite the Ride,” to be held June 6-9. If you manage risk in the public sector, you already know that risk management has its share of ups and downs. This year’s conference harnesses the knowledge of your risk management peers to make this ride a little smoother.

This year, PRIMA’s conference kicks off with a professional development pre-conference session. This exciting workshop, Winning Presentations: Getting It Right Anywhere, Every Time, is designed for anyone who has to talk the talk to co-workers, supervisors or the public. Internationally renowned presenter Michael Jackson will teach participants exactly how to create and deliver a top-quality business presentation. Guaranteed to improve the level of any attendee’s presentation skills, this workshop comes complete with a professional manual and guide, and has already been rated by past attendees around the world as being “the best training they have ever attended.” This pre-con session requires pre-registration.

This year’s conference features 55 educational sessions.

These sessions are chosen BY public risk managers FOR public risk managers, so you can be sure that you will leave the conference with ideas and strategies that you can put into use in YOUR entity. We’ve all heard that these topics are going to effect us sooner or later. Find out how your peers are addressing these new responsibilities.

16 Public Risk | May/June 2010 16

As always, PRIMA’s Annual Conference will feature learning tracks that focus on: • Enterprise risk management • Employee benefits • Management and administration • Pooling • Risk control • School risk management and more!

In addition to interesting and entertaining keynote speakers, PRIMA has put together a panel discussion, titled Uncertainty on the Horizon of the Insurance Industry, which will discuss the future of the industry. Industry leaders Patrick M. Gallagher, managing director of Arthur J. Gallagher (UK) Ltd., Dave Hall, president, public sector services of Travelers and Patricia Roberts, president and CEO of Genesis Underwriting Management Company, will share the dais and their insights into what we can expect going forward. Moderator and PRIMA President Ron Hayes of the Calcasieu Parish School Board, will ask the panelists the questions we are all interested in as financial crisis, natural disasters and the unforeseen loom on the insurance industry’s horizon.

The conference kicks off on Sunday, June 6, with a welcome reception at the Orlando World Center Marriott Resort. It’s a great opportunity to reconnect with friends old and new.

On Monday, June 7, attendees are invited to join PRIMA leadership in congratulating the winners of its yearly awards

www.primacentral.org

program, including the Public Risk Manager of the Year. Other award winners scheduled to be announced during the awards luncheon on Monday are: • Outstanding achievement for a public risk management program; • Outstanding achievement for a public risk management product; • Outstanding achievement for a public risk management intergovernmental risk pool program or product; • Writer of the year for Public Risk magazine; • Article of the year for Public Risk magazine, and; • Chapter recognition awards.

On Wednesday, PRIMA will hold its annual membership luncheon. During the luncheon, members will welcome PRIMA’s new president, Laura Peterson, JD, MPA, State of Nebraska, as she is sworn-in by 2009–2010 PRIMA President Ron Hayes. Hayes also will swear-in new directors, Betty Coulter, risk management director, City of Asheville, NC, and Matt Hansen, MPA, director of risk management, City and County of San Francisco, as well as 2010–2011 president-elect, Cindy Mallett, AIC, CWCP, ARM-P. Each day-long educational program is capped with an exciting peer-networking event.

On Monday, join other risk managers for an afternoon reception in the exhibit hall.

Tuesday brings PRIMA Polynesia! PRIMA’s Tuesday night event is always a highlight of the conference and this year promises to be no different. Attendees will head to SeaWorld’s Discovery Cove where they will stroll down beautiful nature trails and experience up-close interactions with exotic animals and beautiful tropical birds. Attendees will experience the Polynesian Islands with food and drinks and an interactive drum show complete with hula dancers, fire knife dancers, and a few other surprises! On Wednesday morning, attendees can start their day off right with PRIMA’s Fun Run/Walk, to benefit the Second Harvest Food Bank of Central Florida.

Throughout the conference, attendees will have the opportunity to learn about a variety of products and services for risk managers in PRIMA’s exhibit hall. The trade show is open on Monday and Tuesday of the conference. Don’t miss out on the boxed lunch as well as a raffle drawing on Tuesday, starting at noon. This year’s conference draws nearly 100 exhibitors who recognize the buying power of public risk managers.

It’s not too late to register for public sector risk management’s premier conference! Don’t miss your chance to be part of the Risk Management: It’s Quite the Ride! See you in Orlando!

Thanks to the 2010 Annual Conference Sponsors!

Platinum Sponsors

Gold Sponsors

Silver Sponsors

Bronze Sponsors Allianz Global Corporate & Specialty Bickmore Risk Services CorVel Corporation Downes Fishel Hass Kim LLP Meadowbrook Poms and Associates Insurance Brokers, Inc. Safety National Casualty Corp.

May/June 2010 | Public Risk 1717

As one of the world’s largest insurers, the ACE Group has the capacity, know how, people and balance sheet strength to meet your needs today — and to be there for you in the future.

With offices in more than 50 countries and doing business with companies and individuals in more than 140 countries, ACE is ready to serve you today.

ACE’s Public Entity group will work collaboratively with you to create innovative, flexible risk solutions. Our expert underwriting, superior claims handling and local market experience free you to focus on the possibilities, not the liabilities.

To learn more about ACE’s products for public entities, special districts and education, contact Rich Vincelette at 215 640-2825 or visit www.aceusa.com

A Decade in the Life of Property Values

A Decade in the Life of

Property Values

How several significant events during the first decade of the new millennium sculpted the construction landscape and the insurable values estimated for real property

By Shaun Callahan

The first decade of the new millennium started off with a highly anticipated bang that turned out to be a dud. As the ball in Times Square touched down on January 1, 2000, the world realized that computers were not going to crash and leave humanity lost in the wake. Unfortunately, this good fortune was not a glimpse of things to come in the decade ahead. From the moment the door closed on the 90s, the past 10 years have been stamped by a series of colossal events that, if occurred alone in any other decade, would have been the uncontested moment of their time. September 11, 2001 seemingly tops the list, but is followed closely by events such as Hurricane Katrina, the burst of the housing bubble, the wars in Afghanistan and Iraq and the current recession. This combination of events created a tidal wave of change that has left a lasting imprint on our economy, society and the way we will handle similar events in our countryâ&#x20AC;&#x2122;s future.

There are very few industries in our country that have been left untouched by the aftermath of these events and the construction industry is one that has certainly felt the effects. The two major components that make up the cost to construct are materials and labor. Over the past decade, these two components have been greatly influenced by many of the major events mentioned. Chart I illustrates the percentage change in the factors that affect the cost to construct over the past 20 years. Even though it can be difficult at times to predict how construction costs are going to vary from year to year, it is

May/June 2010 | Public Risk

19

A Decade in the Life of Property Values

The first decade of the 21st century brought much change to the construction industry and the insurable values that are estimated for buildings and structures. The once routine task of applying a standard percentage increase to insurable values quickly became a guessing game that left many skeptical as to the overall accuracy of their values.

important to be aware of what has happened in the past in order to make confident decisions in regards to maintaining accurate insurable values for buildings and structures.

Welcome to the 21st Century: Pricing Roller Coaster During the 90s, the construction industry was relatively consistent. With the exception of labor between 1990 and 1992, materials and labor followed a similar tangent and positive percentage increase from year to year. As a result, the cost to construct was increasing at a very comparable annual rate of inflation. This meant that insurable values for buildings and structures during this timeframe were easily maintained and updated on an annual basis.

The first decade of the 21st century brought much change to the construction industry and the insurable values that are estimated for buildings and structures. The once routine task of applying a standard percentage increase to insurable values quickly became a guessing game that left many skeptical as to the overall accuracy of their values. Many risk managers found themselves asking the following questions: • • • • • • • •

20

What percentage should I apply to my values?

Where did my original values come from?

Are my values consistent for like structures?

Should I increase my values by more than I did last year and, if so, what if it’s too much?

Will I be over-insuring?

Have I been under-insuring all along?

If we are in a recession, should I actually apply a negative percentage to my values?

Should I just call it a day and start from scratch with a new appraisal?

Public Risk | May/June 2010

If you are someone responsible for making sure you have the proper amount of insurance coverage on all of your owned buildings, then chances are you’ve asked yourself one of these questions at some point during the past decade. You might even be asking yourself one of these questions right now. The good news is that you are not alone.

So what exactly caused us to be so worried about our insurable values? To put simply…a lot! Let’s start with September 11, 2001. The terrorist attacks in New York, Virginia and Pennsylvania resulted in insurance losses that were more than one and a half times greater than the previous largest disaster, Hurricane Andrew. Prior to September 11th, many insurance companies offered blanket policies that covered more than one item of property at a single location, or one or more items of property at multiple locations. These policies have historically provided clients a great deal of protection from under-reported values, but events such as September 11th have exposed carriers to losses far greater than they had anticipated. As a result, most policies are now based on a mutually accepted value for each property and its contents.

Just as we began to turn the corner and recover from the impacts of September 11th, we were greeted by a series of devastating storms between 2003 and 2006 that would hit the southeast region of our country with great force and cause billions of dollars in damage to thousands of buildings and structures. Decades from now, some of us may forget the names Isabel, Charley, Frances, Ivan, Jeanne, Dennis, Rita and Wilma. These were all devastating storms in their own right, but the damage left behind from all of these storms combined did not equal what was caused by the one storm none of us will ever forget, Hurricane Katrina.

The demand for construction from these catastrophes,

www.primacentral.org

combined with demand caused by the housing boom, would result in a significant increase in the cost to construct during this time period. The increased cost of raw materials such as steel, concrete and copper, also had an impact on the overall cost to construct buildings during this time. As you can see in Chart I, the materials and components for construction, labor for construction and the number of newly constructed homes for sale were all on the rise and now following a much steeper tangent compared to prior years. According to the Producers Price Index, materials and components for construction were up 28 percent and employment, hours and earnings for construction were up 17 percent from 2003 to 2006.

Based on data provided by the U.S. Census, the number of newly constructed residential homes for sale was up a staggering 50 percent during this same time period.

This sudden increase in demand, combined with a hardened property insurance market, sparked many to question their insurable values and take the necessary measures to ensure the accuracy of those values. This also contributed to an even greater emphasis on “insuring to value” and many insurance companies and underwriters would now require some form of property appraisal to verify that the risks they write are insured to their full insurable value.

Many of the entities who had an independent third-party appraisal conducted during this time period experienced a significant increase in their Total Insurable Value (TIV). This was not only due to the increased value of individual buildings, but also the identification and valuation of several smaller structures that were not previously reported and valued.

The final three years of this decade delivered drastic change that was as equally as unpredictable as the storms that ripped through our country between 2003 and 2006. For the first time in many years, we would see a decrease in almost all factors that impact the cost to construct. The one thing that would separate this three-year period from the prior is that it was not a result of events that were completely out of our control. Many of the factors that lead to this decrease were, in fact, man-made and started with the burst of the housing bubble in 2006. From the start of the decade, we saw a rapid increase in the valuations of real property until unsustainable levels of affordability relative to incomes and price-to-rent ratios were reached. The decrease in the housing market that followed resulted in many homeowners finding themselves in a position where their mortgage debt was higher than the value of their property. This trend can be attributed to a subprime mortgage and credit crisis

Chart I

Calendar of Events The Public Risk Management Association (PRIMA) hosts or sponsors a wide variety of educational programs for public risk practitioners. These meetings and events provide an optimum forum for public risk professionals to acquire new knowledge or skills, exchange ideas and expand peer networks.

PRIMA’s calendar of events is current at time of publication. For the most up-to-date schedule, visit www.primacentral.org.

Webinars 2010 May 19 Public Sector HR Basics September 15 Key Issues in Loss Mitigation— Is Your Organization Prepared to Respond?

October 13 Protecting our Children: Keeping our Communities and Schools Safe November 17 Winning Strategies for Contractual Risk Transfer Meetings & Events 2010 September 13–16, 2010 PRIMA Institute San Antonio, TX Crowne Plaza Riverwalk PRIMA Annual Conferences June 6–9, 2010 PRIMA 2010 Annual Conference Orlando, FL Orlando World Center Marriott June 5–8, 2011 PRIMA 2011 Annual Conference Portland, OR Portland Convention Center June 3–6, 2012 PRIMA 2012 Annual Conference Nashville, TN Opryland Hotel June 2–5, 2013 PRIMA 2013 Annual Conference Tampa, FL Tampa Convention Center

May/June 2010 | Public Risk

21

A Decade in the Life of Property Values

caused by the inability of several homeowners to pay their mortgages when their low introductory-rate (sub-prime) mortgages reverted to regular interest rates. The emergence of sub-prime loan losses in 2007 exposed other risky loans, resulting in a major panic on the inter-bank loan market.

The fallout was that many large and well established investment and commercial banks suffered huge losses and even faced bankruptcy, which led to massive public financial assistance. The recession that would follow resulted in a drop in international trade, rising unemployment and slumping commodity prices, all of which would have a dramatic impact on the construction industry.

It was during this period of time that public entities began to ask the question, “Are my insurable values going to decrease?” Because the data gathered by various industry standard valuation guides is based on actual completed construction projects and not construction project estimates at the time, the answer many of you received was “only time will tell.” That time came between Q4 of 2008 and Q4 of 2009, when, the resulting data available supported an average national decrease in the cost to construct new buildings. As illustrated in Chart I, the Producers Price Index indicates a 39 percent decrease in U.S. employment, hours and earnings for construction between 2006 and 2009. A 20 percent decrease is indicated between 2008 and 2009 alone. According to the Producers Price Index, materials and components for construction are up 10 percent since 2006, but are actually down 4 percent from 2008 to 2009. This 4 percent decrease is the only time in the past two decades that materials and components for construction followed a negative trend year over year. This could be contributed to significant fallbacks in steel and copper prices as a result of the decrease in demand for steel in China. This coupled with the drop in oil prices results in imported steel that is reaching North America at lower prices. Data provided by the U.S. Census indicates a 72

percent drop in the number of newly constructed homes for sale between 2007 and 2009, with 37 percent of the decrease occurring from 2008 to 2009.

Looking to the Past for Indicators of the Future It is a challenge to predict exactly what will happen with construction costs and insurable values in the future, but some assumptions can be made based on the historical data that is available. For long term planning purposes (the next 5-to-10 years) is it safe to assume that construction costs will increase over time. Prior to the drastic decrease in employment, hours and earnings for construction that began in 2006, the average annual increase over the past two decades was approximately 3 percent based on the data provided by the Producers Price Index. The average annual increase for materials and components for construction from 1990 through 2009 was also approximately 3 percent. This 3 percent increase for both labor and materials is in line with the average annual rate of inflation for the United States over the past two decades.

The more difficult task is trying to estimate whether the cost to construct is going to continue to decrease or actually increase in the short term. The biggest hurdle we face is the unknown. Assuming that our struggling economy and employment rates are not going to bounce back overnight and the demand for construction remains the same, then a prediction can be made that another decrease in the cost to construct is more than likely in our near future. However, if we are unfortunately faced with a single or series of catastrophic events similar to the ones that plagued us in the second half of the previous decade, then the demand for construction could increase. This could drive the cost of materials and demand for labor resulting in an increase in the cost to construct. Another factor to consider in the short term is how the stimulus money allocated to start new construction projects for state and local governments is going to impact constructions costs. If ground can be broken on these projects, then new jobs and demand for materials could begin to increase as a result. Job growth in the construction industry over the next couple years is critical for the average annual increase in construction costs to once again be sustainable.

The most important thing that risk managers can do in the interim is to estimate current and accurate values for all owned buildings and structures. Establishing an accurate starting point is critical to effectively maintain insurable values on an annual basis. Applying a percentage change or making annual adjustments to insurable values based on industry supplied trend factors is only effective and applicable if the value you are starting with is current and accurate.

Shaun Callahan is vice president of AssetWorks Appraisal.

22

Public Risk | May/June 2010

www.primacentral.org

Complex Claims Require Expert Knowledge...

Rimkus Assists Clients Worldwide in the Resolution of Complex Claims and Disputes Since 1983, Rimkus has served thousands of clients in the United States, Canada, Europe, Asia, and Central and South America. The world’s best-known companies have learned to rely on the Rimkus

approach to problem solving. From origin and cause through the extent of loss, Rimkus offers more than 300 experienced forensic engineers and technical professionals to analyze the facts and explain precisely what

happened. Through real-world experience and consistent analysis, Rimkus delivers proven results throughout 33 office locations worldwide.

Rimkus

TM

Consulting Group, Inc.

800.580.3228 www.rimkus.com Houston • Dallas • Austin • San Antonio • McAllen • New Orleans • Lafayette • Atlanta • Chicago • Las Vegas • Denver • Tampa Orlando • Ft. Lauderdale • Jacksonville • Pensacola • Baltimore • Richmond • Los Angeles • San Francisco • Seattle • Phoenix Charlotte • Charleston • Jackson • Indianapolis • Oklahoma City • Little Rock • St. Louis • Nashville • New York • London • Mardrid

Dodgeball: A Dodgy Proposition for Public Entities?

A dodgy proposition for public entities?

By Joann Robertson, CSP, ARM, CPCU

Just about everyone played dodgeball as a child. It is a traditional gym game whose objective is to eliminate all members of the opposing team by hitting them with an inflatable ball. But nowadays the game itself is taking a hit, spurred by detractors who say it can cause physical and psychological hurt.

Smacking an opponent isn’t the only way players can send members of the other team to the sidelines. The throwing player is automatically out if the player he’s aiming at manages to catch and the ball and hold onto it. A player is out as well if she steps outside court boundaries as she’s dodging rubber missiles.

But some think the game may not be able to bounce back in the wake of controversy following recent dodgeball-related lawsuits and the release of a popular motion picture called—you guessed it—Dodgeball. Because of the game’s potential for injury, some public entities (schools mostly) have carefully modified this activity or banned it altogether, often replacing it with a less controversial physical education option. But the question remains: Is the problem our overprotective society, or are there legitimate reasons students and community residents should be avoiding this game?

There are many variations or alternatives to the traditional game of dodgeball. It can be modified to provide a level of safety by establishing a safe or neutral area in the center. Other modifications make the game increasingly chaotic by putting multiple balls in play. Another variation requires students to hit a cone or pin instead of another player.

Some entities (such as recreation programs, summer camps), as well as school physical education programs, make the game voluntary by providing alternate activities for students who do not choose to participate. But others, noting that students choose to play on their own after school anyway, make participation mandatory.

24

Public Risk | May/June 2010

w w w.primacentral .org

Fun or fractious?

How to dodge the downside

Arguments for

Whichever side of the issue the ball lands on, it generally becomes an emotional and polarizing topic, especially for current and former students who either lived for the day they could play dodgeball, or say they have suffered injury, or developed self-esteem problems because of it.

If your district or public entity continues to permit dodgeball, use a soft ball, choose teams in a nonexclusionary way and ensure there is adequate supervision.

Be sure to store hard balls (like soccer balls) out of reach so they can’t be used for impromptu games.

It’s popular, fun, traditional, everyone takes a turn, and it’s a good outlet for energy and aggression.

Opponents contend that the game has little athletic purpose, does not promote useful skills and uses humans as targets. They also note that, from the perspective of equal participation, too many players are quickly eliminated and converted into sideline spectators. In response, one additional modification to the game has those who are “out” performing calisthenics until another player on their team tags them to reinsert them into the game. That option ensures constant physical activity for all players.

Additionally, discourage the use of nicknames for the game such as murder, killer or battle ball, which weakens the concept of good sportsmanship. When participants are eliminated from the game, they should be provided with an alternate activity.

Detractors also maintain that dodgeball runs counter to community and school district goals of fostering an environment free from hazing and bullying, since it uses humans as targets. Meanwhile other debates revolve around the appropriate age of participants or whether the games should be co-ed. Courts have argued the point, but as of yet there are no established standards of age-appropriateness.

If accidents or claims occur as a result of this activity, it may be alleged that the game was just a “filler activity” chosen by unmotivated staff. The National Association for Sport and Physical Education, in fact, has discouraged dodgeball since 2006—not necessarily because of the risk of injury, but because the activity limits opportunities for everyone to participate. As a result, some school districts have discontinued the activity or set policy against it. Many other districts have begun similar discussions as a result of recent lawsuits or media attention.

Municipalities that sponsor recreation programs or camps, and school districts may want to engage in formal discussions about the future of dodgeball in physical education classes, being sure to consider what staff, players, parents and community leaders think about its appropriateness. If the game is discontinued, consider what beneficial activities might replace it.

Organizations that choose to allow dodgeball should weigh that decision against the fact that a growing number of schools and public entities consider it a potentially dangerous activity and have banned it. Carefully modify the game to improve safety, consider the age of players, provide proper supervision, and refer to recommendations made earlier in this article to reduce hazards.

Those suggestions may improve the safety of players as well as spectators, and give public entities an even chance of dodging potential claims.

Joann Robertson, CSP, ARM, CPCU, is a risk manager for New York Schools Insurance Reciprocal in Uniondale, N.Y.

The inactive kids in our overweight society need any activities that they may enjoy and this game often is fun for them, offering opportunities to improve agility. In addition, dodgeball injuries probably occur with less frequency and severity compared to injuries associated with other sports.

Interestingly, adults are playing in leagues and enjoying it.

Arguments against The fact that so many players are quickly sent to the sidelines may suggest a lack of staff pre-planning.

It is argued that this game favors aggressive/ popular students, needs close supervision, and can promote group segregation.

Some argue that the game promotes violence and is favored by “behaviorallychallenged” students, is exclusionary, discriminates against the weak, slower and less agile, and is “institutionalized bullying.”

Injuries have been reported to teeth if balls are too hard, players’ feelings can be hurt if sides are chosen poorly, and players’ confidence in their athletic abilities can be diminished.

WEB SITES: National Association for Sport and Physical Education http://www.aahperd.org/Naspe/ Position statement on dodgeball http://www.aahperd.org/naspe/ standards/upload/Position-onDodgeball-in-PE-2006.pdf

May/June 2010 | Public Risk

25

6]LY @LHYZ +LKPJH[LK ,_JS\ZP]LS` [V 4\UPJPWHS 0UZ\YHUJL

5V^ (]HPSHISL 5H[PVU^PKL PU :LSLJ[ :[H[LZ Â&#x2039; +L]V[LK L_JS\ZP]LS` [V WYV]PKPUN T\UPJPWHS PUZ\YHUJL Â&#x2039; /PNOS` :WLJPHSPaLK *SHPTZ HUK 9PZR 4HUHNLTLU[ :LY]PJLZ Â&#x2039; ( UH[PVU^PKL UL[^VYR VM Ã&#x201E;LSK ZLY]PJL WYV]PKLYZ Â&#x2039; )HJRLK I` ( :\WLYPVY 9H[LK :LJ\YP[` 3L[ \Z OLSW `V\ 0M `V\ ULLK TVYL PUMVYTH[PVU VY ^V\SK SPRL [V NL[ H WYVWVZHS VU `V\Y WYVWLY[` HUK SPHIPSP[` JV]LYHNL JHSS \Z [VKH` >LZ[LYU +P]PZPVU 4PRL +H]PZ *0* :LUPVY =PJL 7YLZPKLU[ , 7PTH *LU[LY 7R^` :[L :JV[[ZKHSL (A

-H_ TKH]PZ'OJJ JVT

*LU[YHS +P]PZPVU (UU *V^HU *7*< (< *0* :LUPVY =PJL 7YLZPKLU[ 6WK`RL *V\Y[ (\I\YU /PSSZ 40

-H_ HJV^HU'OJJ JVT

,HZ[LYU +P]PZPVU .LYHYK *VSPZ[YH *3< */M* 3<;*4HYRL[PUN HUK :HSLZ +PYLJ[VY (YIVYL[\T 7HYR^H` :[L 9PJOTVUK =( L_[

-H_ NJVSPZ[YH'OJJ JVT

=PZP[ \Z H[ IVV[O H[ [OL 7904( (UU\HS *VUMLYLUJL PU 6YSHUKV 1\UL

7904( ]

Risk Management Solutions

Public Success We partner with our clients to understand their unique challenges and opportunities. They turn to PMA Companies, which has specialized in risk solutions for public entities for over 50 years.

Many of PMAâ&#x20AC;&#x2122;s municipal and state clients have won national awards for their risk management programs.

We are passionate about delivering tangible value. Choosing PMA Companies as your risk management partner enables you to focus on what matters most: your business.

For more information on PMA solutions, visit:

Our 2010 PRIMA Annual Conference booth #231 or www.pmacompanies.com PMA Companies offers an extensive range of insurance solutions, from fully insured to risk-sharing products from PMA Insurance Group, TPA & Risk Services from PMA Management Corp., and Excess Workers' Compensation from Midlands.

Workersâ&#x20AC;&#x2122; Compensation Self-Insurance

Workersâ&#x20AC;&#x2122; Compensation Self-insurance:

Avoiding the Pricing Pitfalls

By Glenn Backus

28

Public Risk | May/June 2010

www.primacentral.org

Smart Shopper You have just concluded a rigorous RFP process and selected a third-party administrator (TPA) at a very good price, or so you thought. At the end of the three-year agreement, your average cost per claim is still increasing at a steady rate. But you have just negotiated a hefty reduction in the fee per claim you’re paying. The medical network, utilization review and pharmacy vendors are all showing much improved savings. At the end of the day, your experience modifier (e-mod) has not improved at all and still remains at an unacceptable level. Average costs per claim are actually increasing. Does this sound familiar?

The industry, using the RFP and spreadsheets, has done a good job holding unallocated expenses steady over the past 10 years. As a result, the claim fee now covers approximately sixty percent of a TPA’s expenses. TPAs are still faced with ever-increasing benefit costs, investments in technology to keep pace with regulatory changes, and the overall rise in expenses facing businesses today. The problem will be exacerbated with a graying workforce leading to escalating personnel costs related to a competitive environment for qualified personnel.

Where to begin?

You decide that it makes financial sense for your entity to self-insure and you decide to hire a TPA. So, how do you make sure you’re getting a good deal? The first step is developing an understanding of allocated vs. unallocated expenses. Unallocated expenses (according to IRMI) are defined as all external, internal and administrative claimshandling expenses, including determination of coverage, that are not included in allocated loss adjustment expenses (ALAE). In a typical TPA contract, the most common unallocated loss adjustment expenses (ULAE) are claim fees, though administration and system fees are common as well.

For example, the statutory definition of an indemnity claim is defined as: if a claim has incurred or paid (on closed claims) indemnity or legal, the file will be charged as a lost-time claim. All other claims are charged as Medical Only. However, some TPAs may classify a claim as an indemnity claim if:  indemnity is paid or incurred, or  a claim incurs only medical charges but remains open more than 90 days, or  medical charges exceed a certain dollar amount ($2500). When reviewing RFP responses, looking at two TPAs, one that follows the statutory definition, the other that follows a more liberal definition, how might this impact the bottom line?

The industry, using the RFP and spreadsheets, has done a good job holding unallocated expenses steady over the past 10 years. As a result, the claim fee now covers

TPA 1 Claim Counts

Rate

1,000

TPA2

Rate

1,000

approximately sixty percent of a TPA’s

Indemnity

250

$995

440

$1,200

Medical Only

750

$130

560

$150

Cost

expenses. TPAs are still faced with ever-increasing benefit

Indemnity

$248,750

$528,000

Medical Only

$ 97,500

$ 84,000

Total Cost

$346,250

$612,000

costs, investments in technology to keep pace with

As you can see, the results can be dramatic. The savvy consultant you hired to lead the RFP selection has done a good job of pointing out the definition pitfall. Your spreadsheet will clearly indicate that TPA 1 is your best choice. Let’s continue to peel back the onion by looking at allocated expenses.

regulatory changes, and the overall rise in expenses facing businesses today.

Borrowing from IRMI again, allocated expenses are defined as: loss adjustment expenses that are assignable or allocable to specific claims. Fees paid to outside attorneys, experts and

Example: In a typical TPA contract, ULAE = • TPA 1 Workers’ Compensation Claim Fee • Indemnity = $995 • Medical Only = $130 • TPA 2 WC Claim Fee • Indemnity = $1200 • Medical Only = $150 As you can see, there is a big difference between the fee charged for an indemnity claim versus a medical-only claim. Therefore, to make sure that you’re paying the proper fee, entities need to make sure the TPA follows the industry definition of indemnity and medical-only claims. Some TPAs may use a liberal definition to classify a higher portion of claims as indemnity, resulting in a higher overall fee.

May/June 2010 | Public Risk

29

Workers’ Compensation Self-Insurance

investigators used to defend claims are examples of ALAE. Municipalities typically entrust their TPAs to select vendors as needed to administrate the claims.

Example: Telephonic Case Management (ALAE) TPA 1

TPA2

1,000

1,000

Lost time

250

440

Medical only

750

560

$85/hr

$200/mo

Utilization (LT)

50%

25%

Utilization (MO)

5%

5%

Duration (LT)

8 hrs/mo (3 mos)

3 months

Duration (MO)

2 hrs/mo (1 mo)

1 month

Total Telephonic Case Management

$261,460

$71,600

Total Fees

$803,460

$723,975

Counts

One common example of an allocated expense is bill review, which is used to re-price medical bills to fee schedule or usual, customary and reasonable (UCR). Some TPAs may use bill review as an additional source of revenue.

Example: Bill Review (ALAE) Assumptions • 1000 claims: 250 Lost Time (LT); 750 Medical Only (MO) • 10 invoices per LT claim; 3 invoices per MO claim • 45% savings • Avg fee per bill: LT = $600; MO = $300 TPA 1

TPA2

20% savings

$8.50/bill

N/A

4,750

$2,175,000

N/A

Bill review Fee

$195,750

$40,375

Total Fee

$542,000

$652,375

Rates Invoices Medical paid

Now comparing the two TPAs, TPA 1 still has an advantage (albeit much smaller), but we’re not finished.

Some TPAs have also hired their own nurses to perform telephonic case management and utilization review. This has also become an important source of revenue for TPAs. While most TPAs do a very good job in the managed care sector, be aware that sometimes the emphasis is on revenue, which can lead to an overutilization of managed care services.

Rates

Once all costs have been identified and defined, TPA2 has now become the best choice for the municipality—and we’re still not finished! The entity must remain ever diligent in making sure that all business partners comply with established service and financial standards. Reporting mechanisms must be in place until a level of trust has been established. Even then, as President Reagan stated so succinctly, “Trust, but verify.”

What can you do about it?

First and foremost, demand full disclosure. Insist that all pricing—allocated and unallocated—remain fully transparent. Retain the opportunity to contract with vendors directly. Make sure allocated expenses as a percent of total paid fall below 10 percent (typically 5–8 percent). Pay your TPA a fair fee up front, preferably a flat, fixed fee. Audit all business partners frequently by a disinterested third party. And, most importantly, develop a relationship with your business partners. All play a key role in the success of your workers’ comp program. All are entrusted with the care of a very valuable asset—your employees.

When a self-insured entity hires a TPA to manage their claims program, the entity, in essence, hands their checkbook (and a high degree of trust) over to the TPA. The TPA then is also given the authority to hire other vendors necessary to administer the claim. Make sure they have your best interests at heart and don’t forget to “trust but verify.”

Glenn Backus is the senior vice president of Alternative Service Concepts, LLC.

30

Public Risk | May/June 2010

www.primacentral.org

Advertiser Index

Advertiser Index ACE USA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 18 Aon eSolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 2 Carl Warren & Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 15 Genesis Underwriting Mgmt. Co.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outside Back Cover JCAD Claims & Risk Technologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 31 Munich RE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 9 Municipal Insurance Alliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 26 One Beacon Government Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Front Cover PMA Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 27 Rimkus Consulting Group, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 23 Roach Howard Smith & Barton. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 5 States Self-Insurers Risk Retention Group, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover Travelers Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . page 11

Has your entity launched a successful program? An innovative solution to a common problem? A money-saving idea that kept a program underbudget? Each month, Public Risk features articles from practitioners like you. Share your successes with your colleagues by writing for Public Risk magazine! For more information, or to submit an article, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.

:KDW¡V VWRSSLQJ \RX IURP VXFFHVVIXOO\ PDQDJLQJ ULVN DFURVV WKH HQWHUSULVH" +/'`

05'%74+6;`

'5174%'5`

.#+/5 n +5- '%*01.1)+'5

#014 #40

#9-.'; 1#& +55

#/25*+4'X GG J /#+.U ,%#&u,%#&T%1/ 999T,%#&T%1/

#5'& +0 6*' 0+6'& +0)&1/X 22.+%#6+105 '8'.12/'06 6& #4' /#4-'6 .'#&'45 +0 6*' 2418+5+10 1( 06'424+5' +5- #0#)'/'06 51(69#4' 9+6* 5#6+5(+'& 75'45 #%4155 6*' ).1$'T *417)* 174 564#6')+% 2#460'45*+2 9+6* #..#)*'4 7$.+% 06+6; n %*1.#56+% +8+5+10X 174 51(69#4' +5 019 #8#+.#$.' +0 6*' #0& +5 #.4'#&; 57%%'55(7..; +0 75' #6 6*' +6; n 1706; 1( #0 4#0%+5%1T ' & .+-' 61 5*#4' 9+6* ;17 *19 174 %.+'065 *#8' '/$'&&'& 4+5- /#0#)'/'06 #%4155 6*'+4 14)#0+5#6+105T .'#5' %106#%6 75 '+6*'4 #6 6*' #..#)*'4 7$.+% 06+6; n %*1.#56+% +8+5+10 $116* #6 6*+5 ;'#4 5 14 #.6'40#6+8'.; %#.. xHH jNkEKGN KEFNFN 14 '/#+. ,%#&u,%#&T%1/ 61 5%*'&7.' # /''6+0) 9+6* 75 #6 6*+5 '8'06T

May/June 2010 | Public Risk

31

Member Spotlight

PRIMA Members Remember 25 Years of Conference Attendance Each month, Public Risk features a member who has

W

hile many members are preparing to attend their 10th, fifth or even first PRIMA Annual Conference this year, three members have been lucky enough to attend the conference 25 times or more!

gone above and beyond in a feature column titled “Member Spotlight.” Do you know someone who deserves recognition, has made a contribution or excelled in their profession?

If so, we’d like to hear from you for this exciting column, as PRIMA shines the spotlight on its members.

To be considered for the Member Spotlight column, contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.

Mick McBride, risk manager for Sedgwick County, Kan., Harold Pumford, CEO of the Association of Governmental Risk Pools (AGRiP), and Ken Horner, ARM, operations director for Cities & Villages Mutual Insurance Co. in Wisconsin, have been attending PRIMA Annual Conferences for more than a quarter century. Each of them has an interesting perspective on how the conference, and risk management, has evolved.

“In part as a reaction to a very difficult insurance market, public entity risk management was in a growth cycle 25 years ago,” said Horner. “As a result, there were a lot of people at the conference that were new to the profession.

They needed to learn things quickly and be able to develop policies or implement programs ASAP. This created a huge need for what now would be considered ‘the basics.’”

McBride recalls one of the early conference sessions was on how to use a personal computer. “We’ve definitely come a long way from those days!,” he said.

Horner points out that over the years, the level of sophistication of the average attendee has increased and the conference programming has adjusted to meet this evolving audience.

“Today, many attendees are responsible for administering health benefits…something they were not in charge of in years past,” said McBride. “Enterprise risk management is also a hot topic we didn’t hear about in the beginning.”

32

Public Risk | May/June 2010

“We also see more sessions on OCIP and the myriad federal mandates we all have to deal with,” said Pumford.

McBride recalls some of the more anecdotal differences between the Annual Conference then and now.

“Well, for one thing, many of the insurance companies and brokers have fallen by the wayside,” he said. “It also used to be a big deal to collect as many different stickers for your name badge as possible.”

Of course, all three men have fond memories of conferences “way back when” but the one thing that has remained consistent is the networking and camaraderie among attendees.

“The people were and still are the greatest thing about the PRIMA Annual Conference,” said Horner. “I never fail to learn from what others have accomplished or experienced.”

For Pumford, a tradition he started more than 25 years ago continues to be one of his favorite parts of the PRIMA Annual Conference.

“I’ve become personally acquainted with every President and have danced with every female president and the wife of every male president,” said Pumford. “As such, I am grateful that no confirmed bachelor has ever sought to become the PRIMA president!”

For more information, or to register for PRIMA’s Annual Conference, to be held June 6–9, 2010, in Orlando, Fla., visit www.primacentral.org.

www.primacentral.org

How do you find security and

safety in an evolving market?

You join States.

OUR GOAL IS A LONG-TERM PUBLIC ENTITY RISK MANAGEMENT PARTNERSHIP, NOT MARKET SHARE States, as a group captive, is a member-owned insurance company domiciled in Vermont. For over 20 years, the Company has operated as a financially strong, well-managed and highlyregulated national program providing its members with a broadly interpreted coverage form that is second to none in the industry.

States members receive excellent claims and loss control support and specialized public entity-oriented services from an experienced, service-driven staff of professionals. Our “Partners in Protection” have a long and proven history of reliability, accountability, and well-earned trust. Despite challenges in the economy, States has maintained premium stability and continues its record of sound financial results for partner members.

The States concept works. Premiums paid by members are investments in their own Company. States’ focus is to be a viable, long-term solution for its owner-members. Eric Lagstrom, one of these owners, is proud to be a part of a public entity risk management success story.

We know you will be too.

ERIC LAGSTROM RISK MANAGER TOWN OF OCEAN CITY, MARYLAND

FOR INFORMATION CONTACT:

States Self-Insurers Risk Retention Group, Inc. at 1-800-640-0345, extension 3357, or visit our website at www.statesrrg.com 222 South Ninth Street, Suite 1300 Minneapolis, Minnesota 55402-3332

vi

sit Wh us ile at at Bo PR ot IM h A, #3 01

Colorado School District Self-Insurance Pool members share an intense commitment to the safety of their children. Kathleen Morris of Durango District 9-R says, “It’s safety first. Nothing else matters if our kids don’t feel safe. They’re our most precious assets.”

To guarantee the stability and security of Colorado’s schools, the Pool relies on Genesis for its reinsurance.

With A.M. Best and Standard & Poor’s ratings A++ and AA+, respectively, for financial security, Pool members can be confident that their most precious assets are being well protected.

Visit our website at www.genesisinsurance.com

Genesis Underwriting Management Company, 120 Long Ridge Road, Stamford, CT 06902 A.M. Best A++ XV

S&P AA+

A Berkshire Hathaway Company