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In a recent conversation with a senior risk leader about risk strategycheck-your-assumptions, he expressed concern that the risk financing decisions made for his company’s workers’ comp exposure may not be optimal, especially given the shift in exposure magnitude from indemnity to medical. In particular, where his predecessors made decisions to self-insure versus a large deductible, he wasn’t convinced that decisions of the past were holding up in the present. Compounding his concern, he was facing challenges in getting his broker to provide a comprehensive cost-benefit analysis of different financing options.

You might say this is a “no brainer”; every risk manager should be reassessing his or her strategic risk financing decisions with some regularity. And a broker not doing their job is actually no excuse – both true. This risk manager’s situation was a function of a lack of available resources (people and time) internally to conduct this analysis. His inability to find a good external source of assistance was the further complication.

Regardless of the reasons, it seems to me that our industry too often operates on dated assumptions about many things, to our detriment. In today’s fast-changing world, nothing stays the same very long, even workers’ comp risk financing strategies. In fact, I would argue that too often workers’ comp strategies are set and infrequently revisited for contemporary relevance and impact. In addition, many risk management departments have been severely affected by resource cuts and have increasing difficulty getting the job done well as a result. While brokers and consultants have typically been the fallback for support, those sources are themselves affected by resource restrictions and budget limitations that often don’t support “discretionary” activity. With this being the present reality, unlikely to change much in the foreseeable future, the attention to core strategic risk decisions and their current relevancy must be a priority. That would include moving this out of the discretionary category, especially in the eyes of your key stakeholders.

Certainly in this example, the risk manager can get along with a sub-optimized workers’ comp risk financing decision that may not even be noticed. However, the long-term impact of such decisions can be cumulatively significant. As a result, we need to make sure we understand and still agree with the underlying assumptions made, often by predecessors, for all matters that are current priorities. Of course, making clear what those current priorities are is the lynchpin to this clarity of understanding about assumptions.

So you might ask: “what’s this got to do with ‘Next Level’ workers’ compensation? Well, I just believe that despite the attention the tactical may get, strategic workers’ comp planning and execution are often given insufficient attention. Assumptions made in the past about workers’ comp strategy, even the distant past, may still be relevant and appropriate, but they must be periodically revisited and assessed for current relevancy and appropriateness to remain aligned with current corporate culture and priorities. While it may not be easy to find the necessary resources to conduct these reassessments, with a clear understanding and articulation of the downside implications of not completing these reviews, risk managers can stay ahead of an exposure which is constantly evolving with increasing opportunity for meaningful interventions.

Chris Mandel, SVP, Strategic Solutions

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