5 basic principles of risk management

March 21, 2022

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Risk management is not merely a professional specialty; it’s a basic human instinct.

Every day, we all naturally evaluate and aim to minimize the danger to ourselves and others in a wide range of situations: crossing the street, purchasing a home, opening an email from an unfamiliar source. While risk professionals are well familiar with the core principles of risk management — risk identification, risk analysis, risk control, risk financing and claims management — they are certainly not the only ones to rely on them in their daily thinking and decision-making.

For professionals who practice formal risk management processes based on these tried-and-true principles, a periodic review can be both reinforcing and refreshing. It’s also valuable for lay people to learn about the principles of risk management so they can gain a deeper understanding of why they and their organizations make the choices they do. Using an everyday example is a great way to educate people on risk management principles, so they can then apply these guidelines to real-world operational issues and situations.

#1: Risk identification

This first principle is just what it sounds like: What risks are presented to me, my organization, my customers, etc., in the scenario in front of me?

As an example, think about riding in or driving a car. You might identify the risk of having an accident due to poor maintenance of the car, failure to keep gas in the tank, speeding, or driving under the influence. Another identified risk may be the possibility of damaging property — either the car itself or someone’s property. There is also a risk of financial loss if proper liability insurance is not in place or if the driver gets a speeding ticket, and so forth.

#2: Risk analysis

This stage involves gathering data and considering the meaning of the data points over a span of time. An analysis of the identified risks begs one to ask: How often could this adverse event happen (frequency)? And if it does happen, what’s the worst way it could turn out (severity)?

In our car scenario, the worst that could happen is loss of life. Additional analysis may determine that the risk of being in an auto accident is low because the driver is never on the highway or only drives in good weather during daylight, on roads with speed limits of 30 miles per hour or less, in a well-maintained car, etc. The analysis part of the risk management process should take you through several what-if scenarios and help you arrive at the potential frequency and severity of an event.

#3: Risk control

Risk control offers opportunities to implement solutions that support risk avoidance, prevention and reduction. The risk avoidance technique in our car example would be not to own a car nor ride in a car. In reality, a minimal amount of risk still exists, as you could be hit by a car as a pedestrian or injured while using mass transit, but in certain scenarios, risk can be avoided completely.

Risk prevention aims to reduce the frequency or likelihood of the event or loss. This might mean preventing car breakdowns by following maintenance and inspection schedules, keeping air in the tires and gas in the tank, and following all driving laws.

Risk reduction aims to lower the severity of a particular loss that has already occurred. For example, it might mean ensuring property damage to another person’s vehicle is repaired quickly so the time they are without a car is limited.

Effective risk control considers the various strategies already in place and may introduce new measures based on the findings of the analysis.

#4: Risk financing

This fourth principle focuses on the economics of risk. Risk financing is a way to cover any financial losses that the implemented risk control techniques did not prevent from happening. In our example, even with all the proper maintenance on the car, safe driving, etc., an accident can still occur. By having appropriate auto insurance, funds are generated by the insurance company to pay for the loss — in this case, damage to the car.

#5: Claims management

Whereas risk financing is about managing the financial impact, claims are about managing the harm done. When a loss occurs, a claim may be filed to recover damages. In the car example, a claim may be filed with the insurance company of the driver at fault to recover for the damage that occurred. If the driver at fault was not insured, a different course of action may be necessary to hold the driver personally responsible for the damage.

Bringing risk management principles to life

When educating others about risk management, using an approachable example — such as the one about the car outlined above — can help to make sense of what may otherwise seem like a mystery. Bring the education closer to home by using an applicable, real-world example and walking through the five steps.

Here’s another scenario: Imagine you’re a risk manager walking into a new position, where you’re responsible for the organization’s workers’ compensation program. Drawing on your familiarity with the five basic principles of risk management, your action plan may look something like this:

  1. Risk identification: Consider the kinds of jobs employees perform and where they work in order to identify the greatest risks. Are employees lifting things, operating heavy machinery, using sharp objects to administer patient care, cutting down trees, flying on airplanes, or seated at desks? What dangers might they be exposed to in their daily work environment?
  2. Risk analysis: Collect any relevant and recent historical workers’ compensation data available from the organization’s broker, third party claims administrator (TPA) and internal records. Examine loss runs by occupation, injury type/frequency, root cause and more; drill down to identify what kinds of workplace incidents are happening more often and the possible exposures.
  3. Risk control: Look at the solutions the organization currently has in place to avoid, prevent, and reduce workers’ compensation illness and injury. This can include everything from loss control to safety programs. Then, focus on prioritization and implementing effective solutions to fill the gaps.
  4. Risk financing: Determine the optimal financial structure for the organization’s workers’ compensation program. Is self-insurance right for them, or would it be better to transfer some of the risk to an insurance carrier. Work with an experienced broker for professional guidance.
  5. Claims management: Develop a program that ensures employees harmed on the job are compensated appropriately, as well as receive access to high-quality, cost-effective care and the additional support they need to realize maximum recovery and resume productivity. Consider how the organization and its employees could benefit from partnering with a TPA on the administration of their workers’ compensation claims.

Risk management continues to evolve, but these basic principles are as applicable as ever. It’s also important to keep in mind that the process is meant to be cyclical, rather than linear. Lay people and risk management professionals alike must constantly monitor their environments for new potential dangers, measure the efficacy of current risk mitigation techniques, and, based on the latest findings, repeat the five-step process outlined in the basic principles.

Claims programme management in Africa: What’s next?

February 24, 2022

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By James Norman, International business development director

A sure-fire measure of how a market emerges and matures goes beyond traditional metrics like insurance penetration and premium density.

It also means the adoption of standards such as corporate governance and risk management. In Africa, risk management plays a significant role in shaping the future of the insurance sector.

New opportunities, new challenges

Claims programme management can cover complex exposures across regions, countries and classes. They can be of high value and low volume or low value and high volume with several stakeholders working together to manage the process. In addition, programme structure often varies across Africa based on the size of the insured, complexity of the exposures and reinsurance arrangements. The role of the broker and intermediaries becomes pivotal in placing the programme with the right insurer and monitoring how the programme is performing against variables such as incurred losses, quantum, recoveries, litigation and fraud.

It is no longer enough to simply transfer risk to the insurer and rely on them and their partners to manage the programmes. COVID-19 has taught us to revisit programme management, reset best practices, develop deeper partnerships, and accelerate data and tech innovations. In the context of this uncertain landscape, let’s consider two diverse pain points that will likely impact the management of African claims programmes in 2022 and beyond:

Infrastructure projects

Part of Africa’s unique claims story is that there has been significant investment from traditional sources and increasingly from China. Projects range from the Trans-Maghreb Highway and new railways to powerplants in Nigeria, the Walvis Bay Container Terminal in Namibia, and the Caculo Cabaca hydropower plant in Angola.

These infrastructure projects will undoubtedly transform day-to-day lives by improving socio-economic mobility. Risk transfer/insurance are an important part of these initiatives — offering assurance and an ability to secure funding. From inception to completion/post completion and as risk profile changes, they will need robust claims programmes management that covers losses from workers’ compensation to public liability and cyber. To be effective, there must be significant collaboration between the insured, insurer, brokers, loss adjusters, lawyers, etc. This ensures the risk appetite and claims philosophy are understood; the level of oversight, reporting and technology is clear; the exposure is protected; and an operating model exists to service the losses.

Impacts of climate change

From building structures to building resilience, the World Economic Forum Global Risk Report for 2022 cited the top three risks as climate action failure, extreme weather and biodiversity loss. On the topic of weather, this is a driver of insurance exposures as Africa continues to experience extreme weather events. In Northern Kenya and Ethiopia there are ongoing droughts. A single catastrophe — drought, flood, earthquake, wildfire, tsunami or cyclone — can wreck lives, destroy businesses and create large claims bills that can easily spiral through lack of oversight into the billions of USD.

Extreme weather-related events are becoming more common, fierce and uncertain — making insurance vital. For example, post-loss insurers and partners must deliver on their promise through management of technical skills, crisis response, rapid action and stakeholder management. They do so all to reduce the cost — insurance or otherwise — of an event. Alongside cost containment, they must show soft skills like empathy and trust. This requires experience and expertise, including technology knowledge about drones, satellites, parametric solutions and remote loss assessment.

Collective action

Whilst claims can never be fully automated or completely avoided, a lot of the focus in Africa has shifted to risk prevention and mitigation. There is a recognized need to drive from within a healthy, resilient and sustainable sector as seen in the 2021 Nairobi Declaration on Sustainable Insurance a statement of commitment by African insurance leaders to pursue sustainable development goals across risk management, insurance, investments, policy and regulation. This collective action and championing environmental, social governance (ESG)s and the UN principles will support stronger claims management in 2022 and beyond.

BPO: A fresh vision

September 23, 2021

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By Stewart Steel, Chief executive officer, Europe Middle East & Africa

The global pandemic caused some organisations to take a closer look at their operating model.

Many are pursuing a simplified, more agile and flexible business structure that empowers a fast, seamless response to changes in local or global market conditions. This is making business process outsourcing (BPO) increasingly popular. Subcontracting non-core activities allows companies to place a greater emphasis on strategic focus. Variable rates replace fixed, in-house overheads. Staff recruitment, training and management, office space, technology, surge events – they all become someone else’s problem. And the end result? A significant improvement to the bottom line.

One source of truth

There must be hundreds of teams around the world, all processing thousands of identical types of claims for customers on behalf of various insurers, brokers and MGAs. This presents a tier of effort and administration that potentially could be handled remotely by experts who have the skills and experience to understand and manage this work with equal, if not more, efficiency.

Centralising these activities and outsourcing them to an organisation with the right culture, infrastructure and specifically designed systems can provide obvious economies of scale. And there’s a myriad of other benefits – greater purchasing power, priority response from within the supply chain, and wider claims management team support, particularly during surge.

One of the greatest concerns about outsourcing is losing control of customer data and accurate management information (MI), but the reverse is true. When all claims data is managed in real time and held securely on one system – you create ‘one source of truth’. Then, through readily available MI and incisive analysis, you can vastly improve the business overview on total cost of risk and quickly identify new trends and claims spikes.

A personalised approach

Everyone is better connected in today’s internet-enhanced world and claims customers have come to expect convenient web-based, self-service options through automated, user-friendly portals. That’s why we’ve invested heavily in real-time digital platforms that can be used universally while creating a personalised customer experience for each insurer or broker client.

Behavioural science techniques can influence and design all customer-facing activities – from general correspondence to how we engage online. Smarter communications and intelligent process design speeds up administration, reducing the time to conclude claims by 37% and operational effort by 15%. This delivers better outcomes for everyone.

A new vision

Without question, BPO frees up resources — enabling companies to concentrate funds and effort on core business development. Claims and risk management is our strategic focus. And we continue to invest in our systems and colleague development programmes to help all clients achieve their business objectives. Our fresh vision is to improve our clients’ bottom line and make claims easy to navigate for everyone.

A look ahead: 6 ways to ensure success of our risk management program

August 2, 2021

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Written by David Stills, senior vice president, carrier and risk practice

In part one of this blog, we focused on market reflection — discussing trends and lessons learned. Next, we’ll explore six ways to ensure success of our risk management programs moving forward.

Make purposeful insurance buying decisions

Many risk managers — including myself — likely took advantage of insurance being an efficient spend these last 15 years, and insured well beyond our company’s ability to absorb risk. To the same token, however the deterioration in claims across multiple lines was not out of sight, out of mind; nor was it sustainable. The soft insurance market certainly shifted the mindset around the willingness of companies to bear risk, but did not impact their ability to bear risk. While no company welcomes volatility and loss, the most successful ones were built by taking calculated and known risks — approaching them with eyes wide open.

Step one toward making purposeful and effective insurance buying decisions is to understand all the risks inherent to the company, specifically those that are — or historically are — uninsurable. Next, ensure that your perspective and knowledge around insurable risks — including the efficiency or inefficiency of insurance as a hedge — is communicated to your finance and enterprise risk leaders. If your company chooses to make an inefficient insurance spend, it should be a deliberate decision made with full knowledge of all the risk on the table, the availability of other risk hedges and the strength of your company’s balance sheet. For example, paying an inefficient rate for insurance may be a wise decision when faced with other risks that cannot be effectively insured or otherwise hedged. In addition, you should understand your company’s risk bearing capacity, also known as the point where the weight of loss will have a significant, adverse impact on market capitalization. Once you completely understand the holistic risk environment, including your company’s ability to bear risk and the limitations of risk tolerance analysis, you are well situated to make purposeful insurance buying decisions.

Understand the efficiency or inefficiency of insurance

With the impressive advancements in analytics, data and loss modeling, we have better visibility into the efficiency of insurance as a risk hedge. The insight you gain from the analysis is useful in negotiating with underwriters, but even more so, it’s invaluable in buy/no-buy decision making. Your brokers will be helpful in this exercise, which should be done annually for all lines. You will gain a better understanding of your average annual losses, the standard deviation and coefficient of variation, maximum foreseeable loss, and distribution of loss based on varying levels of confidence. Some lines of coverage are better suited to this analysis, such as casualty and property. But doing so will arm you with a better understanding of 1.) your program efficiency; 2.) the efficiency of layers of coverage within each line; and 3.) breakeven premium. . While this forward-looking analysis has great value, do not forget to also examine your company’s own historical losses and develop assumptions around them — as well as emerging risks — to gain additional insights for the future.

Tell your story

On the front end of a market cycle upswing or following a particularly devastating event, underwriters may lump many insureds into one group without differentiating between the different exposures and risks. That’s what makes telling your company’s story so critical. For example, not all property risks are CAT exposed. In fact, many CAT-exposed risks may be protected by investments in planning and construction which significantly set them apart from other exposures. Similarly, due to your investment in risk control and safety, your claims history may put you in the favorable quartile. Now is the time to reap the benefit of that investment, but you can’t unless you’re able to communicate it effectively.

Start early on renewals

My former team and brokers will likely remember that in about 2007, I “outlawed” the phrase ‘renewal strategy’. My point is that if you are sitting down for the first time to talk about the upcoming renewal six or even nine months before the renewal date, you are too late. I suggest replacing the term with ‘program strategy’ as it should have a target three to five years down the road and be focused on alternatives that do not leave you in a tight spot if market conditions change. Start by analyzing alternative program structures that you could migrate to in the event you need to make changes down the road. Initiate early discussions about these alternatives with your finance leadership so they have heard them a few times before it may become necessary to implement. And immediately following a renewal, take just a short break to catch your breath and then start thinking about the next renewal.

Talk with your peers

One of the strongest assets I have had in my risk management career is my peer network. I encourage all risk managers to invest the time to build a network of diverse individuals — in and outside of their industry — who they can regularly converse and compare notes with. When combined, your peer learnings, market research and expertise from your broker and consultant network will equip you to essentially triangulate on knowledge and develop better instincts about the industry and possible solutions. And despite the deep trust I had in my brokers, I was better served when appropriately challenging their advice.

Invest in risk mitigation

With insurance being so inexpensive all these years, it is possible that your company’s investment in risk mitigation was decelerated. Today, with more of the exposures falling within your retentions, new analysis of the ROI is warranted. Some risk mitigation that comes to mind includes facility cameras, ergonomics and safe lifting training, as well as analytics to identify emerging trends in your business, in-cab and forward-facing cameras in trucks, driver behavior monitoring, and construction planning and specifications. In addition to helping control costs within your retention, you are building a better story to tell your underwriters.

Risk managers are in a different place than we were during the softer market, but we don’t have to sit around and simply accept the challenges. Being proactive and dusting off our basic risk manager tools will enable us not only to survive, but thrive — making our companies less dependent on insurance and placing them in a situation where they have a choice. Remember, what got you here won’t get you there.

4 ways Ohio employers can make the most of recent BWC dividends

December 17, 2020

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Written by John Brockschmidt, SVP, Pooling; Russ Hocutt, SVP, Ohio TPA Operations; Jody Moses, Managing Director, Public Entities; Frank Pagnatta, SVP, CareWorks Comp

In November, the Ohio Bureau of Workers’ Compensation (BWC) agreed to issue $5 billion in dividends to qualifying Ohio employers to ease the financial pressures created by COVID-19. This is the third dividend declared and paid in 2020, bringing the total pandemic easement to nearly $8 billion for both public and private employers.

These dividends were made possible in part due to BWC’s strong investment strategy and returns achieved on premiums paid. However, savings have been further compounded by effective risk management programs at the workplace, resulting in a lower volume of claims. Collectively, the employer community, alongside Ohio TPAs and MCOs, has taken strides to protect the worker, improve workplace safety and take care of injured workers. When accidents do occur, great partnership efforts among this collective have proven to effectively manage claims, reduce frequency and severity, and control costs.

As dividend checks arrive in the coming days for eligible employers, the question many are asking is, what do we do next? How can we best reinvest these funds to protect workers and maintain performance for future success?

This is especially true of public entities, a group whose benefit total for this round of reimbursement is nearly $700 million – significant funds that can make a major impact for a sector that has been particularly hard hit by the pandemic.

A first matter of business is determining how to allocate dividend funds from a compliance standpoint. The Auditor of State (AOS) offered baseline recommendations in AOS Bulletin 2013-007, which shares accounting guidance entities should follow for all BWC rebates and dividends. The recent AOS bulletin 2020-007 offers additional input on the current rebate. Employers are advised to consult their tax advisor to determine the tax implications on their unique situation. They should review bwc.ohio.gov to ensure BWC has the most up-to-date tax identification information for their policy. The site also offers answers to many other frequently asked questions related to this round of dividends.

Advisors might recommend reinvestment in safety and risk management as the most appropriate use of BWC dividend funds. In addition to the compliance factor, this approach is one that can lead to the strongest return on investment. By investing in the right programs, risk control or safety, for instance, you might see a 5 to 1 return from a prevention, productivity and loss cost standpoint – which in turn helps maintain lower premiums, compounding the benefit.

Now is the ideal time for public and private employers to survey their risk management programs to determine where resources can be integrated for the greatest returns. Whether producing products, delivering services or protecting the public interest, virtually all employers can benefit from fine-tuning their overall safety strategy, claims management approach and technology enhancements to ensure the workforce is protected and fully engaged. Further, in this COVID-19 environment, it’s worth actively seeking measures to help reopen and return to business in a way that is safe for employees and customers or constituencies alike.

Focus on these four areas as you consider how to make the most of BWC dividends to help your workforce – and your bottom line – reap ongoing benefits:

1. Safety and risk control

On the safety front, employers should consider building upon their workplace safety and injury prevention programs. This might include safety culture initiatives in partnership with a loss control team, who can provide additional education and training for workers, risk assessments, site visits (remote or in-person), data analysis, risk control consulting services, root cause analyses or injury cost analyses. Another major area of focus, especially as additional requirements related to the coronavirus, workplace exposure and reporting remain a concern, would be investment in OSHA/regulatory compliance and training initiatives.

Today’s risk manager is very different than in the past – the scope of the role is broad, covering not just traditional casualty risks of workers’ compensation and general liability, but also property, cyber, misconduct, civil unrest and more diverse risks. For public entities already in a pool, opportunities may exist within the program to support broader risk coverage; it’s worth looking into options for add-on initiatives and enhancements with each sponsoring organization.

2. Return to work support

When it comes to claims management, employers are advised to review their existing claims procedures. They will want to ensure injured workers are guided through the claims process, provided access to appropriate medical care, and are taking steps to optimize return to work. Employers may also want to look at expanding their claims and managed care teams to include experienced nurse case managers, case specialists, behavioral health experts and claims specialists who can work directly with injured workers during their recovery journey.

3. Technology enhancements

Technology enhancements can elevate virtually any risk management program. This includes increasing security against potential cyber attacks, providing real-time information to injured workers, or looking at data patterns to guide future decisions. Technology should be seamless and support the entire program. For public entities participating in a

4. COVID-19 “back to business” tools

In today’s COVID-19 environment, back to business measures to ensure worker and public safety are of utmost importance. Public entities and private employers alike are seeking assistance to get their organizations up and running again as quickly and safely as possible once COVID-19 restrictions are relaxed. For the reopen phase, consider such measures as pre-opening site inspections, industrial hygiene and disinfection, facility safety and cleaning, ergonomic evaluation and workplace social distancing, and preparedness assessment.

As organizations return employees to worksites, funds could be used to support temperature screening and health checks, fit for work programs, clinical consultation, surgery preparedness initiatives, and testing and healthy return to work solutions. In support of a surely ongoing COVID-19 recovery phase, employers can benefit from exposure investigation support, unemployment claims management and tax services, and absence management solutions.

For Ohio employers, the dividend checks are in the mail. Now is the time to objectively survey your risk management program, evaluate existing program partnerships, and reinvest in those areas that will give your organization the greatest future return. Be safe and stay well.

At Sedgwick, we understand the unique Ohio environment, the complex needs of public entities, as well as the resources required to support your broader safety and risk program. Let us know how we can help.

Be aware: Settlement fraud scheme

November 21, 2016

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An old CONfidence fraud has found its way to the insurance business. Customers, consumers and adjusters should all be aware and alert of a new variant of the traditional “advance fee” fraud and identity theft confidence scheme that is affecting hundreds of thousands of people annually.  The developing trend involves fraudsters, typically from outside of the U.S., having obtained a claimant’s telephone number and making contact to “con” them out of their money and personal information.  Here is how it works: the caller, representing themselves as an agent for the insurance carrier or TPA, makes contact with the claimant to allegedly settle their general liability or workers’ compensation claim. The caller offers to settle the claim for an unusually large amount, which excites the claimant. The claimant is asked to provide personal information and send a settlement fee, usually $2,500 in cash to a Western Union account. The result, the fraudster receives the advance fee and the claimant gets nothing!

Happening in the insurance arena

In addition to the settlement scheme discussed above.  The insurance industry has seen its checks stolen in the U.S. mail delivery process and then counterfeited by fraudsters. The counterfeit checks are sent to claimants and others usually for less than $10,000; some of the checks are for claims settlements others for Craig’s List or other purchases.  The amount of the counterfeit check is always for an amount in excess of the actual amount due. The individuals realize the check was for an overpayment and they contact the fraudster who instructs the individual to deposit the check (which is counterfeit) into their bank account and send the difference to them via Western Union. The result, within a few days the counterfeit check is charged back to their account and the money that was sent to the fraudster – for a double loss.

Tips for avoiding advance fee schemes

Things that seem “too good to be true” probably are!  Customers, consumers, insurance company and TPA colleagues and others should follow common sense and good business practices, such as:

  • Know with whom you are dealing before making a deal
  • If you do not know the person or company, learn more
  • Be wary if someone asks you to pay money in advance of a transaction
  • Make sure you understand every business agreement; if terms are complex, consult with a friend, your bank, an attorney or the Better Business Bureau
  • Do not sign nondisclosure or circumvention agreements

Sedgwick consumers, customers and colleagues should report suspected fraud to [email protected].

ADA FAQs: What you need to know

October 17, 2014

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Sedgwick recently hosted a webinar discussing Americans with Disabilities Act (ADA) and ADA Amendments Act (ADAAA) compliance, in partnership with Human Resource Executive. There was a high level of interest and employers asked many thought-provoking questions – many of which shared common themes, reminiscent of the early days of Family and Medical Leave (FML) adoption and the development of related policies and procedures. Organizations are dealing with overlapping complex employment issues; ADA/ADAAA compliance continues to be among the top concerns for human resource and risk professionals, particularly when considered alongside other disability and absence issues, including FML, or workers’ compensation requirements.

We compiled a list of the most prominent questions we answered in our webinar, as well as many of the frequently asked questions we continue to hear in the marketplace. It’s likely these may be questions you also have asked when considering your own ADA/ADAAA policies and compliance requirements. Read on and please continue the conversation by asking your own questions in the comments below or via our ADA/ADAAA inquiry form.

Q: What are our obligations under ADA/ADAAA?

The law is designed to be very employee friendly. Its goal is to keep people at work. An employer should make every effort possible – unless it truly creates a significant hardship for their business – to meet a disabled employee’s accommodation request and keep them within the work environment. In the past, prevalent thought may have been, “if we can accommodate, great, but if not, it’s no big deal.” Today, this type of thinking goes against the principles of ADA/ADAAA.

What are an employer’s obligations? The employer is entitled to pursue medical substantiation – is the disability certified and an accommodation appropriate? Then what comes next? If given a medically reasonable accommodation request, the employer is required to pursue the interactive process – engage with the employee to clearly understand the accommodation needed, look for potential options and consider parameters, and monitor that the accommodation is being carried out appropriately and consistently.

Q: ­Can you expand on what constitutes a hardship to the employer? ­

Based on communication from the Equal Employment Opportunity Commission (EEOC), an employer must prove that implementing an accommodation would put them in financial hardship. For a very large employer, there are not many modifications that would be officially seen as impactful enough to incur financial risk. For a smaller employer, major modifications may be more likely to be considered a hardship. Buying a piece of equipment, for example, is not usually going to be considered something that would put an employer into financial risk. Having to redesign the workplace or something of similar significance could possibly be seen as a hardship, depending on the size of the employer.

Truly, the buzzword is “significant” – very major, negative impact must be proven to the finances of your organization for a proposed accommodation to be recognized as a hardship. Especially for larger employers, we’ve seen that this is very difficult to prove under most circumstances, but each situation must be evaluated for specific determination.

Q: How can we protect ourselves from lawsuits?

The documentation proving consistency within the interactive accommodation process is of prime importance. Through the years, loose management and inconsistent accommodation – whether based on personal bias, informal policies, lack of training or other circumstances – has led to legal action for unfair employment actions. Consider an example where an employee is accommodated with generic restrictions. However, if nobody monitors for consistency and then, perhaps after years of working under these conditions, new management comes in and says, “I won’t accommodate that anymore,” the employer would be in compliance trouble. Under the law, if an accommodation has already been made available, it sets a precedent. We see more and more employers paying out large sums of money because, even if they’ve tried to do the right thing, if it’s not well-defined, well-documented and consistency and appropriate action can’t be proven in court, they will still end up in legal trouble.

More lawsuits have brought the compliance requirements under ADA/ADAAA into focus. Litigation is most easily avoided through clear adoption of the interactive process and complete documentation around the steps of this process, from the initial request through conversations taking place, medical records retrieved for substantiation, vocational rehabilitation options investigated, what accommodations have been proposed and/or why accommodations may not be considered reasonable.

While employers should have consistency across their entire organization when it comes to the evaluation process used, this doesn’t mean that every work location will be able to make the same accommodations based on the specifics of their business unit.

Q: ­Does Sedgwick’s platform integrate workers’ comp, FML/leaves of absence, disability and ADA/ADAAA systematically when all elements are overlapping?

One of the keys to reducing risk under ADA/ADAAA is to have standard procedures in place that will trigger the need for an interactive process review. The second key is to use an information management platform to support the accommodation process. Whether or not you utilize Sedgwick’s platform, these keys are critical for ADA/ADAAA compliance.

At Sedgwick, workers’ compensation, disability, absence and ADA/ADAAA are completely integrated so employers can see all of the pieces of the puzzle within one platform. Because of our integrated platform, our clients can look to a centralized source for resources and recordkeeping, and compliance becomes a far easier thing to accomplish.

Q: ­What guidance do you offer regarding prompting conversation with an employee who appears to have a disability but has not approached the employer for an accommodation? ­

Similar to the FML arena, an employee doesn’t have to ask for ADA accommodation. If you know an employee has been impacted by a disabling condition, for example if they have been away under FML or another leave type, we encourage employers to offer language in written communication or a conversation to be sure the employee explores the ADA process. Employers should approach ADA concerns in the spirit of collaboration and think creatively to find ways to accommodate any disability.

Q: ­How long should you extend time after FML has been exhausted?

Once an employer knows there is potential for extended disability-related need upon FML exhaustion, they have a responsibility to educate their employee and explore options under ADA/ADAAA. There’s no official limit on timeframe to allow for conditions that could change; opinions vary on reasonable amount of time – and most often, compliance experts discourage setting hard limits and instead encourage evaluating each situation individually. The employer should be focused on determining whether allowing extra time will ultimately allow their employee to come back into the workplace and return to their job, while also considering whether keeping the position open longer is reasonable.

­Q: How do you suggest we handle situations where we are not able to accommodate an employee in any position after engaging in the interactive process?

If ADA/ADAAA options are explored and the employee can’t remain in the workplace and perform their essential job functions through accommodation, it becomes an employment decision. We often see employers put employees on extended leave – personal leave or another leave type – for a period of time to make sure the condition is not one that can change in the short term. Yet, there may be situations where reasonable accommodation cannot be made and an employee is terminated as the end result. Interpretation is much tighter under ADAAA than was originally intended under ADA, but ADAAA changes did not create an environment where an employee can never be terminated. Collaborate with counsel in any situation where termination of employment is considered.

Q: ­How does an employer accommodate a request for intermittent leave for flare-ups? The employee either exhausted their FML entitlement or is not eligible. ­

Because leave can be a reasonable accommodation, an employee could potentially be eligible beyond their 12 weeks of federal entitlement, and leave as an accommodation could be used on an intermittent basis. It’s important to remember, even under requirements for reasonable accommodation, an employee must still be able to perform essential job functions and productivity levels must be maintained – lowering productivity standards is not a requirement. If someone is constantly away from work and cannot maintain standards, leave as an accommodation is not allowing them to do their job as defined.

The intent of the law is not to change someone’s job duties; for example, moving someone to part-time work/changing their productivity standards is not specifically the intent of ADA/ADAAA rulings but, if available, may be a good solution based on the employer’s circumstances and is not prohibited by ADA/ADAAA.

Q: ­Does Sedgwick’s ADA/ADAAA platform include vocational or ergonomic experts that assist employers in determining potential job modifications? ­

Yes, Sedgwick uses job accommodation specialists who all have vocational rehabilitation backgrounds. When we assist clients with ADA and return-to-work solutions, our job accommodation specialists help with certification, facilitating discussions with physicians to confirm the need for an accommodation, setting expectations with employees and requesting reasonable documentation to evaluate whether they can perform their job with an accommodation. These experts can assist with workplace evaluations to help define the essential tasks of a job and determine which possible accommodations can be made.

Stress, mental health issues and workplace injuries and illnesses – a look at the impact

June 25, 2014

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The University of Illinois at Chicago (UIC) research paper on Stress in the workplace highlights the costly impact of stress and mental health issues on workplace injuries and illness, including higher risk of injury, medical treatment, lost time from work and presenteeism. We also know that mental health issues, including depression, have been found to have a much higher impact on presenteeism than other chronic illnesses.[1] Mental health disorders often have symptoms that are not readily apparent; employees may attend work, but their underlying health condition affects their ability to do the work or even distracts them from safe work behavior.

Many employers already offer health management benefits that provide employees with support for mental health and emotional well-being overall through employee benefit programs. This is partly because of other research, like that of UIC, demonstrating a strong relationship between these health issues and employee presenteeism, lost time from work, overall productivity and risk of injury/illness.

UIC researchers identified three key areas for employer initiatives. With National Post-Traumatic Stress Disorder Awareness Day approaching on June 27, we would like to build on their recommendations by offering some thoughts for additional actions employers can take – using available resources and medical/disability data – to mitigate the impact of lost productivity and presenteeism from stress and other mental health illnesses. We also encourage employers to develop initiatives that cross internal silos to share information and health intervention strategies for occupational and non-occupational injury and illness. Integration can vastly improve results in addressing this issue.

Organizational

  • Develop a broader organizational initiative to not only develop managers who are supportive of employees at work, but also to create a strong organizational culture – with C-suite leadership – that is supportive of employee health and well-being 24/7.
  • Ensure employee access to wellness and prevention offerings such as: employee assistance programs (EAP), disease management, personal financial counseling, stress management and resiliency training. Make sure managers are familiar with them and can talk to employees about using the services. For parents, services like same-day care services for sick children and flexible work schedules can be valuable stress alleviators that increase attendance as well as attention to work tasks.
  • Other stress reducers in the work environment can include offering exercise classes, group walks or walking contests and other social/community events that engage employees in building positive, friendly relationships with colleagues. Having community and shared experiences can reduce perceived stress and isolation.

Screening and supportive services for high-risk individuals

  • Use an employee health risk assessment (HRA). This self-assessment, offered to all employees, is a common employee benefits tool for identifying other individual and population risks. Many companies use employee incentives (cash, gift certificates or health premium reduction) to encourage high engagement levels.
    • HRA individual results are usually kept confidential from the employer. However, independent healthcare management vendors can be engaged to reach out to employees with health risk indicators and help guide them to intervention programs like EAP or provide referrals to mental health providers, etc.
    • HRA summary data information can be used to see the varying risks in the population as a whole; sometimes data can also be broken down by business unit or occupation. Interventions can then be designed – i.e. resiliency training for employees who are under high stress, or more visible communication on EAP resources, stress reduction techniques, crisis intervention initiatives, etc.
  • One data resource often overlooked is Family Medical Leave Act (FMLA) and short term disability (STD) frequency and cause of absence. High absence rates, especially in units that have high-stress environments, can be an important red flag. FMLA summary information can be reviewed in conjunction with summary data from HRA, STD and workers’ compensation reports to identify occupations and business unit populations where stress or depression may be a factor.
    • Integrated Benefits Institute (IBI) research in 2013 showed FMLA usage to care for a family member more than doubles the risk of an STD claim for employee disability[2] due to mental health issues within a year. It seems reasonable to think this stress could show up in other areas, as well, i.e. increased risk of presenteeism, work injury or extended disability while off work due to other health issues.
    • For many employers, FMLA intermittent leave has a high absence rate for mental health and depression, and often the reason for leave is available to the leave administrator. This is an area where referral to employee health resources can be a valuable intervention.

Managing the risk of prescription drugs that impair performance

  • Many employers have access to their prescription drug usage in summary data. Usually this data includes drug names, frequency of prescriptions and costs, as well as break-out by business locations or zip codes.
  • Use of this summary data to identify drug use in employee populations that may increase the risk of injury is a first step to understanding what risks may exist and what methods can be used to ensure all employees are safe to perform work tasks.
  • Use of the company medical director or a trusted physician consultant as an advisor to assist in this data review and in development of alternative intervention strategies is recommended. Interventions could have high impact on employees, as well as operations and safety. Incorporating legal and human resources into this process is also highly recommended.

Many employers are realizing that mental health and emotional well-being can greatly impact overall health issues, employee presenteeism, lost time from work, overall productivity and risk of injury/illness. Is this a growing concern for your organization too? I look forward to hearing your perspective.

Denise Fleury, SVP, Disability and Absence Management

Read more in our “stress in the workplace” series: part 1part 2


[1] IBI Chronic Disease Profile, Depression, IBI, 2013 [2] “Early Warnings: Using FMLA to Understand and Manage Disability Absence,” IBI, 2013