Today's risk manager is faced with old and new challenges in managing risk for the corporation. Buying insurance that offers protection against traditional property and liability risks has been the cornerstone of the risk manager's job. While the bulk of these insurance products has stayed fundamentally the same for years, new or enhanced coverages have been added as the business environment has gotten more complex. Good examples are the special policies and coverages that many insurers now offer for computer-related risks, such as virus or hacker attacks.

More recently, a few companies have decided to manage risk more comprehensively, with risk managers tackling financial, business and external risks as well as traditional property/casualty risks. Examples of financial risk are interest rate and foreign exchange risks while examples of business risk are sabotage of operations and damage to a firm's reputation. Examples of external risk are far-reaching, including takeover of company assets during political upheavals and onerous regulations resulting from public referendums. Part of the impetus behind this more unified risk management approach results from the fact that the risk management function now is reporting to the cfo in more companies. Such an organizational structure encourages a holistic view of risk management. Terms such as integrated or enterprise risk management often are used to describe this concept.

The risk manager's role can even extend beyond this enterprise view to include employee benefits through adoption of an integrated benefits program. Such programs combine or coordinate various benefits that employees receive from their employers. At its most comprehensive, an integrated program could include workers' compensation, group health, short-term disability, long-term disability, sick pay and other benefits such as vacation, paid time off and family medical leave. Another way to think about integrated benefits is as a “total absence” management program for employees.

The concept of integrated benefits has been discussed in insurance circles - both risk management and employee benefits - for close to 20 years. But, for much of the time, interest in applying the concept was minimal at best. Overwhelming logistical obstacles to providing a single insurance policy for multiple coverages, mismatched interest of workers' compensation and disability carriers (i.e., when one was interested, the other was not), organizational barriers in both insurance and client companies and general inertia to changing the status quo were significant deterrents.

Over the past few years, however, the climate has been changing. Marketplace interest is escalating - especially among large employers although mid-size companies are paying some attention as well. Some of the issues that generated past obstacles, such as provision of a single policy, have diminished in importance. A January 2000 marketplace scan conducted by the Integrated Benefits Institute (IBI) lists 96 integrated benefits programs now available to employers, up from the 36 plans in IBI's first marketplace scan in January 1997.

As a first step in moving toward integration, a number of programs have targeted two core coverages: workers' compensation and short-term and long-term disability. Under the traditional model, these insurance programs were managed separately, with different personnel, different processes and different philosophies employed. Yet, both programs had many similar goals such as replacing lost wages and helping employees obtain quality medical care. During the last ten years, the focused return-to-work protocols developed for workers' compensation established these insurers as leaders in returning workers to their jobs as soon as medically appropriate.

Within the traditional model, risk managers had responsibility for lost work time management as part of workers' compensation insurance while human resource managers had similar responsibilities through short-term and long-term disability plans. The main difference was based on whether the source of the disability was work-related or not.

The level of benefits depended on the source since workers' compensation benefits are defined by statute while disability benefits are determined by the employer.

This separate approach to managing similar programs misses obvious opportunities to optimize results (by taking the best of both programs) and to streamline processes. In addition, the split management made it possible for employees to collect under both programs and for employers to categorize claims incorrectly. In today's fast-paced and cost-conscious business environment, achieving optimal results, operating efficiently and discouraging wasteful practices are the only wise business decisions.

In addition to the obvious improvements in efficiency and outcome, current business conditions may be ideal for this concept to “take off” after years of fits and starts. The increasing number of plans recorded by the recent IBI survey seems to point in this direction. Conditions supporting an integrated benefits approach include:

  • In today's robust economy, businesses are operating at full swing and unemployment is at some of the lowest levels since the early 1970s. The glowing economy makes it critical that businesses be staffed appropriately, while the low unemployment figures point out how difficult it is to find new employees. As a result, employers need employees who are not working to return to work as soon as possible. Careful disability management - a traditional hallmark of workers' compensation insurance - is one way to accomplish this.

  • Needs and expectations of employees are different today than 10 years ago. Therefore, a company's ability to attract and retain employees requires different incentives than in the past. Salary alone is no longer the main enticement for many in today's workplace. More “soft touch” policies and programs that convey a message that employees are important distinguish those companies rated as “good places to work”. An integrated benefits program contributes to this type of message by streamlining multiple disability processes, thereby making it easier for individuals to obtain benefits when needed and by actively helping employees address their disabilities and return to productive employment.

  • Many employers view today's integrated benefits programs as productivity enhancement tools. Unlike the past when cost savings and efficiencies were expected to derive from combined sales of multiple insurance plans, today's employers see the longer-term value of integrated plans through reduced claim costs and faster return to work. The additional benefit - a more positive impact on the employee/employer relationship - also contributes to improving productivity.

  • Information about the operation of benefits programs has come a long way over the last five years. Employers expect accurate and timely information on the status of claims. Integrated programs make it easier to obtain such information, since it comes from a single source, and to analyze the total cost of absent employees regardless of the reason for the absence.

  • On a more pragmatic note, workers' compensation insurance is beginning to experience increasing losses after a number of years of profitable results. Further, workers' compensation prices are showing signs of hardening. These conditions mean that recent “bargains” in workers' compensation premiums are likely over. As a result, employers' need to lower these costs will be more pronounced than in the recent past.

    These changing external conditions led Travelers, a leading workers' compensation insurer, to align with MetLife, a leading disability carrier, in developing a fully integrated short-term and long-term disability, workers' compensation and family medical leave program, called Synchrony. (Family medical leave is based on a federal law - Family Medical Leave Act - which is a mandatory program providing employees with job protection for a period of time if they are absent from work, with no paid time available, due to medical reasons for themselves or family.)

    The Travelers/MetLife collaboration emphasizes the following components - which we believe are critical for success in any integrated disability management program:

    Team approach

    Claim and medical personnel with occupational and non-occupational claims experience work together in the same offices, forming a team with a common mission, consistent and measurable goals and shared systems and processes. This tight integration of workers' compensation and group disability service providers at the front end encourages true integration of the benefit programs at the back end.

    Use of experts

    Experts from workers' compensation and group disability are utilized throughout the claim process. Investigators, vocational rehabilitation specialists, catastrophe claim managers, Social Security liaisons and loss prevention consultants are involved as needed in bringing claims to their optimal resolution.

    Pivotal role of nurses

    Nurse intervention is a critical touch point for all key participants. Nurses fulfill important roles in helping to ensure that disabled employees receive proper treatment and understand the claim process.

    Nurses keep employers informed and emphasize the critical role of having return-to-work initiatives in place and supported within the organization.

    Finally, nurses help to re-educate the medical community to the importance of getting disabled employees back to work as soon as appropriate.

    Nurse interaction with employee, employer and medical provider is critical in making the main program objective - returning employees to health and work - happen.

    Return-to-work focus

    An extensive menu of return-to-work programs is the cornerstone of Synchrony. Selected services include job modification/accommodation redesigns, work hardening programs, transferable skills analyses and retraining programs.

    To facilitate return to work, case managers assess diagnosis and medical treatment plans, relying on tools such as treatment protocols, disability duration guidelines and medical intervention to assure that each claim has the right resources at the right time.

    Convenience for employer and employee

    A unified claim management process makes it easier for the sick or injured employee to get the right benefits with the fewest number of problems. The worker also benefits from a clearer and more timely explanation of the claim process regardless of the affected insurance coverage. Similarly, the employer has more control over all lost-time cases since claim management emanates from a central point.

    Integrated data reporting

    State-of-the-art technology provides employers with up-to-the-minute information on disability and workers' compensation claims when they want it, right from their own PCs. This means that employers are able to carefully monitor individual claims as well as the overall performance of the integrated program, bringing additional convenience to the employer.

    The Travelers/MetLife collaboration on Synchrony was built on faith. Both companies designed and developed the program drawing on the strengths of each other. Since mid- 1998 when the program first went to market, we now have 12 customers, representing approximately 135,000 lives. Given the rapidly changing and challenging business climate, we feel confident that more companies will explore integrated disability programs. While large corporations usually lead the way in breaking from tradition, this approach also makes sense for mid-size companies as well, where striving for efficiency in all aspects of business operations is just as critical for success.

    The role of today's risk manager is expanding in many directions. And it does not matter if the risk manager is at a Fortune 500 company or is the business owner of a family-based enterprise. Integrated benefit programs are among the newest risk management tools that are being considered by companies today. A 1999 IBI survey of 800 employers of all sizes found that nearly half (45%) were interested in changing how employee benefits are delivered through integrated programs. Given the complex and changing business climate, the time may finally be right for these programs to take off in the marketplace.

  • Mary Ann Godbout is director, claim performance, commercial lines at Travelers Property Casualty.