WC Claim Cost Reduction Strategies for Contractors

1. WC Claim Cost Reduction Strategies for Contractors The information in this presentation was compiled by Zurich American Insurance Company and Wilils from sources believed to be reliable for informational purposes only. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this presentation, including any information contained herein. Willis Claim Practice September 12, 2013

2. 5 Key Issues for Takeaway • WC Trends indicate economy is recovering, frequency is down, severity is up, recession recovery driven severity • Aging Workforce and Obesity affecting WC Industry • Two factors (people) determine the WC Claim Outcome • Keep Score • You need to manage the medical, especially the drugs

3. Key Issue #1 • WC Trends indicate economy is recovering, frequency is down, severity is up, recession recovery driven severity

4. Economy RecoveringSignificant recession impact, very slow recovery Employment slowly recovering ..Along with industry payrolls Source: Bureau of Labor Statistics

5. Frequency DownInjury and Illness Incidence Rates Cases per 100 Full-time Employees

6. Frequency & SeverityBy State : All WC Claims

7. Frequency and Severity Lost-Time Claims for all NCCI states Frequency: -3% per year Severity: +6% per year (7% Medical; 5% Indemnity) Data developed to Ultimate; 2011 preliminary 6

8. SeverityCost per Claim Trends: Lost-Time • Cost per LT claim at 12 months: • Trending higher for SIC 15 (Building Construction) • Roughly flat for SIC 16 (Heavy Construction) and SIC 17 (Specialty Trades) • 2010 dip and 2011 bounce likely recession related • Developed cost (at 60 months) is roughly 2x that for 12 months 7

9. Key Issue #2 • Aging Workforce and Obesity affecting all WC Industry

10. AGING WORKFORCE Avg. age of injured workers rising, higher average WC cost with older workers 9

11. OBESE WORKFORCE Obesity is rising in U.S.

12. Obesity & Workers Compensation Duke Study Claims Per 100 FTEs Lost Work Days per 100 FTEs • The average medical claim costs per 100 employees were $51,019 for the obese and $7,503 for the non-obese. Truls Østbye, MD, PhD; John M. Dement, PhD & Katrina M. Krause, MA (2007). Obesity and Workers' Compensation Results From the Duke Health and Safety Surveillance System, Arch Intern Med.167:766-773.

13. AGING AND OBESE WORKFORCEEmployee selection, orientation & training A shortage of qualified workers will only increase this risk • A 2013 AGC study suggests that there is a quickly developing workforce shortage issue* • Macro construction economy is expanding, estimated at 5% for the next 5 years • Contractors are facing staffing shortages as the work force ages • Many construction workers permanently left the industry during the recession, forcing contractors to bring on inexperienced labor • By 2017, there will be two million fewer workers than positions available: How are you going to get the best possible workforce? * AGC News – Worker Shortage in Construction Industry, January 2, 2013 12

14. Key Issue #3 • What do you think are the two most important predictors of the outcome of a WC claim? Who matters the most in the process?

15. What are Most Important Factors of a WC Claim: THE CLAIM HR The Worker -attitude -job satisfaction -integrity The Doctor -RTW mentality -Focus on worker Your broker Union Claim Rep Nurse Supervisor Employer Defense Counsel

16. 2 Most Important FactorsHow to get best Employees • Background Check • Drug Test • Financial Background Check • Integrity Testing • Skills/Personality/Academic Testing • Physical Capabilities Testing • Training • Conditioning • Orientation • Supervisors • Zurich study indicates that 25% of workforce has been on the job less than 2 years • Those same workers generate 43% of WC losses

17. 2 Most Important FactorsHow to get best Doctors • Traditional • Preferred Provider Networks • Nurse Case Managers • Adjuster Feedback • Advancements • Early Intervention • Outcomes Based Network

18. Connecting with the Injured Worker First Fill text

19. Two Most Important Factors Reduce Lag Time: Claim Intake App

20. Two Most Important FactorsHow to get the best Doctors • Beware of physician dispensed meds • Beware of unnecessary ER Visits • Over prescription of physical therapy • Meet with your doctor/clinic when appropriate • Invite physicians to job site when possible

21. Key Issue #4 • “If you aren’t keeping score, you’re practicing.”- Vince Lombardi

22. Keeping ScorePitfalls of Metrics • Skip Metrics • Skip to Metrics • Fail to align with your strategy • Fail to consider impact • Too many metrics • Not understood by users

23. Keeping ScorePrimary and Secondary Metrics Primary • Direct measurement ($) • Clear correlation • Normalized, developed • Examples • Closed LT Claim at 24 months • Developed cost per $100/payroll • Accident Frequency Rate • Secondary • Indirect measurement • Examples • Lag Time – 24 hour contact • Claim Closure Rate • PPO penetration rate • % of Savings from Carrier/TPA

24. Keeping ScoreMetrics for you • Experience Modification Factor • AFR: Accident Frequency Rate • Cost of Closed Lost Time claim at 12, 24 months • Cost of Closed Medical Only claim at 12, 24 months • Average LTWD by year/per EE • Developed Losses per 100 FTEs per $100 payroll.

25. Key Issue #5 • You need to manage the medical, especially prescription drugs.

26. Pharmacy IssuesTrends with opioids • National epidemic • Growing concern in work comp • Originally end stage cancer drugs • Actiq “lollipops”= $30 • 42% get opioids in year 1, 16% are still on opioids in year 2. • 16,000 deaths per year from opioid usage, WA had 33 deaths in one recent year • Claim is 4X as likely to have a total cost over $100,000 • In California, 3 % of the state’s doctors prescribe 55% of the opioids

32. Pharmacy IssuesA Growing Concern in Work Comp Source: WCRI data from Oct. 1, 2008 – Sept. 30, 2009 claims, with fills thru March 31, 2011

33. Pharmacy IssuesThe longer the use, the more the risk User trends vary widely by state Source: WCRI data from Oct. 1, 2008 – Sept. 30, 2009 claims, with fills thru March 31, 2011

34. Pharmacy IssuesIt’s not just Rx Drugs: Within the construction and mining industries, it is estimated that 1 in 7 workers has a serious alcohol problem: • In addition, workers in these industries are 25% - 45% more likely to have a serious alcohol problem than the average U.S. worker 2011 Society for Human Resource Management survey found: • The number of employers reporting high WC incidence rates prior to a drug-testing program decreased by approximately 50% after introducing testing • Drug testing has also been found to reduce claims as much as 12%, first aid injury reports by 18%, accidents by 51% and EMRs as much as 11.4% 33

35. Come Monday…. • Use metrics and determine where you are today. Are you doing better or worse? Where do you want to go? How do you get there? • Your workers are getting older and weigh more. How are you going to get better workers? Get with HR and come up with plan to test and validate candidates. Train, condition your athletes. Change the way you do things. • Get the best docs. Make sure your employees know how to access the docs. • Know that as soon as opioids are prescribed, you have a potential problem claim. • Construction industry needs to communicate. Different forms, different methods, different sources, and often. Multiplicity and duplicity is key to success.