Know the numbers: Improving workers' comp outcomes with data

In response to the COVID-19 pandemic, increasing cyber risk and rise in property and casualty (P&C) Insurance rates across all lines of coverage, organizations are putting more emphasis on risk management than ever before. These and other risks — including regulation, supply chain interruption and natural disaster — contribute to escalating financial consequences.

According to Price Waterhouse Cooper’s (PwC) “Broking 2020: Leading from the front in a new era of risk” report, 74% of survey participants look to brokers for data analytics to help inform their decision-making. This follows a previous PwC global survey of approximately 2,000 business executives and risk managers worldwide, which indicated that 75% of respondents were investing resources to create a more risk-aware company culture, with one in four identifying fragmented risk data as the largest capacity gap. Further, 82% percent of respondents said they planned to develop an in-depth process to identify and monitor risk continually, a trend corroborated by the Risk Management Society’s (RIMS) Excellence in Risk Management XI survey. Though 90% of C-suite respondents said risk management impacts business strategy, only 25% feel their companies use risk management to its fullest ability. Key areas in which the use of data and analytics can be improved include risk identification, quantification and mitigation.

As has been the case in other areas of business, the pandemic has accelerated the acceptance and use of risk identification and mitigation data analytics. Therefore, organizations not embracing this needed approach are missing significant opportunities to gain better safety-performance insights and reduce the total cost of risk while enhancing their ability to measure and optimize return on investment.

The primary focus of most property and casualty agents should be to identify opportunities to intervene with new or enhanced processes that reduce accidents and injuries and predict future losses. However, with few exceptions, insurance agents serving the middle market tend to lack analytics acumen, so it will be a stretch for many to meet these requirements. Yet, even though discussing data beyond what may be contained in insurer loss information is not typically in the wheelhouse of most agents. Ignoring these challenges is no longer optional. Brokers must elevate their skills to address and accommodate these relatively new demands from the marketplace.

Beginning with the basics and taking incremental steps to initiate change or implement a plan is an effective approach to obtaining sustained, long-term adoption. Therefore, when considering an analytical, data-driven approach, it is essential to recognize that not all data segments are equal and understand which ones are essential to establishing quick, reliable sources of relevant and actionable information. In the case of workers’ compensation, there are both small and large data sets.

Keep in mind, this introduction to small data does not necessarily translate to a small impact. Even a small data set can influence significant changes in the workplace that can reduce accidents, injuries and costs.

Here’s what to look for.

Related: Mitigating workers’ comp costs with proper claim handling

Implications for workers’ compensation

Workers’ compensation insurance is the P&C coverage that best enables a business to exert control and reduce the future cost of coverage, yet many middle-market businesses fail to identify important key performance indicators (KPI) to help them identify, effectively analyze, track and measure what is occurring — let alone process improvements that maximize ROI and increase profitability. Businesses should ask themselves:

• Where is the organization in relation to the report’s findings and claim analysis abilities?
• Is the business using current methodologies to evaluate, analyze, track and measure the performance of its workers’ compensation program?
• Is the business aware of the cost of a workplace injury beyond what is shown on a loss run?
• What does the business have available for comparing results with other companies in the industry — regionally as well as across the country?
• How is the business using this information to grade its broker’s performance in managing those costs as effectively as possible?
• Is the broker able to identify its contribution to the business’s bottom line and overall ROI as a way to establish the benefit of its services?

What gets measured gets improved — and the more effective the measure, the more dynamic the opportunity to obtain the desired results. An ideal system of best practices includes seven specific key performance indicators. Incorporating a combination of analytics and metrics that are unique to each operation and which the management team must be intimately aware of leads to achieving full potential as the best possible workers’ compensation version of itself.

Forward-thinking businesses are capturing and using relevant data in new ways to develop innovative metrics and operate more effectively. With more precise information in hand, managers can better evaluate, track and measure outcomes to make quicker, more informed decisions. The results extend beyond simply solving a workers’ compensation problem. From a more global perspective, the ability to prevent and mitigate workplace injuries has far-reaching benefits that support an organization’s strategy to maintain or improve its competitive position. The long-term rewards are far-reaching, with companies benefitting by:

• Reducing direct costs and frequently overlooked indirect claims costs
• Enhancing employee health and wellness
• Fostering a safer work environment
• Improving productivity
• Creating a better risk profile in the workers’ compensation market, resulting in lower rates.

The net result: a substantially improved bottom line.

Related: Unpacking the role of workers’ comp

The 7 key performance indicators to improve workers’ comp

The numbers featured in the infographic below should be derived for any workers’  compensation risk prevention and mitigation program.

This article is an update of the “7 key performance indicators to improve workers’ comp outcomes” article published in February 2015. 

Stephen Paulin, CIC, is Workers’ Compensation Practice Leader at Orion Risk Management, a part of The Alera Group, in Orange County, California. As an insurance risk-management broker with more than 35 years’ experience, Steve has spent his career understanding the workers’ compensation challenges that businesses face and is dedicated to developing and sharing the expertise, capabilities and resources to improve outcomes for sustained, long-term cost reduction while improving productivity and profit. Paulin, a graduate of the Marshall School of Business at the University of Southern California, is a member of USC’s Marshall Partners Board of Directors and a member emeritus of the USC Alumni Association Board of Governors. Paulin is also a member of the founding board of directors of The Lott Trophy, which is awarded each year by The Pacific Club IMPACT® Foundation and recognizes college football’s Defensive Player of the Year who best exemplifies Integrity, Maturity, Performance, Academics, Community and Tenacity. Contact Steve directly by sending an email to spaulin@orionrisk.com or calling 949-632-8557.