Public Risk April 2016

PUBLISHED BY THE PUBLIC RISK MANAGEMENT ASSOCIATION APRIL 2016

Wearable Technology:

THE GAME-CHANGER IN MANAGING RISK PAGE 6

ALSO IN THIS ISSUE

THE ROAD TO ERM: Using the Balanced Scorecard to Implement Enterprise Risk Management PAGE 10

WORKERS’ COMP AND DISABILITY INSURANCE: Two Worlds or One? PAGE 14

Further your public sector risk management education without leaving the office!

This Webinar series features top presenters delivering risk knowledge to your desktop!

PRIMA’S 2016 RISK MANAGEMENT

WEBINAR SERIES PRIMA WEBINARS ARE FREE FOR MEMBERS! Visit www.primacentral.org today to register for individual Webinars or for the entire program!

A PR I L 1 3 | 1 2 : 0 0 P M – 1 : 3 0 P M E ST ERM: A PROJECT PLAN FOR IMPLEMENTATION S P E A K E R : Tim Wiseman, MBA, ARM-E, Assistant Vice Chancellor for Enterprise Risk Management, East Carolina University DESCRIPTION: This Webinar will focus on identifying some of the key steps involved in planning and implementing an effective enterprise risk management (ERM) program. It will also include an overview of the approach one higher education institution used in its successful implementation of an ERM program. The presenter will review important action steps and considerations from the ISO 31000 Risk Management Standard.

ERM SESSION LEVEL: Intermediate AT T E N D E E TA K E AWAYS :  Suggested strategies to meet ERM program goals  A general understanding of sections of the ISO 31000 Risk Management Standard related to risk management program establishment  Tools to use in building the foundation of an ERM implementation plan W H O S H O U L D AT T E N D :  Risk managers/chief risk officers  Auditors  University administrators  Safety officers  Legal counselors

For more information, or to register, visit primacentral.org/webinars.

APRIL 2016 | Volume 32, No. 4 | www.primacentral.org

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

CONTENTS

PRESIDENT Dean Coughenour, ARM Risk Manager City of Flagstaff Flagstaff, AZ PAST PRESIDENT Regan Rychetsky, ABCP Director, HHS Enterprise Risk Management and Safety Texas Health and Human Services Commission Austin, TX PRESIDENT-ELECT Terri Evans Risk Manager City of Kingsport Kingsport, TN DIRECTORS Lori J. Gray Risk Manager County of Prince William Woodbridge, VA

Wearable Technology:

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THE GAME-CHANGER IN MANAGING RISK

Jani J. Jennings, ARM Insurance & Safety Coordinator City of Bellevue Bellevue, NE Scott Kramer Risk Manager Montgomery County Commission Montgomery, AL Amy Larson, Esq. Risk and Litigation Manager City of Bloomington Bloomington, MN Scott Moss, MPA, CPCU, ARM-E, ALCM P/C Trust Director CIS Salem, OR Tracy Seiler, ARM-P Director of Risk Management Services Texas Association of Counties Austin, TX

By Zack Craft, ATP

NON-VOTING DIRECTOR Marshall Davies, PhD Executive Director Public Risk Management Association Alexandria, VA EDITOR Jennifer Ackerman, CAE Deputy Executive Director 703.253.1267 • jackerman@primacentral.org

10 The Road to ERM:

USING THE BALANCED SCORECARD TO IMPLEMENT ENTERPRISE RISK MANAGEMENT

14 Workers’ Comp and Disability Insurance: TWO WORLDS OR ONE?

By Dr. Michael Lacroix

By Elizabeth Cooper

IN EVERY ISSUE

4 NEWS BRIEFS | 19 ADVERTISER INDEX | 20 MEMBER SPOTLIGHT

ADVERTISING Donna Stigler 888.814.0022 • donna@ahi-services.com

Public Risk is published 10 times per year by the Public Risk Management Association, 700 S. Washington St., #218, 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.

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Copyright 2016 Public Risk Management Association

APRIL 2016 | PUBLIC RISK

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JUNE 5–8 , 2016 // ATL ANTA , G A

Managing risk in our cities, counties, schools, states and tribal nations presents unique challenges and PRIMA’s Annual Conference is the only conference dedicated to YOU: public sector risk management professionals. Join nearly 1,000 of your public risk management colleagues, leaders and experts for an exceptional learning and networking opportunity in Atlanta.

PRIMA’ S 2016 ANNUAL CO NFERENCE

RISK MANAGEMENT

ON MY MIND

MESSAGE FROM PRIMA PRESIDENT DEAN COUGHENOUR, ARM

T

Selling Ideas

he PRIMA Annual Conference in Atlanta on June 5–8 is right around the corner. I hope you are as excited as I am about the learning opportunities and seeing friends, old and new. For me it is always a “refresh” to sit and share stories about our risk management journeys. It reinforces that our risk management adventures are often not unique and the challenges that we face are common. If you have not signed up to attend the conference, it is not too late to join in. I can’t wait!

In sharing with you this month, I think of the challenges we face every day and what it takes to be successful in managing risk. Forty years ago, just out of school, I took a job selling vacuum cleaners door to door. Yes I know! For some of you that know me, you probably suspected as much all along, Dean—the door-to-door salesman! But I will tell you that during those months, I learned a lot about selling. Rarely did I show up at the door and someone would say, “Sure, sell me one of those $400 rug suckers!”, without a whole lot of conversation. I had to get in the door, gain their trust, demonstrate how the little gold pig vacuum worked and then talk about product value. It was a process I had to perfect very quickly, for if I didn’t sell, I didn’t get paid. But you see those lessons became invaluable to me as a risk manager.

I had to do the exact same thing to bring new programs online that I knew would be effective, but if only folks would buy into the idea.

So the first thing we need is to either know what we are talking about, OR, (and to this day still for me), know where to go get the answer. Yup, here I go again, herding you all back to PRIMA and your local PRIMA chapter. That is where we perfect our knowledge and help each other by “phoning a friend.”

I know that many of you are already doing the majority of these things. You have found your stride and are rocking the risk management world for your organization. Thank you. Wake up every day and remember you are making a difference!!

Now we have to go back home and sell! First, we have to get our foot in the door by establishing relationships with key players, meeting for lunches, coffee, or by having meetings to talk about risk management past, present and what they, the client, perceive they need in the future. Next, and this is the most important part, we have to gain trust. It becomes critical that we do what we say we are going to do when we say we are going to do it and ideally before. We go to the governing board or council meetings to be seen and to sit strategically next to our clients. Easy access to us as risk managers is important in building value and trust.

We do this through a combination of e-mail, office phone, social media and cell phone. We slowly build credibility and trust. We attend quarterly meetings, train in the field where our employees work, do ride alongs and walk abouts. In essence, we show people we really do care by being there.

overtime to help pay for enhanced benefits, the employee that did not have that serious injury, all tied directly and department-specific to them.

Then to close the sale of the little rug sucker!  We have to design training programs that are surgical in nature, addressing only those key things we need to fix and improve first. In the following year we can broaden the message but always selling to the message, that we are all risk managers and that each of us can make a difference, not only for ourselves but for each other.

I know that many of you are already doing the majority of these things. You have found your stride and are rocking the risk management world for your organization. Thank you. Wake up every day and remember you are making a difference!!

Looking forward to seeing you in person in Atlanta!

Demonstrating value is a little easier. We talk about each client’s losses and approach them as unique.

Police, fire, public works, utilities, jail, airport—they all have unique exposures and want to know that you know that and that you can help. When we talk numbers, we talk in multiple year numbers. I like to talk about savings in multiples of 3-to-5 years.

We give historical data of injuries accidents and losses and then, and this is important, tie that back to why that is important to them. Raises, reduced

Dean Coughenour, ARM 2015–2016 PRIMA President Risk Manager City of Flagstaff Flagstaff, AZ

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NEWS BRIEFS

NEWS Briefs

CDC: ELEVATED CANCER RISK IN LUMBER LIQUIDATORS LAMINATE FLOORING Certain types of laminate flooring made by Lumber Liquidators have a greater risk of causing cancer or other health problems than previously believed, U.S. health regulators said in USA Today.

The Centers for Disease Control and Prevention said that people who purchased the China-made flooring are about three times more likely to get cancer than it had calculated earlier this month—a revelation that rattled investors, who sent Lumber Liquidators stock down 19.8 percent to close at $11.40.

Lumber Liquidators sells more than $120 million annually in laminate flooring, including products from the U.S. and Europe, according to a quarterly filing with the U.S. Securities and Exchange Commission.

Last year, it suspended sales of China-made laminates after accusations of carcinogenic qualities surfaced.

Tessy Contreras, a homemaker from Texas City, Texas, and her husband Gilberto installed Lumber Liquidators laminate flooring affected by the issue in their home two to three years ago. She said the revelation was scary because she has 6-year-old and 15-year-old sons in the house. She had completed air-quality tests with Lumber Liquidators last year after the concerns first emerged.

The discrepancy in the CDC’s calculation stems from regulators initially using an incorrect figure for ceiling height to determine exposure risk.

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In addition to cancer, people exposed to the flooring are also susceptible to increased risks of exacerbated respiratory issues such as asthma and eye, nose and throat irritation, the CDC said.

The agency said its recommendations would probably not change: “We strongly stress taking steps to reduce exposures, which should alleviate respiratory and eye, nose and throat irritation.

These steps should also reduce the cancer risk.”

Lumber Liquidators said in a statement that the CDC’s “revised calculation overestimates any potential health risks from these products,

“

and we are encouraged that CDC is seeking a broader review of their conclusions.”

The CDC’s website has information on how to reduce exposure to formaldehyde, as well as some specific details for people who bought flooring from Lumber Liquidators.

The U.S. Environmental Protection Agency says that to reduce exposure to formaldehyde in general, people should improve ventilation, use dehumidifiers and clear the collection tray regularly, as well as use air conditioners to maintain a moderate temperature.

We strongly stress taking steps to reduce exposures,

“

The CDC had said on Feb. 10 that formaldehyde levels in select versions of the company’s laminate flooring could cause two to nine cancer cases per 100,000 people. The new estimate is six to 30 cases per 100,000 people, the CDC said.

which should alleviate respiratory and eye, nose and throat irritation. These steps should also reduce the cancer risk.

The Centers for Disease Control and Prevention

THE U.S. GOVERNMENT JUST DECLARED HOVERBOARDS ARE UNSAFE All hoverboards that lack independent certification have reportedly been deemed “unsafe” by the U.S. government, reports Fortune.

That would encompass literally all hoverboards both sold and unsold in the market right now, since none of them have been certified as required.

The news, first reported by Mashable, comes after months of investigation into the issues regarding the self-balancing scooters, a tech toy that proved hugely popular over the last holiday season.

The Consumer Product Safety Commission sent out an official notice to all retailers, manufacturers and distributors of hoverboards, telling them that unless the product was certified safe by independent organization UL, they could not be sold. Failure to comply with these new safety standards could result in seizure of the products, and civil and criminal penalties.

According to the CPSC’s letter, hoverboards are said to cause “unreasonable risk of fire to consumers,” due to the possibility of spontaneous combustion of its lithium-ion batteries. In the last three months, there were a reported 52 hoverboard fires that resulted in over $2 million in property damage, “including the destruction of two homes and an automobile.”

The agency added that it may look into a recall of all products in the future.

This comes after almost every airline banned passengers from bringing hoverboards on board airplanes late last year. Ports in the U.K. began confiscating hoverboards over safety issues, and in January, Amazon offered to refund any purchases of hoverboards from its site.

As a result, Chinese manufacturers of the toy—which are largely responsible for churning out a huge volume of these now-unreliable hoverboards—have been seeing production drop rapidly as companies exit the market, according to the publication, Quartz.

Even despite the safety issues, Walmart and Toys “R” Us were reportedly planning to add the scooter to their brick-and-mortar stores as soon as April.

COURT UPHOLDS CALIFORNIA’S USE OF UNCLAIMED CASH California’s system of seizing and spending “unclaimed” cash from banks, mutual funds and defunct businesses has survived a Supreme Court challenge, reports the Tribune News Service.

The state says it is now holding $8 billion in lost assets. And from this fund, it takes about $450 million a year to add to the state budget.

After considering an appeal for four months, the justices said they would not hear a long-running lawsuit that contends the state does not do enough to notify the rightful owners before seizing their assets.

Under the state’s law, accounts can be seized if a bank or retirement fund has lost track of the owner for three years.

State Controller Betty Yee says her office holds these assets so they can be returned to their rightful owner. Its website— www.claimit.ca.gov—permits people to check to see if any of their assets are being held by the

state. Amounts under $5,000 can be quickly reclaimed, she said.

But lawyers who sued called the state’s system a “recipe for abuse” because many people are unaware that their assets or those of a relative are being held by the state.

In a concurrence, Justice Samuel A. Alito Jr. said the justices should decide “in a future case” whether states must do more to contact owners of lost property.

“As advances in technology make it easier and easier to identify and locate property owners, many states appear to be doing less and less to meet their constitutional obligation to provide adequate notice” before seizing the accounts, Alito said in Taylor vs. Yee. “Cash-strapped states undoubtedly have a real interest in taking advantage of truly abandoned property to shore up state budgets. But they also have an obligation to return property when its owner can be located.” Justice Clarence Thomas said he agreed.

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Wearable Technology:

THE GAME-CHANGER IN MANAGING RISK

BY ZACK CRAFT, ATP

I

f you know you slept six hours last night, you burned 130 calories at the gym,

and your resting heart rate is steady at 85, you are probably part of the growing number of Americans using wearable technology to monitor your health.

In a 2014 report on the future of wearable technology, Price Waterhouse Coopers (PwC) cites that 20 percent of American adults already own a wearable device, and the adoption rate will rise quickly, on a par with the growth rate of tablets in 2012. Another recent report published by IDTechEx estimates the wearable electronics business will grow from $20 billion in 2015 to almost $70 billion in 2025, the dominant growth attributed to the healthcare sector that merges medical, fitness and wellness.

THE ROLE OF WEARABLE TECHNOLOGY IN THE WORKFORCE

Even if you are not an early adopter of this technology for personal use, as a risk management professional you should know the benefits wearables are already bringing to the workplace—improving wellness and productivity, preventing injuries, enabling a faster return to work for injured workers and even dramatically increasing the quality of

life and independence of injured workers with catastrophic injuries. Indeed, for those who are permanently disabled, wearables can provide increased independence, mobility, better long-term health and a remarkable improvement in their quality of life rather than a dependency on constant assistive oversight. Likewise, in the public sector where police, firefighters, and construction workers are exposed daily to hazardous and even dangerous situations, wearables can play a particularly important and meaningful role in fulfilling the commitment to protect these individuals and rehabilitate them to their maximum functionality if they are hurt.

As wearable devices enter the workplace, this technology has the power to better manage risk and reduce costs in three areas. This article will identify those three areas, look at the benefits and liability of adopting wearable technology, and pinpoint the expertise to advise you in how to utilize these new tools in injury prevention, management and recovery.

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WEARABLE TECHNOLOGY: THE GAME-CHANGER IN MANAGING RISK

THE VALUE OF WEARABLES IN THE WORKPLACE There are three main ways to utilize wearables in the work setting to better manage risk and improve the well-being of employees:

PREVENTION Within the workplace, wearable technology can be utilized to improve workers’ health and productivity and help to avoid injury. For example, employees who sit for long periods, or who have back injuries, can measure posture through monitors embedded in a t-shirt. Those who work outdoors for long periods of time can wear a sun sensor to monitor their daily UV ray exposure to prevent skin cancer. Sensors placed in a diabetic worker’s shoes can help monitor for pressure changes, activity changes and other signals that may indicate a need for medical attention.

COMPLIANCE Wearable technology can help ensure compliance and faster healing, as well as avoiding the situation in which injuries “migrate” to more serious problems in workers returning to their job after a routine injury. For example, something as simple as providing an injured worker with a fitness tracking wearable, such as a Fitbit, and setting daily activity goals can help to monitor compliance while also motivating the injured worker to accomplish these goals to help them get back to work sooner.

QUALITY OF LIFE Wearables can bring greater functionality, quality of life and independence to workers who have had serious or catastrophic injuries, while at the same time reducing the need for assistive care in the home. Today’s “smart” wheelchairs offer a variety of options for driving controls to meet their needs as well as Bluetooth that can interact with the environment—opening doors, lighting rooms and controlling the climate. Communication tools range from a variety of “speaking” devices and smart phones to information reference systems like Google Glasses.

With the anticipated FDA approval of the exoskeleton this year, wearable technology leaps from the realms of science fiction to a reality that transforms the lives of injured workers.

Translated as “outer skeleton,” exoskeletons provide both support to the body and protec-

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tion to many animals in nature. Now, using mechanics and robotics, humans can also benefit from a wearable exoskeleton. Those with lower limb disabilities can even walk again using this wearable technology. The transformation of their quality of life is truly breathtaking.

THE ROI OF WEARABLE TECHNOLOGY

What’s the reward for making the investment in wearable technologies?

HAPPY, HEALTHY EMPLOYEES In the 2014 PwC report on the future of wearable technology, nearly 70 percent of consumers said they would voluntarily use employer-provided wearables streaming anonymous data to a pool in exchange for a break on their insurance premiums. A growing number of self-insured employers and ergonomics firms in the United States have already begun plugging wearable devices and health tracking apps into their corporate wellness programs, using rewards to encourage staff to adopt healthier habits. The rewards to the employer are a healthier, more productive workforce, lower overall healthcare costs, and a lower likelihood of work-related injuries.

REDUCE INJURIES AND WORKERS’ COMPENSATION CLAIMS In addition to lowering overall healthcare costs, wearables can enable real-time monitoring that prevents injury and re-injury, reducing the number and costs of workers’ compensation claims.

PREVENT LONG-TERM CLAIMS FROM ESCALATING INTO ADVERSE HEALTHCARE EVENTS AND EXPENSES TO REMEDY THESE EVENTS At the beginning of a long-term injury, family members may be available to provide caregiving—but in the majority of cases, the caregiver must return to work and their availability to assist decreases and assistive care must be considered. Or, more often, over time the injured worker’s health status begins to change either from complacency, shortcuts with therapies or non-compliance that can cause the individual’s condition to worsen.

The use of wearables or smart devices can increase mobility and independence, creating

an alternative to 24/7 or intensive in-home assistance, and in some instances enable employees to return to work safely in a shorter time frame.

The use of wearables can also help injured workers avoid preventable complications or migratory claims with long-term implications.

For example, an injured worker with diabetes might require orthopedic shoes or braces that could potentially be over-tightened causing a sore. Without proper monitoring, that sore could develop into a wound which in the worst case scenario could lead to an eventual amputation.

This example of a migratory claim demonstrates how a relatively routine injury could result in a permanent disability and compensability for the life of the patient. Wearable technology can help to mitigate preventable complications through the use of a pressure-sensing shoe insert, such as the Surrosense Rx system that notifies the injured worker when dangerous time and pressure thresholds are detected.

THE RISKS IN USING WEARABLE TECHNOLOGY

As with any innovation or change to procedures, there will always be associated risks to consider.

One of the most obvious risks with wearable technology is the risk of a potential violation of workers’ privacy. Wearables in the workplace could provide organizations with unprecedented access to employee information—a privacy concern for many workers, as noted in the PwC 2014 wearable technology report. The report asserts that consumers want to see the same high standards as the Health Information Portability and Accountability Act (HIPAA) applied to health wearables data, especially as they become integrated into electronic medical records. PwC advises organizations to now ensure their policies around information collected in workplace wearables.

However, as a risk manager, it’s important to evaluate each case individually and take your employee’s lifestyle into consideration. In that regard, wearables aren’t that different from any other piece of equipment—you have to weigh the risk of re-injury against the reward of increased independence for your injured worker.

And finally, we must recognize that the true potential of wearables in the work setting can

only be realized if the data collected is analyzed.

Wearables collect information/data but if it’s not “interpreted” it can be difficult to derive or prove value from the metrics. For example, an injured worker using the Lumo Lift, a product designed to help monitor posture, might grow accustomed to the noise alerts to correct their posture and begin to ignore them, thus negating the effectiveness of using the tool. Therefore, it’s imperative to have a qualified professional monitoring the worker’s progress/ activities so they can bring attention to the issue.

EXPERTISE IS KEY IN CHOOSING THE RIGHT WEARABLE Expert advice from a credentialed Assistive Technology Professional (ATP) is the best resource to help risk managers and claims managers make the right decisions to incorpo-

rate the benefits of wearable technology into workers’ compensation medical management.

An ATP will analyze the needs of consumers with disabilities, and assist in the selection of appropriate assistive technology. Their expert advice will help ensure the purchase of the right wearable for each person, the correct training and installation so that it functions as it should, and the avoidance of upselling that can add unnecessary costs.

Once the right wearable technology is identified, an ATP will ensure those using the device understand how it and any associated applications work to produce the desired results.

An ATP will also identify wearables that integrate and connect, allowing for seamless analysis of the

data. These professionals can assist in designing monitoring systems with medical staff or in training caregivers on gathering insights from this data, depending on the patient’s need.

From activity tracking that helps prevent injury and save costs to exoskeletons that are giving people with catastrophic injuries the ability to walk again, wearable technology is a new frontier for workers’ compensation. For risk managers, it’s an opportunity to empower injured workers, improve their quality of life, prevent injuries, and more effectively manage the healing and rehabilitation process when injuries do occur.

Zack Craft is vice president of Rehab Solutions and Complex Care Education at One Call Care Management.

A growing number of self-insured employers and ergonomics firms in the United States have already begun plugging wearable devices and health tracking apps into their corporate wellness programs, using rewards to encourage staff to adopt healthier habits. The rewards to the employer are a healthier, more productive workforce, lower overall healthcare costs, and a lower likelihood of work-related injuries.

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THE ROAD TO ERM:

Using the Balanced Scorecard to Implement Enterprise Risk Management

BY ELIZABETH COOPER

W

HY IS THE ROAD TO EFFECTIVE ENTERPRISE RISK MANAGEMENT (ERM) SO LONG AND BUMPY? This is a question risk managers often ask when trying to transition from traditional risk

management to ERM. Yet, ERM has gained significant traction in the corporate world over the last decade, and more recently, increased interest from nonprofits and government entities.

ERM’s integrated approach of managing risks considers the broad spectrum of risks across an

organization. It helps leaders and employees understand how those risks interact with one another and how they

impact organizational objectives. While traditional risk management focuses primarily on financial and hazard risk, ERM includes risks that may impact strategy, operations, communication, technology, finance and reputation, among others.

This makes ERM an attractive vehicle for making risk-informed decisions in today’s complicated, connected world.

Still, implementing ERM hasn’t been an easy road.

A recent RIMS Executive Report indicates that more 90 percent of companies practicing ERM have programs with initial or ad hoc maturity levels.1 This means that most companies are in the early stages of making the transition from traditional risk management to ERM. As public risk managers, we face additional roadblocks including limited resources, entrenched bureaucracies and competing expectations that come from operating in a political environment. These challenges can make the journey down the road to ERM seem daunting. Isn’t there an expressway, high speed train, or hover board to help us get there?

TDI’S JOURNEY FROM TRADITIONAL RISK MANAGEMENT TO ERM

At the Texas Department of Insurance (TDI), we faced many of these roadblocks. For many years, TDI’s leaders recognized the need to

make the move toward ERM in order to take a comprehensive look at the agency’s risks.

The first part of the transition involved the creation of a risk assessment process that each division could perform internally. The process required division teams to: review the division mission and goals, identify key processes, identify the risks that threatened the processes, rate the probability and impact of each risk before controls, and identify internal controls and mitigations to prevent or reduce the risk.

“We developed a handbook to guide the process and each division completed an annual risk assessment,” said Kim Harris, PMP, BSP, TDI’s director of the Office of Strategy Management (OSM). “We called it ERM, but the risks were still considered within the silo of each division. We needed a framework for managing risks across the board so we could understand how they impact our agency’s strategic objectives.”

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THE ROAD TO ERM

The division risk assessment process helped jumpstart risk awareness and provided bottom-up information. But, we still needed to foster strong top-down oversight and ERM governance. In the following years, TDI leadership held several workshops in which they identified an ERM philosophy and goals. TDI’s leadership assigned the OSM as lead on ERM. In the meantime, the agency began implementing a new approach for strategy management using the balanced scorecard.2 This laid the foundation for moving forward on our ERM journey.

Moreover, the balanced scorecard allows TDI leaders and employees to view the agency’s strategic objectives from four perspectives: Customer; Financial Stewardship; Policy and Process; and People, Tools, and Technology.

This structure is well-suited for implementing ERM by helping us focus on the broad spectrum of risk through the lens of the four perspectives.

The balanced scorecard aligns the agency’s day-to-day

“

“

means to help us get there, and measures help us know where we are along the way.

work with our vision, mission, and core values… It helps us understand where we are going, how we’re going to get there, and whether or not we are on track.

Jonathan Niven, PMP, BSP, TDI’s strategic planning and project portfolio manager

However, there were more challenges to come.

We had to build a sustainable ERM framework, establish consistent processes and formalize communication. We also wanted to integrate ERM with strategic planning, so we could better manage risks to our agency’s strategic objectives.

LINKING RISK TO STRATEGIC OBJECTIVES

By 2012, TDI leadership had adopted the balanced scorecard as the agency’s integrated strategic planning and management system.

“The balanced scorecard aligns the agency’s day-to-day work with our vision, mission, and core values,” said Jonathan Niven, PMP, BSP, TDI’s strategic planning and project portfolio manager. “It helps us understand where we are going, how we’re going to get there, and whether or not we are on track.”

Key elements of the balanced scorecard approach are strategy maps, strategic objectives, initiatives, measures and perspectives.

The strategy map helps us understand where we are going. It connects strategic objectives and emphasizes the relationship between the perspectives. Strategic objectives describe what we are trying to achieve, initiatives are the

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In addition, the balanced scorecard is a communication tool. It provides multi-level communication channels for discussions through an executive steering committee, agency and division perspective champions, and initiative teams. Updates and reporting occur at monthly champion meetings and quarterly review meetings. “We highlight the strategic objectives, measures, and current initiatives at the agency quarterly review meetings,” Niven said. “In addition, we connect employee performance to balanced scorecard strategic objectives.

This helps employees see how their work directly contributes to the strategic objectives of their divisions and the agency.”

We would soon discover that using the balanced scorecard would help employees better understand ERM as well.

INTEGRATING ERM INTO EXISTING PRACTICES

Although it seemed like ERM was an impossible journey, once we started integrating ERM into the agency’s balanced scorecard, the impossible began to feel possible. We began to view risks from different perspectives and now have a better understanding of the agency’s top risks.

In addition, TDI’s balance scorecard was already part of the organizational culture. As a strategic objective on the scorecard, ERM was part of the discussion at the executive and management levels. The balanced scorecard provided the perfect forum for keeping the right people engaged.

In 2014, we formed an ERM team to ensure that all divisions are represented and contribute to the management of the agency’s risks, including: evaluating, reviewing, and recommending ERM policies, priorities, and activities; contributing to enterprise-level risk assessments; identifying emerging risks; and reviewing and improving TDI’s risk management framework.

After working for almost a year, we established an ERM scorecard, which helps agency leaders better understand top priority risks that may challenge the achievement of our strategic objectives. The following risk categories are organized by balanced scorecard perspective: BALANCED SCORECARD PERSPECTIVE

ENTERPRISE RISK CATEGORY

Customer

• Communication • External Factors

Financial Stewardship

• Budget • Financial Management

Policy and Process

• Business Processes • Regulatory Environment • Enterprise Risk Management

People, Tools, and Technology

• Workforce • Technology • Information Security • Business Continuity

It’s still being refined, but it’s a starting point for high-level monitoring of the agency’s greatest risks.

CONTINUING DOWN THE ERM PATH

While we have made significant progress, we still have a long way to go to apply ERM at the strategic,

tactical and operational levels. The OSM works directly with the executive steering committee and the ERM team on strategic risk issues. The executive steering committee approves all ERM activities. The Policy and Process champions report on the ERM program at balanced scorecard quarterly meetings and are currently working with the OSM to establish a maturity score as a balanced scorecard performance measure to gauge the ERM program’s progress.

“We occasionally have to circle back around to confirm mandate and commitment when we have changes in leadership,” Harris said.

“While it causes some delays, it’s a critical part of on-going ERM education and awareness

building.” Without full support from the top, an ERM program may be stalled or totally derailed.

Although there is no silver bullet, public risk managers can better navigate the path to ERM by looking at risks from different perspectives.

We have customers who depend on our services and expect us to deliver them. Taxpayers expect us to be diligent financial stewards. Turnover in leadership and changes in strategic direction can affect our policies and processes. We also have the challenges of keeping up with changing technology while working with limited resources and competing with the private sector for highly skilled workers. Having a framework that considers the perspectives of: Customer; Financial Stewardship; Policy and Process; and

People, Tools, and Technology can help. The balanced scorecard provides a structure that may help public risk managers travel down the path to ERM with fewer bumps and maybe just a little bit faster.

Elizabeth Cooper, MPA, ARM-E, is responsible for coordinating the agency’s TDI’s enterprise risk management activities.

FOOTNOTES

1 RIMS Executive Report, State of ERM Report, 2015.

2 The balanced scorecard was originated by Drs. Robert Kaplan and David Norton of the Harvard Business School.

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APRIL 2016 | PUBLIC RISK

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PUBLIC RISK | APRIL 2016

Two Worlds or One?

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BY DR. MICHAEL LACROIX

oberto Fuentes was working on re-shingling a roof when he slipped. He was not properly harnessed and fell about 25 feet onto the asphalt driveway below. He landed on his right leg and suffered fractures to the tibia and fibula, plus multiple lacerations. Amidst the cacophony of sirens and flashing lights, he is in capable medical hands. But what will

happen with his medical expenses and his loss of wages during the recovery period?

The correct answer is: “It depends.” If he was working as an employee of a construction company, his medical care will likely be picked up by his employer’s workers’ compensation (WC) insurer and he will likely receive 66 percent of his wages at the time of the accident until he is considered to have reached maximum medical improvement (MMI), or has returned to work, however long that takes. On the other hand, if he was working on his roof at home, his medical costs would likely be covered by his health insurer if he has one (minus deductibles, co-pays and co-insurance). Whether he will receive compensation for his lost wages will depend on whether he has disability insurance (DI) through his employer, or an individually purchased DI policy.1 The amount of DI income he may receive could range from 50–80 percent of his pre-disability earnings, and that would

typically be payable up to a maximum fixed period of time depending on the DI policy.

Lastly, he might also have financial and legal recourse against the homeowner’s insurance.

While Roberto may not need to be concerned with the differences between WC and DI coverages because it will be immediately clear which coverage applies in his situation, lay people are often confused between these two coverages types.

Interestingly, even WC professionals typically know very little about the disability world, and vice versa. WC staff are typically based in a company’s risk management area, while disability staff are typically based in a company’s benefits area.

And they may not interact very much.

I presented at the Disability Employers Management Coalition conference last year,

APRIL 2016 | PUBLIC RISK

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WORKERS’ COMP AND DISABILIT Y INSURANCE

which drew more than 700 attendees. Workers’ compensation thought leader Robert Wilson also attended the conference and blogged, “Where are my peeps…despite my 15 years of extensive conference activity, I recognize exactly three faces in the crowd.” A month later I presented at the International Association of Industrial Accident Boards and Commissions conference and experienced the polar opposite: almost all attendees were WC people.

One of the interesting aspects of the universe that I live in is that I have one foot in the disability world (with Aetna Disability) and one foot in the WC world (with Coventry WC Services).

With visibility in both worlds, I thought a brief discussion of some of the differences and similarities might be of interest to this risk management audience. My very strong belief, and experience, is that we can learn from one another.

Let’s start with the differences.

• The fundamental difference relates to who writes the rules, and this has huge implications.

With WC, the rules are written by the state or province. With employer-sponsored DI coverage, the rules are based on a private contract between the employer and the insurer.2 Consequently, we will find big differences between and among jurisdictions with WC, and between and among employers with disability.

• Coverage under WC requires that there have been an injury, which must have arisen out of, or in the course of employment. DI claims cover both injury and diseases, but often with exclusions for work-related injuries.

• One big difference between the two relates to psychological conditions. Accident-related psychological diagnoses are compensable in some states, such as California, while most others set up very high barriers for psychological claims. On the DI side, however, “mental / nervous” conditions almost always qualify for coverage, but are often subject to a two-year policy benefit limit.

• Waiting periods, if any, are very short for WC, but variable under DI contracts.

• The focus in WC is on return-to-work (RTW), although AMA (and some state) impairment guidelines are often used to evaluate work-related disability. Whereas with DI, the focus is on functionality, often determined from behavioral observations and/or documented clinical evidence.

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PUBLIC RISK | APRIL 2016

• Benefits under WC typically include medical, indemnity, and other work-related costs. DI covers partial wage replacement only. It does not cover medical bills.

• Since the insurer pays the medical bills under WC, the insurer has access to the insured’s medical and pharmacy data, can direct care in some jurisdictions, typically encourages or enforces the use of treaters and pharmacies in the insurer’s network, and uses IME’s quite liberally. Disability insurers cannot direct care. They can, however, require evidence that the insured is under appropriate medical care in order to approve benefits.

• Under WC, indemnity dollars are determined by the average weekly wage, typically 66 2/3 percent in the U.S. With DI, indemnity dollars are determined contractually, often by the class of occupation and employee contributions, with average income replacement usually between 50 percent and 80 percent.

• With WC, vocational rehabilitation (VR) is mandatory in some jurisdictions, and lack of cooperation with VR requirements may be grounds for termination of benefits. VR assistance can get quite extensive, in some cases even including retraining programs. On the DI side, VR is not mandatory in the majority of policies (although it can be made a mandatory provision), and it is usually quite limited.

• Similarly, the use of case managers can be quite extensive with WC, including field case managers. Disability cases are almost always managed exclusively telephonically.

• Finally, the key touch points with WC claims occur at MMI and at RTW. With disability claims there are usually more touch points.

The claim may be re-evaluated on a number of occasions for continuing compensability under various policy provisions, such as under the disability definition, including changes to the definition when the claimant transitions from “own occupation” to “any occupation,” satisfaction of treatment requirements, and benefit and coverage termination provisions.

So, even though Roberto’s injuries and medical (and potentially psychological) recovery process may be the same whether his injury was covered under WC or DI, he will find himself traveling very different roads and facing different hurdles depending on whether he was working on his own roof or a customer’s.

One may well ask whether these roads have different endpoints. Does it matter ultimately if recovery from the injury follows the WC or the DI path?

There is surprisingly little data providing applesto-apples comparisons in outcomes from WC and DI injuries. Such comparisons would involve at a minimum looking at the same injuries with the same employers. Some studies have provided macro-level comparisons, and these usually find that recovery durations are longer with WC. For example, a Gallup study based on retrospective interviews found that people with musculoskeletal injuries reported staying off work more than twice as long when the injuries were work-related.3 Interestingly, the same report also found greater satisfaction with how the employees were treated when the disability was non-work related than when it was work-related.

A recent analysis by the Integrated Benefits Institute4 examined three years of data from four large employers whose short-term disability and WC claims were managed by the same TPA. They found that claims often crossed over from one system to the other. Overall, 9 percent of claimants with an initial claim in one system later crossed into the other, while for back pain specifically, 30 percent of claimants with an initial WC claim had a later DI claim with the same diagnosis. For both muscle strains and back pain WC claims registered more lost work days: 77 percent more for sprains, and 145 percent more for back pain, and with commensurate differences in costs.

We recently presented a first attempt at true apples-to-apples comparisons, comparing the same injuries at the same employer, and found the differences more complex.5 Five of the top ten diagnoses were common to both WC and DI claims for this employer, accounting for about 30 percent of cases.

Our first pass at the data suggested that the WC claims did indeed require more days off work on average, but the WC duration data showed much more variability. DI claimants were more likely to RTW full-time, while WC claimants who did RTW went back faster. The analysis is preliminary and needs to be replicated and extended, but it does suggest more nuanced differences in recovery from WC and disability events than usually assumed. More research on these differences may be instructive in terms of what WC managers may be able to learn from DI managers, and vice versa.

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APRIL 2016 | PUBLIC RISK

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WORKERS’ COMP AND DISABILIT Y INSURANCE

While the question of whether WC and DI may have different endpoints is still unresolved, there is one thing that we can state with certainty, and that is that the strategies that have been shown to be successful in bringing claimants to RTW are the same in both worlds. Successful RTW is greatly enhanced when the employer is demonstrably eager to take back the employee and is actively supportive of vocational rehabilitation efforts, including a willingness to provide accommodations. A study with more than 1,800 workers6 found that a one-point increase in worker satisfaction (on a 5-point scale from “Very Dissatisfied” to “Very Satisfied”) reduced claim cost by almost 30 percent, and that overall, employees’ satisfaction with their treatment by the employer trumped satisfaction with the medical treatment.

The message is clear: workers who are happy with how their employers treat them want to get back to work ASAP. This is consistent with the older Gallup study cited earlier. For both WC and DI claims, employees who reported satisfaction with their employers’ treatment were off work for much

Regardless of whether the injury falls in the WC or DI inbox, employer behavior can have a huge impact on

RTW. Employees who feel valued are much more likely to RTW, and to do so sooner. This simple concept has profound consequences.

shorter durations. It is also consistent with our own internal analyses showing that employers with mandatory rehabilitation in their DI plans and who provide accommodations can expect significantly shorter disability durations. The mediating factor here may well be “trust” that the employer wants them back, as reflected in WCRI data showing that workers afraid of being fired after an injury were twice as likely to remain off work.7 What does it mean for an employer to treat its injured employees well? Academic reviews of both the WC and the DI literature point to the same factors.8,9 These include: • Early intervention. Recommended actions here include nurse triage within hours or even minutes

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after an injury and communications of RTW expectations to the employee early and often. Let the employees know you want to help, and that you want them back as soon as possible.

• Provide the employees with accommodation options, including changes in scheduling and options for a gradual RTW. Too often, an employer’s requirement that the employee can only return if he/she can function at “100 percent” means that the employee may never return to work. Scheduling accommodations on the basis of a graduated plan leading to a full RTW should work even better.

• Communication with the treatment providers.

Most treaters have little to no training in occupational medicine, which means that their understanding of what is required for a particular job comes from their own assumptions or from what their patient tells them—both of which may be lacking in accuracy, for different reasons.

Having the treatment providers genuinely understand the nature of the job and the RTW options can work wonders.

PUBLIC RISK | APRIL 2016

Optimally, an employer should have a formal return-to-work program. This is the process for addressing employee RTW following an absence, regardless of whether the absence is occupational or non-occupational in nature.

A RTW program should incorporate not only the above strategies, but also other proactive elements deemed appropriate for the employer’s business. A RAND Corporation study of 33 large California employers found that workers in companies with such formal programs enjoy an average 15-week reduction (median of 3-4 weeks) in time away from work.10 In addition, employers also benefit from reductions in indirect absence costs, including lost productivity, loss of human capital, and replacement and retraining costs. Others have reported similarly large benefits.11,12

In sum, injuries and diseases happen both at work and off work and impact the employer, regardless of whether the event is occupational or non-occupational. The differences between the WC and DI systems are legal, driven by laws and risk considerations, with procedural and financial implications for both employers and employees.

Regardless of whether the injury falls in the WC or DI inbox, employer behavior can have a huge impact on RTW. Employees who feel valued are much more likely to RTW, and to do so sooner. This simple concept has profound consequences.

Michael Lacroix is associate medical director, Aetna Disability and director, Behavioral Health Services for Coventry WC Services.

FOOTNOTES

1 The discussions here will focus on employersponsored DI and not individual policies.

2 A small number of states also have regulations governing disability 3 The Disability Experience: What Helps and Hinders RTW. Gallup White Paper, 2001.

4 Gifford, B. Crossing Over: Do Benefits and Risk Managers Have Anything to Talk About? IBI Research, February 2015.

5 Lacroix, JM. Work Comp and Disability: Two Sides of the Same Coin? International Association of Industrial Accident Boards and Commissions.

Chicago, September 2, 2015.

6 Butler RJ & Johnson WJ. Loss reduction through worker satisfaction: The case of Workers’ Compensation. Risk Management and Insurance Review, 2011: 14, 1-26 7 Robinson, TA. WCRI Identifies Trust in the Workplace as a Key “Predictor” of Outcomes Important to Injured Workers – Retrieved November 23, 2015, from: http://www.lexisnexis.com/legalnewsroom/ workers-compensation/b/recent-cases-newstrends-developments/archive/2014/07/06/wcriidentifies-trust-in-the-workplace-as-a-key-predictorof-outcomes-important-to-injured-workers. aspx#sthash.KsFeGlQD.dpuf 8 Franche R-L et al. Workplace-based RTW interventions: A systematic review of the quantitative literature. J Occ Rehab, 2005: 15, 607-631.

9 Hoefsmit N et al. Intervention characteristics that facilitate RTW after sickness absence: A systematic literature review. J Occ Rehab, 2012: 22, 462-477.

10 McLaren CF et al. How Effective are Employer Return to Work Programs? WR-745-CHSWC March 2010.

11 Iles RA et al. Multi-faceted case management: Reducing compensation costs of musculoskeletal work injuries in Australia. J Occ Rehab, 2012: 22, 478-488.

12 Bernacki EJ et al. A facilitated early RTW program at a large urban medical center. J Occ Env Med, 2000: 42, 1172-1177.

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APRIL 2016 | PUBLIC RISK

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TITLE MEMBER SPOTLIGHT

Broward County Charts Course for Reduced Property Premiums

B

roward County, like most public entities in a hurricane zone, saw its annual property insurance premiums rise yearly, even when there wasn’t a significant storm striking Florida. Roger Moore, assistant director of the Broward County Risk Management Division, along with the Risk Manager Jackie Binns, developed a way to catalog all of the County-owned property using GIS, and prioritize those most in need of “hardening” against potential hurricane and storm damage.

“The program was created to assist in the reduction of high property premium rates, especially in storm or flood-prone areas, with better Construction, Occupancy, Protection and Exposure (COPE) data, GIS locations of property, threshold elevations of each building, along with the enhanced data to identify ‘hardening’ and resiliency,” said Binns.

The project utilized college interns for the GIS project, which logged every property and building owned by Broward County. It required approximately six months for two interns to complete. The project utilized minimal expertise from the County’s technology personnel. Property appraisers were hired by the County and the highest exposure building were treated as a priority. These buildings then set the criteria for the remaining appraisals of the buildings. Loss prevention, such as thermographic imagining of circuit breakers, was performed in order to analyze potential risks or losses.

According to Binns, reductions in the probable maximum loss (PML) and annual average loss (AAL) have played a large part in this savings.

PML was reduced by $274 million (from $576 million to $302 million), and AAL was reduced by $9 million (from $16 million to $7 million).

“These statistics tell underwriters how susceptible property is to damage by a catastrophic event,” said Moore. “The County realized the importance of reducing its susceptibility to damage and implemented a mitigation program in 2007 to harden County buildings to be resilient against category 3 windstorms. The County also undertook a process to collect secondary COPE modifiers so that buildings would model correctly.”

An added benefit of the GIS database is its link to the County’s Risk Management Information System, enabling users to see an aerial view of each property in the County (or world) with the accuracy of state plane coordinates (more accurate than latitude and longitude coordinates). This enables users to overlay a storm tract and identify all properties within that tract, or to quantify all property within a given commission district.

The County, in keeping with its dedication to mitigation, created a “Construction History” page that will enable users to document all construction for each County building and to categorize it by: aesthetic, structural, storm, or mitigation-related. This part of the system allows improved recordkeeping and tracking of exactly how much money has been spent on each building over the lifespan of the property and to be able to separate the reasons for the expenditures to facilitate any potential reporting requirements. Each year, in preparation for our next policy renewal, the County will provide a report to evidence how much money has been invested in mitigation of each property in its schedule, or when reporting for FEMA reimbursements, to show how much in repairs was related to any given storm per property.

For more information on Broward County’s GIS database project, contact Jackie Binns at jbinns@broward.org.

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?

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The County realized the importance of reducing its susceptibility to damage and implemented a mitigation program in 2007 to

“

“

Since it categorized and cataloged its properties, Broward County has reduced its annual premiums by more than $11 million, from $27,575,607 in 2012 to $16,719,067 in 2016. The current premium is roughly the same as the County paid in 2004, but now has $2.1 billion more in Total Insured Value and almost double the Named Windstorm coverage.

harden County buildings to be resilient against category 3 wind-

storms. The County also undertook a process to collect secondary COPE modifiers so that buildings would model correctly.

Roger Moore, assistant director of risk management for Broward County

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PUBLIC RISK | APRIL 2016

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