Published by the Public Risk Management Association
www.primacentral.org
September 2010
Identity Fraud Lesson for Schools:
Protection Pays Off Secrets of a “Savvy” Workers’ Compensation Insurance Shopaholic ETHICS AND RISK MANAGEMENT
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Volume 26, No. 8 | September 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 Laura Peterson, JD, MPA State Risk Manager/ Agency General Counsel State of Nebraska Lincoln, NE Past President Ron Hayes Risk Manager Calcasieu Parish School Board Lake Charles, LA
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President-Elect Cindy B. Mallett, AIC, CWCP, ARM-P Risk Manager City of Gainesville Gainesville, GA Directors Betty Coulter Risk Management Director City of Asheville Asheville, NC
6 Identity Fraud Lesson for Schools: Protection Pays Off
Matt Hansen, MPA Director, Risk Management Division City & County of San Francisco San Francisco, CA
By Joe Reynolds
Dan Hurley, CSP, ARM-P, MS Senior Director, Risk Management & Safety Norfolk Public Schools Norfolk, VA
12 Secrets of a “Savvy” Workers’
John J. Nacht, ARM Risk Management Program Administrator State of Washington, Employment Security Dept. Olympia, WA
Compensation Insurance Shopaholic By Jody Gray, ARM, and John Chino, ARM-P
Dave Parker, ARM-P Risk Manager Pima County Sheriff’s Department Tucson, AZ
16 ETHICS AND RISK MANAGEMENT
Marilyn Rivers, CPCU, ARM, AIC Director of Risk and Safety City of Saratoga Springs Saratoga Springs, NY
By Paree Roper
Editor Jennifer Ackerman, CAE Senior Manager, Communications 703.253.1267 • jackerman@primacentral.org
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In Every Issue 4 News Briefs | 19 Advertiser Index | 20 Member Spotlight
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.
September 2010 | Public Risk
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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 NOT IF, BUT HOW
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Message from PRIMA President Laura Peterson
Ethical Actions
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s public entities, we engage in citizens’ lives in some of the most stressful and frightening times. Public entity employees like firefighters, law enforcement, child protective service workers and court personnel deal with highly emotional situations every day. If we are going to deal with people when they are their most vulnerable, there is a heightened necessity to treat them with the upmost respect and to act with the highest level of ethics. Also, because of the work we do, we often have to collect a significant amount of information about individuals, whether it’s their medical information, details of their financial situation or personal information such as Social Security numbers, home addresses or credit card numbers. If we are going to take citizens’ money, take possession of their personal confidential information, and provide services to them in their most vulnerable moments, then we need a risk management approach that does everything it can to protect them. In these situations, an entity’s ethical reputation means everything. If the entity’s reputation slides, performing critical services and gathering necessary information becomes that much more difficult. We need to have ethical employees, who understand the risk to the entity and its reputation when they are acting on behalf of the organization. In the State of Nebraska, we had an employee dishonesty claim. A court employee, who was responsible for collecting restitution payments from criminals and distributing them to victims of crime, was caught keeping the intended funds for herself. We paid the claim from our self-insured retention funds and moved on. But was that enough? Yes, the crime victim got her money and the now-former employee received the required attention, but this was a particularly unbelievable crime, to victimize someone who had come to us only because they had previously been a victim. What about the lasting damage that could have been done to an important program? Did we do everything we could to help the agency with prevention techniques? Did we not only handle the claim but did we also handle the feelings of the now repeat victim? If not, we haven’t
done our job in risk management and we have put the reputation of our entity at risk. As I write this column, I am visiting a university in another state. I met a student and her parents on the plane and told them I was a risk manager. The student knew instantly about the risk management program at the university and said whenever they want to do something, they would be directed to “check with risk management first” to be sure the activity was allowed and their plan for implementing the activity didn’t need changes to make it safer. She and her parents had glowing things to say about the university and, admittedly a little to my surprise, they knew there was a risk management department looking out for the well-being of the students entrusted to their care. This is the kind of reputation both risk management programs and public entities should be striving for: programs where individuals at all levels of the organization (from students to inmates to staff to elected officials) and those closely associated with the organization (from taxpayers to citizens to parents) understand the organization is there to serve them and is working its hardest to protect them. A comprehensive risk management program with ethical leaders and employees can and must protect those it serves and thereby improve and protect its public entity’s reputation. I hope as you read this issue and ponder these difficult topics, you will also consider the larger picture of how, as we address or fail to address these individual risks, we are also protecting or failing to protect our entities’ reputations. I also encourage you to share any successes you have had with reputational risk.
Public entity employees like firefighters, law enforcement, child protective service workers and court personnel deal with highly emotional situations every day. If we are going to deal with people when they are their most vulnerable, there is a heightened necessity to treat them with the upmost respect and to act with the highest level of ethics.
Sincerely,
Laura Peterson, JD, MPA 2010-2011 PRIMA President State Risk Manager / Agency General Counsel State of Nebraska
September 2010 | Public Risk
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News Briefs
News
Briefs Report: U.S. Intelligence Complex Inefficient and Bloated A month after Sept. 11, President Bush created the Office of Homeland Security, pledging to spare no effort in stopping the next terrorist attack. “We’re going to be ongoing and relentless,” said Bush on Oct. 8, 2001. In the nine years since Sept. 11, there has been no major attack. But the government has spent hundreds of billions of dollars creating a sprawling top secret intelligence complex that The Washington Post concludes is bloated and inefficient, reports CBS News Justice and Homeland Security correspondent Bob Orr. Washington Post reporter Dana Priest led a two year investigation that’s revealed mindboggling numbers: • 3,200 government organizations and private firms work on homeland security, counter-terrorism and intelligence. • 854,000 people hold top secret security clearances. • Analysts publish 50,000 intelligence reports a year. The Washington Post found the effort to be “[So] unwieldy and so secretive that no one knows how much money it costs, how many programs exist or exactly how many agencies do the same work.”
Full-Body Scanners to Be Installed in All LAX Terminals Airline passengers pulled aside for a secondary security screening at Los Angeles International Airport may feel a little more exposed this summer. Federal and city officials are expected to announce that 24 full-body imaging scanners manufactured by Torrance-based Rapiscan Systems Inc. will be spread across all nine terminals at LAX, reports DailyBreeze.com The move is part of the Department of Homeland Security’s plan to roll out 450 body scanning devices at 11 airports across the country by the end of this year, funded by the American Recovery and Reinvestment Act. “These 24 new machines can only give us added comfort to our sense of security at LAX,” said Los Angeles City Councilman Bill Rosendahl, whose district includes the nation’s third-busiest airport. “It gives passengers an added option of going through a machine for a few seconds rather than getting patted down at a security checkpoint,” Rosendahl said. “It’s a great, new technology that will only add to the security measures we have at LAX.” The scanners, known as “backscatter machines,” bounce low-level X-rays off airline passengers to peek underneath clothes as a secondary security screening measure.
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Public Risk | September 2010
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Subway Booth Closure Create Controversy, Safety Concerns New York City Council members were recently joined by members of the Transit Workers Union Local 100 at City Hall to discuss the Metropolitan Transit Authority’s (MTA) plans to close or reduce hours at a number of subway station booths. The action would also result in the layoffs of 220 station agents. In Lower Manhattan, both the Wall Street and the Fulton Street/Broadway-Nassau Street stops would see closures. Those two stops, in particular, have city council member Margaret Chin wondering exactly what the MTA could be thinking. “In the tragic event of another attack in our community, these workers would be crucial in directing passengers to safety. Closing the booths at the Fulton St./Broadway-Nassau and Wall Street stops is particularly worrisome,” said Chin at a recent public hearing on the issue. “These areas of Lower Manhattan remain prime terror targets, with the subways themselves a likely target. Imagine the grizzly scenario: hundreds of passengers stranded in the subway stops, with no cell phone service — and now no means of communicating with authorities.” In total, 89 booths are subject to be closed in this latest round of cuts. The city council members pointed out that in addition to the possible layoffs of 220 station workers, the MTA has already laid off 260 station agents due to its budget crisis. “The MTA has made a series of difficult choices to address an $800 million budget shortfall caused by deteriorating tax revenues and State budget cuts, including laying off employees at all levels of our organization,” said MTA media relations spokesperson Kevin Ortiz.
RISKWATCH RiskWatch is PRIMA’s weekly e-news service that delivers handpicked, high-quality news articles relating to the public risk management industry directly to your email inbox. In addition, RiskWatch will provide PRIMA members with valuable association-related news. Distributed each Thursday, RiskWatch is an excellent opportunity for you to increase the value of your PRIMA membership and share valuable knowledge with your peers!
Want others in your entity—such as your senior management—to receive this new benefit of PRIMA membership? Subscribe up to two additional recipients in your entity by contacting Jessica Konrath at jkonrath@primacentral.org and provide the name, title and email address of your colleague(s).
September 2010 | Public Risk
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Identity Fraud Protection Pays Off
Identity Fraud Lesson for Schools:
Protection Pays Off By Joe Reynolds When Canyons School District in Utah lost a thumb drive with the personal data of 6,000 employees, it was an unfortunate challenge that dampened the celebration around the formation of the first new school district in the state in nearly a century. It also was a risk to the economic lives of employees that was quickly addressed by the district. The lesson learned is one that risk managers at all education institutions should take to heart. According to the Identity Theft Resource Center, educational institutions accounted for 20 percent of data breaches in 2008. Out of the 264 data breaches listed by the Privacy Rights Clearinghouse for the first six months of 2010, 33 involved universities or K-12 schools. Protecting those whose lives can be impacted by security lapses—employees, students, parents and others—should be a priority.
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Public Risk | September 2010
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Losing Control of Data In today’s digital world, few are free from the risk of identity theft—the taking of personal information without authorization. Sensitive data such as Social Security numbers, driver’s license numbers and birth dates can be exposed inadvertently, such as when a laptop is stolen, a confidential portion of a Web site is not coded correctly to keep out unauthorized users, or the outside of mass-mail envelopes are mistakenly printed with ID numbers. Data can also be located and taken by external hackers and dishonest employees with the express intent of using the information illegally. Many data breaches do not result in crime but instead are a worrisome, vague threat hanging over the heads of the people involved. But when it does happen, identity fraud—the use of stolen personal information for economic gain—is a costly problem. The 2010 Identity Fraud Survey report by the Better Business Bureau and Javelin Strategy & Research found that 11 million people were victims during 2009. Total out-of-pocket expenses to address the fraud were close to $5 billion.
unauthorized user. The database contained names, Social Security numbers, driver’s license numbers and addresses dating back to 1987 for applicants, current and former students, parents, current and former faculty and staff and donors. • A Missouri university mailed tax forms to 75,000 people. Because of a print and folding misalignment, Social Security numbers were displayed through the address window for an unknown number of envelopes. • A Virginia school district discovered a student in the school library attempting to print out the names, addresses, birth dates and Social Security numbers of more than 11,000 students. He had accessed a temporary file on a server because of an incorrect security setting. • A New York university reported that the theft of three laptops may have exposed information for 1,400 students to unauthorized users.
Cleaning Up the Aftermath
A few examples from the Privacy Rights Clearinghouse illustrate the challenges that educational institutions face:
Almost every state now requires organizations to alert people when their data has been compromised. The transparency has allowed potential victims of identity fraud to protect themselves by monitoring their credit reports, but it has also allowed some level of complacency to settle in. Data security breaches often involve information that is too fragmentary to use illegally, or the data may never fall into the hands of criminals. Widespread notifications followed by little or no fraud can lull people into believing they are not at risk.
• An Iowa university discovered a security breach in July 2010 that exposed information for 93,000 people to an
Statistics indicate, however, that proactive steps once data has been breached are well warranted. One nationwide
As aggregators of large amounts of personal information, educational institutions are particularly at risk. Elementary and secondary schools store information from employees, students and parents. In addition, colleges and universities gather data from applicants, alumni, donors, grant recipients and more.
September 2010 | Public Risk
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Identity Fraud Protection Pays Off
Increasingly, employers are discovering that their business, not just their employees, may suffer from the disruption of identity fraud. Employees may need to spend hours on the telephone to clear their records with agencies and companies that are only available during weekday business hours. They may take time off to travel to distant locations, attend court hearings or cope with personal stress from the impact of the crime. Their productivity on the job often falters.
survey indicates that almost 30 percent of identity fraud victims are unable to restore their identities on their own after a year of effort. Those who are successful spent an average of 21 hours resolving their cases. Clearly, the tangled mess that follows identity theft and fraud can be costly and time-consuming. Increasingly, employers are discovering that their business, not just their employees, may suffer from the disruption of identity fraud. Employees may need to spend hours on the telephone to clear their records with agencies and companies that are only available during weekday business hours. They may take time off to travel to distant locations, attend court hearings or cope with personal stress from the impact of the crime. Their productivity on the job often falters. Arranging for assistance for those affected by identity fraud is not simply compassionate but also a smart business decision.
Low-Cost, High-Value Benefit Many risk managers for educational institutions are familiar with cyber-liability insurance that protects purchasers from the liability and mitigation costs of identity theft. In addition, two types of insurance are becoming popular because of their high value to those who are covered and low cost to the educators who purchase them: identity fraud expense reimbursement policies for employees and for “customers” (in the case of schools, students). While some insurers offer this type of coverage today, not all policies are equal
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Public Risk | September 2010
when it comes to providing effective assistance. Here are some of the things to look for when shopping for identity fraud coverage: Services. In general, policies cover attorney fees when legal services are needed (in one case, legal fees amounted to $25,000 to save a woman’s home when her title had been fraudulently transferred, a mortgage had been illegally obtained and the house was threatened with foreclosure) and lost wages from taking time off from work to address the fraud. Better policies include travel expenses (one man incurred $4,500 in expenses when required to fly overseas to file an in-person affidavit of loss, when he became a victim of identity fraud on business travel), ID replacement costs and costs for covering expenses related to medical identity fraud (when one uses a victim’s personal information to gain medical services in the name of the victim). Child care and/or elder care costs associated with the fraud should also be covered. In addition, the best policies offer resolution services, with experts taking on the job of cutting through the red tape and restoring the person’s credit record to an unblemished state; they should also include enrollment in a comprehensive credit monitoring product. Coverage. Policies should provide protection for employees regardless of how the identity fraud occurs, not just when the school employer is involved in the original data breach. Coverage should apply for reimbursable expenses whether identity fraud is originally perpetrated in the office, when the employee is on vacation or when they are picking up a gallon of milk at the local convenience store. In addition, the best policies provide coverage for the entire family, including the spouse, children still living at home and parents
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residing with the employee. For both employee and student policies, protection should have no geographic boundaries, covering them when they travel home or abroad. This is particularly important for students, who may make multiple purchases with credit cards and may disseminate their personal information widely if they spend a semester or year studying overseas. Cost. Shop prudently for coverage, comparing pricing and benefits. As a stand-alone policy or enhancement to other insurance policies, identity fraud coverage should typically cost only a few dollars per employee when purchasing for an entire employee group. Also, be aware that the expenses involved in addressing fraud most typically top out at several thousand dollars; purchasing coverage with limits over $25,000 may cost more than it is worth. Expertise. Look for insurers with a long track record and accumulated expertise in dealing with identity fraud. Claims will be resolved more smoothly and quickly if an insurer has experience in addressing these kinds of cases. In addition, if resolution services are included, the insurer should provide specialized units with specific training and deep expertise in financial services to take on the burden of straightening out entanglements, procuring replacement ID documents and following up on the details required to return victims to their original status. A number of effective risk management practices can reduce the likelihood that personal information will fall into the hands of the wrong people. In today’s world, however, the combination of complex technology and widespread information collection means the risk of data breaches cannot be completely eliminated. With little added cost, education institutions can protect those whose lives they touch by purchasing identity fraud insurance. When put to the test, it’s the kind of assistance that earns high marks from both employees and students.
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September 2010 | Public Risk
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S pr e ad t h e W o rd a n d W i n !
PRIMA’s Member Get a Member Campaign PRIMA’s Member Get a Member Campaign lets you earn valuable incentives while you spread the word about PRIMA’s great member benefits. Help us recruit other public entities to join the ONLY association devoted to risk management in the public sector and you could receive: • Recruit one new member and receive 30% off your 2011–2012 membership dues. • Recruit two new members and receive 50% off your 2011–2012 membership dues.
• Recruit three new members and receive one complimentary 2011–2012 membership. • Recruit four or more new members and receive one complimentary registration to PRIMA’s 2011 Annual Conference in Portland, Oregon.
If you recruit four or more members, you also will be entered into a drawing for an all-expenses paid trip to Portland for PRIMA’s 2011 Annual Conference, including transportation and hotel accommodations!
How do you get started? Visit www.primacentral.org and click on the Membership link under About PRIMA. Find the special Member Get a Member application and distribute to your fellow public entity peers. When they enter your name in the referral box, you get the credit and the discount! In addition, each new member recruited through this campaign will receive a 10% discount off of their first year’s membership dues!
Don’t Delay! To qualify for the campaign incentives and the Grand Prize, new members must join PRIMA by March 31, 2011!
Help us grow your Association…spread the word and win!
PRIM A 2010
Webinar Series JUST ANNOUNCED: Join Us for the Last Webinar of the Year…for FREE! PRIMA has just enhanced your member benefits once again! PRIMA members can participate in the last PRIMA Webinar of the year for FREE, thanks to additional funding from the 2010 PRIMA Webinar Series Sponsor, Genesis. Sign up today for the FREE November 17 Webinar, Winning Strategies for Contractual Risk Transfer, and become skilled at writing standardized and customized insurance requirements for procurement documents, professional services agreements and construction contracts. You will gain knowledge about the most effective types and uses of the additional insured endorsement under your vendor’s contractually required commercial general liability, business auto, builder’s risk, pollution, legal liability, workers’ compensation and excess/umbrella liability policies.
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Key Issues in Loss Mitigation: Is Your Organization Prepared to Respond?
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Secrets of a “Savvy” Workers’ Compensation Insurance Shopaholic
Secrets of a “Savvy” Workers’
Compensation Insurance Shopaholic By Jody Gray, ARM, and John Chino, ARM-P
In the world of fashion, clearance sales and weekend specials abound, enticing spendthrift shopaholics to rack up significant balances on their credit cards. This is the premise of Sophie Kinsella’s popular novel, Confessions of a Shopaholic. Whereas the heroine of Kinsella’s novel struggles to get her extravagant fashion spending under control, public risk managers have long been adept at navigating the complex workers’ compensation market to achieve optimal savings. Just as fashion trends changed throughout the 50s, 60s, 70s, and up into present day, workers’ compensation risk-financing options have also undergone a similar transformation. In this climate, public risk managers—as savvy shopaholics—are on the lookout to ensure they’re getting the best return on their workers’ compensation dollars. In this article, we’ll examine ways to increase your workers’ compensation (WC) shopping sense. First, we’ll look at today’s latest risk-financing trends and show you how to choose the best option for your program. Using your risk-financing vehicle as a starting point, we’ll then pull together an entire WC ensemble, complete with foundational pieces and accessories that fit your style. By mixing and matching the right elements, you’ll create a program that meets your organization’s unique needs and objectives.
Professionals to Increase Your Shopping Sense Hollywood stars rely on fashion professionals to help them develop a standout look for the red carpet. Likewise, top-notch insurance and claims professionals can help you stay abreast of today’s latest WC fashions. For example, an experienced insurance broker can serve as your own personal shopper, helping you to sort through the latest risk-financing trends to find the best options that meet your specific program objectives. At the same time, a claims and loss control expert can act as your program’s personal stylist, helping to piece together the right foundational pieces and accessories that ultimately optimize your total cost of risk. Let’s see how these WC professionals pull together the overall “look and feel” for your program.
Fashion Forward: New Risk-Financing Trends Looking back, there have been many risk-financing options available to public agencies (see sidebar – “A Look Back”), enabling these entities to obtain WC coverage in a variety of ways—everything from traditional first-dollar coverage to self-insurance.
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If you sneak a peak into a fashionista’s wardrobe, you’ll likely find several foundational pieces, which this person uses to create various looks…The same parallel can be drawn in creating foundational pieces within a WC program.
As we look at today’s current WC market, risk-financing fads continue to evolve with new and emerging options coming down the WC fashion runway: • WC Reinsurance of the Loss Fund. A self-insured public entity must set up a loss fund to pay its WC claims. For example, an agency may chose to place $500,000 in this fund, and some agencies may choose to reinsure this fund. In this scenario, they may pay a $300,000 premium to obtain up to $750,000 in coverage. The advantage of reinsurance is a self-insured public entity would retain the risk and control over its losses, but it would gain added protection in the event that losses would exceed a certain amount. • Loss Portfolio Transfer. Some self-insured public entities may choose to take a prior portfolio of WC losses and transfer those liabilities to a specialty insurance carrier. These liabilities are on claims that have already occurred and may still experience losses. For a set premium, the carrier fulfills the entity’s future obligations on those claims. • Corridor Deductible. If a public entity wants an insurance policy, a corridor deductible is a risk-retention option. It is a one-time aggregate deductible on top of the entity’s chosen deductible or self-insured retention (SIR). For example, if the entity chooses a $100,000 deductible or SIR with a $100,000 corridor deductible, then the entity would be responsible for the $100,000 deductible or SIR plus the first $100,000 of payments above the deductible on a one-time-only basis. After the one-time aggregate deductible is met, the retention for all future losses would go back to $100,000 per occurrence.
Why would public entities choose a corridor deductible? It’s a way for them to pay a lower premium while taking on an acceptable level of added risk, as they only have to deal with the corridor deductible once, rather than for every occurrence. For certain public entities, it’s a good trade-off between retained risk and premium costs. • Captives / Excess or Super Pools. Insurance captives and excess pools, also referred to as super pools, provide competitive rates on coverage. Captives and super pools are very similar in nature—both are formed and operated by their owners, and both essentially operate as a “pool of pools” that helps to spread the risk. The major difference is a super pool can only operate within one state, whereas a captive can operate across state lines. For example, Alliance of Schools for Cooperative Insurance Programs (ASCIP) is a super pool that operates within the state of California. In many states, however, there aren’t enough public agencies to form more than one pool. For example, in the states of New Mexico and Arizona, there is only one risk pool for schools. As a result in most states, there is no super pool option. If individual risk pools in these states want to avail themselves of a “pool of pools” option, they must consider a captive. For example, the National League of Cities-Mutual Insurance Company (NLC-MIC) was the first captive for municipalities, and County Reinsurance Limited (CRL) was the first captive for counties.
Foundational Pieces If you sneak a peak into a fashionista’s wardrobe, you’ll likely find several foundational pieces, which this person
September 2010 | Public Risk
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Secrets of a “Savvy” Workers’ Compensation Insurance Shopaholic
A Look Back: Risk-Financing Basics • First-Dollar Insurance. In this traditional form of coverage, a public entity would pay a known premium to cover an unknown amount of future losses. In the past, that’s how most public agencies procured WC coverage. Under this type of policy, losses were not subject to a deductible and payments were made up to the policy limits, at which point excess insurance would take effect. • High-Deductible Programs. As public agencies began to look at what they were paying in premiums, they started to realize that they weren’t getting the best return. Through high deductibles, these entities reduced premiums by taking on more of the risk. By assuming greater control, they discovered they could reduce losses and greatly influence their exposure, thereby leverage greater value for their WC dollars. • Self-Insurance. As the WC market began to harden, many public entities faced with extremely high rates and some entities couldn’t obtain any coverage due to a lack of capacity in the marketplace. In many states, public entities were allowed to self-insure their WC programs. These entities assumed the entirety of the risk, and had to obtain services once provided by their insurance companies, such as claims administration. • Risk Pools. During the hard market, many states passed laws that allowed smaller public entities, which were not large enough to self-insure on their own, to form risk pools. Individually, these entities didn’t have the volume or economic basis to self-insure, but by bringing their risks together into one pool, they had the critical mass and economies of scale necessary to make it a viable option. Today, the Association of Governmental Risk Pools (AGRIP) estimates that 85 percent of all local governments and school systems secure one or more lines of coverage through a public entity risk and/or benefits pool.
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uses to create various looks. For example, a foundational piece could be a pair of black slacks, which can then be mixed and matched with more colorful, trendy tops. Foundational pieces can add value to a person’s wardrobe because they serve as a strong base from which to build the rest of a stylish outfit. The same parallel can be drawn in creating foundational pieces within a WC program. During the soft market, pubic agencies relied on insurance companies for a number of foundational pieces, including: • • • • •
Claims administration Loss control and safety programs Financial management Education and training Top management support
As more public agencies began to self-insure their programs, they needed to develop their own foundational pieces, or find partners who could provide these foundational services cost-effectively. Claims administration is a key foundational piece; in fact, who handles this function can significantly impact claims costs and outcomes. Public entities also require loss control and safety programs to prevent and minimize future losses. Financial experts and actuaries also help to ensure that public entities are setting aside sufficient reserves. And as self-insurance has continued to grow, public agencies have begun to offer their own education and training to build awareness of safety and risk management initiatives that further reduce program costs. Public agencies must garner support for their foundational programs from the top. Without management’s backing, agencies won’t receive the buy-in necessary to make these programs a success. Collaboration at every level is needed to effectively manage and mitigate risk.
Selecting Accessories Just as a fashionable outfit is made with just the right scarf or belt, a WC program can exponentially benefit from the right accessory programs. After selecting a risk-financing option and key foundational pieces, public agencies may choose to supplement and enhance their programs with accessories, such as: • • • •
Injury Triage • Return to Work File Review • Embedded Nurses Rent-a-Risk-Manager • Stewardship Reporting Access to Claims and Risk Management Information Systems (RMIS)
Whether you’ve chosen a third-party administrator (TPA) or built your own claims department, your claims team can help to select and style the rest of your program. Claims experts can provide the criteria on which to base your need for a given accessory. For example, if your organization has a significant number of employees who work over a vast geographic area, it may benefit from an injury triage program, which can provide a centralized, timely and consistent injury reporting and triage process. Jurisdictional issues may affect your choices. For example, return-to-work (RTW) programs are a great addition in jurisdictions where public entities can direct care and encourage employees to return to work in modified duty assignments. As a result, a RTW program may be a great fit for a California agency, but not work as well in Texas.
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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.
With accessories, it’s also important to remember that one size doesn’t fit all. For example, a file review program may be designed a certain way for one agency, but completely different for another. Plan to customize accessories to fit your program’s unique needs and objectives. Some accessories may be more appropriate for a certain size of organization. For example, a rent-a-risk-manager program could benefit a risk pool with various members, or a large county with smaller departments. This type of large organization could then design a menu of services that its rent-a-risk-manager program offers to respective agencies. In the grand scheme of your WC strategy, accessories—such as embedded nurse programs, stewardship reporting and access to a RMIS—can be mixed and matched in a variety of ways, but in the end, they must enhance overall program results and benefit injured workers, who are the true beneficiaries of a WC program. For example, an embedded nurse program enables nurses to sit within a claims department. They’re available to assist adjusters with claimant medical issues, so these claims can be resolved more efficiently and effectively.
Styling and Tailoring Your Complete Program Ensemble By our definition, savvy WC insurance shopaholics take advantage of the latest risk-financing trends to reduce their total cost of risk. By leveraging professional expertise, shopaholics optimize their WC budget and pull together a complete program ensemble that delivers significant value. The end result is that public entities benefit from improved claims and risk management services, increased program savings, a strong balance sheet and good positioning to take advantage of future risk-financing trends. When planning for program changes, however, astute shoppers must ensure that their organization and employees experience seamless service and program continuity. With an understanding of the WC marketplace, you, too, can tailor a long-term s hopping strategy that is geared to bring together the right risk financing, foundational pieces, and accessories, all working together to create the best results for your workers’ compensation program.
Webinars 2010 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: FREE for Members! 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 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
Jody Gray, ARM, is president of York Public Entity. John Chino, ARM-P, is area senior vice president, Gallagher Public Entity & Scholastic Division.
September 2010 | Public Risk
15
Ethics and Risk Management
ETHICS and RISK MANAGEMENT Enron. WorldCom. Arthur Andersen. These once-mighty businesses are associated with scandal, greed and unethical behavior. Livelihoods were lost, reputations were tarnished and shareholders were burned when these companies imploded. As this article goes to print, some aspects of these events (such as lawsuits over lost pensions) are still being played out in courtrooms, offices and dining room tables around the world.
By Paree Roper
The ripple effect from these incidents can have repercussions far beyond paneled boardroom walls. In Houston alone, the collapse of Enron placed more than three million square feet of Class A office space into the downtown real estate market overnight and the name of the downtown baseball stadium was changed from Enron Field to Minute Maid Park. The total effect on the lives of former employees and those who thought their best interests were being served is much harder to calculate. The public sector has had its share of scandals over the years as well and public risk managers have not been immune from unscrupulous activities. Witness the following: • In Michigan, a school district risk manager and his assistant are currently under indictment in federal court for allegedly stealing more than $3 million of the district’s funds. Charges in the eight-count indictment include bribery, fraud, extortion and money laundering. • During the 1990s, a former risk manager of a regional transit agency in California was sentenced to 14 months in a federal prison camp. He had provided contracts for parts of a major transit project to insurance consultants in exchange for kickbacks totaling over $140,000. • In June of 2010, a county risk manager in South Carolina hastily resigned after being arrested on a charge of criminal sexual conduct. It would be very easy to cry that the sky is falling, given the deeds of some businesses and the plight of miscreants within the public risk management profession. Yet it would be a huge oversight to ignore the actions of public risk managers that are performed every single day with integrity, consideration and a sense of duty. The nature of managing risk on a daily basis means that practitioners must possess or develop a sense of what is “the right thing to do” in a given situation. Public risk managers perform these duties quite well, but breeches of the public trust can and do occur, therefore an examination of ethics is always in order.
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Public Risk | September 2010
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As individuals, we also derive our ethics from numerous sources such as upbringing, religious belief, life experiences and interactions with others. These are casual types of This article will do several things: • Provide a definition of ethics • Show the relationship between risk management and ethics • Review the PRIMA Code of Ethics.
Definition
of making this happen without committing additional ethical breaches. For instance, does one tell the truth about a misdeed that could end a treasured friendship with a beloved colleague? What sort of personal costs should be borne in any given situation? What laws could be broken? These are all considerations that must be weighed.
Webster’s New World Dictionary states that ethics is “the study of standards and conduct and moral judgment.” Wikipedia states that ethics “is a branch of philosophy that addresses questions about morality—that is, concepts such as good vs. bad, noble vs. ignoble, right vs. wrong, and matters of justice, love, peace, and virtue.” Regardless of the definition that may be given, ethics show an organization and its people how to interact on a personal level, where to draw boundaries when necessary and ways of responding to conflicting views and needs.
The relationship between ethics and risk management
Some ethical standards are deontological or rules-based and a person’s ethical status depends on whether their actions adhere to the rules (i.e. the killing of another is wrong). Other standards are teleological or results-based where the consequences of a person’s actions determine ethical status (i.e. killing in self-defense is justified). Many of these standards are derived from systems developed by ancient philosophers such as Plato and have proven their worth over time.
The Institute for Local Government is, in their own words, the research and education affiliate of the California State Association of Counties and the League of California Cities. They have determined a list of six ethical values relevant to public service that give additional structure beyond the law:
As individuals, we also derive our ethics from numerous sources such as upbringing, religious belief, life experiences and interactions with others. These are casual types of ethical standards and reflect more of a social consensus than a formal system. This by nature means that our definitions of what ethical is will be diverse and in some cases, conflicting. Ethical dilemmas occur when two or more ethical principles come into conflict. Resolution of this conflict means that decisions have to be made as to what sort of desirable outcome is wanted and whether there is a way
In the public sector, the expectations are such that the public’s interests will be served, not political or personal interests. Laws provide some structure, but they often set minimal standards as far as ethical conduct is concerned. There have been many instances where an action that was perfectly legal was taken and yet an unethical choice was made. Ethical values must go further than the legal realm in order to have a greater effect.
ethical standards and reflect more of a social consensus than a formal system. This by nature means that our definitions of what ethical is will be diverse and in some cases, conflicting.
• Trustworthiness. This includes honesty (in communications, conduct and relationships), integrity (acts according to beliefs, not expediency), reliability (avoiding bad-faith excuses and unwise commitments) and loyalty (safeguarding confidential information and avoiding conflicts of interest). • Responsibility. Includes accountability, pursuit of excellence and self-restraint • Respect. The “Golden Rule” (do unto others as you would have them do unto you), civility, courtesy and decency. Dignity and autonomy. Tolerance and acceptance. • Compassion. An obligation to be honest, loyal fair and respectful of others.
September 2010 | Public Risk
17
Ethics and Risk Management
PRIMA’s Code of Ethics Every once in a while, it is a good idea to go back to the basics in order to see them through fresh eyes. I highly recommend doing so with PRIMA’s Code of Ethics statement, located on PRIMA’s Web site, www.primacentral.org, under the membership tab. The PRIMA membership application has a section where an applicant must answer ‘yes’ to the statement “I have read and agree to PRIMA’s Code of Ethics” and the code itself is very clear on what is expected of members concerning ethical behavior. Here are the four main components of the code and they speak to the following:
Additional resources: • The Institute for Local Government; http://www.ca-ilg.org/ • LRN, “Ethics and Compliance Risk Management,” how enterprise risk management can influence ethical considerations. • The Plain Language Guide to the City Ethics Laws, City of Honolulu, HI, can be found in the PRIMA Cybrary. Type in keyword ‘ethics.’ • King County (WA) Code of Ethics. Can be found in the PRIMA Cybrary. Type in keyword ‘ethics.’ • Model Ethics Policy for State Agencies, State of Ohio. Can be found in the PRIMA Cybrary. Type in keyword ‘ethics.’
• Fairness. Adherence to a balanced standard of justice, seeking relevant information and conflicting perspectives before making important judgments, not taking advantage of weakness or ignorance of others. • Citizenship. Knowing and obeying laws. Staying informed on issues. Doing more than your fair share in order to make things work. This is just one particular set of ethical standards, but it does a very good job of covering the basics that should be practiced. When dealing with ethical dilemmas, the following process is one to consider: • Stop and think things over. What are the ethical values involved in this situation? • Examine goals. Are ethical values in conflict with the goals that have been determined? • Determine the facts. What is really going on here? What is factual? • Develop options. What could possibly work in this situation? • Consider the consequences. What is the down side? Is there an upside as well? • Choose a solution. What is the best solution? What will reflect and show that we take our responsibilities seriously? • Monitor and modify over time. Where are changes needed? What needs to be tweaked? Take a good look at this list. It is, in so many words, the risk management process. In addition, ethics and risk management are both based on people having respect for each other. They both speak of maintaining trust and integrity. When good ethics are practiced, risks are managed. When solid risk management is practiced, so are many ethical situations and dilemmas. The synergy between the two is no accident.
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Public Risk | September 2010
• Personal integrity. Maintaining truthfulness, honesty, respectful and professional relationships and avoiding conflicts of interest. • Serve the public interest. Encouraging communication between citizens and government officials, disclosure of fraud, abuse, waste, not making promises that bind the entity. • Competence and professional excellence. Keeping abreast of current information, sharing of skills, promote professional activities. • Maintenance of standards. Exhibiting ethical behavior at all times. Consulting when there is a potential ethical dilemma. Taking appropriate action when necessary to confront an ethical lapse. President John F. Kennedy sums up ethics in the public sector perfectly in this quote from a “Message to Congress” in 1961: “The ultimate answer to ethical problems in government is honest people in a good ethical environment. No web of statute or regulation, however intricately conceived, can hope to deal with the myriad possible challenges to a person’s integrity or his devotion to the public interest.” Perception is often the reality in risk management. If there are doubts about a situation, ask whether or not your actions would be illegal. Ask whether your actions are fair and honest and whether they would stand the test of time. Ask how this situation would look in the media and how your entity would have to respond. Ask how family, friends and colleagues would feel and whether you would be able to sleep soundly. Then make the right decision. Paree Roper is PRIMA’s industry specialist.
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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.
Go Online and Get Out of the Classroom! If you are agent/broker, business executive, risk manager, or an operational risk staff member, the in-depth knowledge you receive with an ARM designation will greatly benefit you and your entity. The Associate in Risk Management (ARM) designation requires completion of the 3-part ARM series: ARM 54–Risk Assessment; ARM 55–Risk Control; and ARM 56–Risk Financing. Prepare for these exams with the Public Risk Management Association's online tutorials—proven beneficial tools in the studying process. Upon purchase, you have 365 days of studying time. The tutorials fit your individual schedule, whether you are at work, at home, or on travel; they are available 24/7. Check out the PRIMA Online Programs section of our Web site, www.primacentral.org, and register today!
September 2010 | Public Risk
19
Member Spotlight
Pool Offers Supervisor Certificate Program to Member Entities Each month, Public Risk features a member who has 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?
T
he Cities and Villages Mutual Insurance Company (CVMIC) was faced with a dilemma that most pools face: how to make sure its members have the supervisory training they need in order to ensure long-term success in dealing with many of the exposures facing local government. “The public sector has long ignored formalized training for supervisors,” said Ken Horner, director of operations for CVMIC. “Often, promotions were based on seniority with little regard given to providing these individuals with tools they need to do their jobs and protect the financial interests of their community.”
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,
The result is a unique supervisor certificate program created for CVMIC’s members that focuses on the skills and knowledge supervisors need to comply with state and federal law and meet standards established by the courts. The program is provided free-of-charge to CVMIC’s pool members.
attend at least four sessions; to receive a “gold” Certificate, they must attend all eight sessions. The format of the sessions combines lecture and role playing, case studies and small group discussions. “The program has been very successful for us,” said Horner. “One of the most common comments we receive is how participants are able to take what they have learned and immediately apply it.” Horner says that this training could be modified to fit any entity. “This type of training is universal and most public entities face the same type of restraints on their ability to fund training and provide it in a cost-effective manner,” he said. Horner also notes that the cost of the program development and implementation is roughly $900 per program, which are two days each, plus $65 per student.
contact Jennifer Ackerman at jackerman@primacentral.org or 703.253.1267.
“The program has been very successful for us,” said Horner. “One of the most common comments we receive is how participants are able to take what they have learned and immediately apply it.”
The program consists of eight two-day sessions, which are each free-standing programs that can be taken in any order. Topics include employment law, resources and tools, basic risk management and workplace safety, coaching employees, teams and process improvement, developing a highly effective workforce, understanding employee differences and improving employee performance. In order to receive a “silver” Certificate of Supervision, participants have to
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Public Risk | September 2010
“Nothing we have seen even comes close in terms of applicability and affordability,” said Horner. The cost of similar programs from other sources range from several hundred to more than $1,000 per participant.” CVMIC’s supervisor certificate program recently received PRIMA’s 2010 Achievement award for pool programs. For more information, contact Ken Horner at kah@cvmic.com.
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