Risk Management and the Good Old Boy Network

If you’re still struggling with your self insured workmen’s compensation program, if you’ve taken all the steps that you think are prudent to reduce costs and you still are experiencing a rise in expense, the problem may very well be on your payroll.

Before we get into pointing fingers it’s important to recognize that the insurance industry and the myriad of vendors and brokers that service it all rely principally on relationships rather than productivity to operate. In fact it is an industry that rewards its members for poor performance rather than basing compensation on results. The longer a medical provider continues treatment, the slower an adjuster processes a claim, the more expensive the claim and the more money they collect.

Brokers play a huge role as risk management consultants and are typically the ones who recommend TPAs and medical providers. These recommendations are more likely to be made based on personal and financial relationships than they are based on performance. Brokers are just that. They marry up a buyer with a seller and take a cut as a commission.

And that brings us to the question of the broker’s role as a consultant or advisor to the VP of Risk Management. In all likelihood the person you have in charge of risk management came from the insurance industry and is fully indoctrinated in its culture. While some may say that’s great as he or she knows their way around that business and should be in a position to optimize the firm’s program. But a closer examination may reveal that the choices made for vendors were based on past relationships rather than true benefit.

We’re not suggesting that your risk manager is intentionally subverting the organization, only that he or she comes from that culture and believes that’s how the business works. And he or she would be right. The good old boy network is how it works.

But it doesn’t have to.

You can make changes and hold your insurance vendors’ and your risk management’s feet to the fire by incorporating an aggressive governance policy that sets benchmarks for performance. You can communicate in no uncertain terms that your self insurance program, and what you pay for it, will be based on efficiencies the biggest of which is the speedy return to work of an injured worker.

You can make clear that any provider who is unwilling to negotiate benchmarks will no longer have you as a customer. Sing the mantra of results first relationships second until they cooperate or are replaced.

What will this cost you and what are the potential benefits?

If you can’t rely on your own risk management department you will need to bring in a knowledgeable outside consulting firm to audit your program and establish the benchmarks. This will cost you both time and capital but it is essential in establishing a strong corporate governance policy. Then of course there is the actual communication of the policy and getting a buy in from everyone concerned.

On the plus side, don’t be surprised to see your work comp related costs drop by a minimum of 10% or more. Also don’t be surprised to see fewer costly long term lost time cases. Do expect to see workers returning to work quicker and minimizing the loss of productivity.

This corporate governance approach is good for both you and your employees. Your company will realize significant savings in your insurance costs and your employees will receive faster and more appropriate care as they are no longer "processed" but managed through the claims system.

If you think corporate governance is something your company can benefit from, then you really need to talk to the experts at CXO7 who have been providing these audits and analyses to Fortune 500 firms for many years. CXO7 clients have seen savings as high as 25% after implementing their recommendations for benchmarks and new vendors. If you’d like to learn more about the cost cutting tactics your vendors don’t want you to know, sign up for the video series at http://riskmanagementcompetitiveintelligence.com/