retailer risk: the tipping point wednesday, april 30, 2104 ind019

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Retailer Risk: The Tipping PointWednesday, April 30, 2104

IND019Janine Kral, Nordstrom, Inc. – Moderator

Carol Murphy, Aon Risk Solutions, Inc.K. Max Koonce, Wal-Mart, Inc.David T. Smith, Family Dollar


What to Expect/Learning Objectives• Equip yourself with understanding of the key risk issues facing retailers

this year • Discover many of the latest tools, metrics and benchmarks for continuous

improvement• Calculate the potential of emerging risk analytics and tools to mitigate

volatility and protect the balance sheet


Carol Murphy

Managing DirectorAon Risk Solutions, Inc.


The Tipping Point of Risk

Growth of riskGlobal complexity Scrutiny around risk

New risk management tools


Retailer Risk Manager Brain

How am I going to get from my VT captive meeting to the trial in CA that fast?

Why is everyone talking about TRIA so much?

Why are my WC costs going up despite all the great things we’re doing

Lifetime medical reserves

Positive outlook from S&P!

Need to do broad briefing on cyber

Glad my property renewal got done early this year

Supply chain


Underwriter Brain

My management is really concerned about employee concentration stuff and terrorism risk

I wonder if those cyber losses will be paid by our GL policy?

Our property premiums are going down we need a new RMS model

I don’t want to lose this account but can’t get to their pricing target!

I need to get to know that client better so they understand why my company is better!

Their actuaries are too aggressive Those brokers!

This is our best account; is ourCompetition going to do anything crazy?


2014 Casualty Marketplace: The Great Tug of War


Market balance

Depressed interest rates

Slowing reserve releases

Rising tort costs

Depressed industry ROE

TRIPPA uncertainty

Record policyholder surplus

Market competition

Improving economy

Exposure growth

Rate Increases

Rate Decreases


Market uncertainty: Terrorism backstop (TRIPRA) Current version of federal terrorism backstop (TRIPRA) expires

12/31/2014

Casualty lines impacted: General and excess liability Workers compensation

Market focus on workers compensation due to aggregation risk

Conventional wisdom suggests TRIPRA will be renewed with greater risk borne by private sector


Market uncertainty: Terrorism backstop (TRIPRA) Uncertainty created by its expiration beginning to have implications for

renewals

Ability to re-price terrorism exposures Ability to exclude terrorism (GL/excess only) Short term workers compensation policies Market dislocation

Navigating the uncertainty: Start early Obtain best exposure data possible For risks with pricing uncertainty, negotiate terms if TRIPRA is

renewed


TRIPRA: Which direction will it go?

The Left:Pulling for continuation of public sector support

The Right:Pulling for higher

private sector share


Casualty and Cyber Liability

ISO changes in 2001 and 2004

Massive technological change over 10 to 15 years

Many new laws and regulations have been passed

Insurance industry has developed many new cyber products to address exposures

Huge focus of insurers following large recent breaches

Casualty language is catching up quickly this year


New Risk Management Tools


Era of Big Data: Aging Workforce

• Increase in number of workers 55 and over by 201636%

• Companies with formal program to retain older workers14%

• # of 55 plus workers in the labor force 32%

• Workers 51 and older satisfied with their work/life balance program27%


Research Indicates Negative Impacts on Health and Function

Obesity doubles work limitationsElevated heart rateReduced lung functionSlower reaction timeDecreased joint range

of motion

Decreased strength

Muscle mass reduced

Reduced fitness level

Lower aerobic capacity

Ageing Body fat doubles

Poor visual acuity (decreased pupil size)

Poorer auditory acuity

Slower cognitive speed and function

Obesity


What does age look like for the Retail Industry?

2012 Industry Ageing Statistics% of

Employees > 45

Median age

Wholesale and retail trade 39% 39.3

Wholesale trade 47% 43.8

Retail trade 38% 37.9

Source: 2013 Bureau of Labor Statistics, Current Population Survey (CPS).

“In 2013 a Gallup poll revealed 37% of todays workers feel they will retire “after” age 65 vs 22% just 10 years ago”


What does the Data tell us: Retail Summary Results

Age Stratification < 25 years 25 to 35 35 to 45 45 to 55 55 to 60 > 60 yearsClaims Frequency (% Claim Count (#)) 17.00% 22.30% 19.00% 22.40% 7.90% 7.80%Claims Severity (Average Incurred ($)) $1,968 $3,972 $7,473 $8,384 $6,986 $7,999

Under 45 Years Over 45 YearsAverage

GapMaximum

GapMinimum

Gap% of WC Claims with Temporary Total Disability (TTD) Payments 13.50% 19.40% 5.90% 10.80% 1.60%Averarge TTD days per TTD claim 88 108 20 51 -5Average Value of Indemnity Paid Claim with > than 7 days of TTD $22,098 $27,038 $4,940 $9,370 $681Medical Only to Indemnity Claim Conversion Rate 12.30% 18.00% 5.80% 9.20% 1.80%Claim Closure Rate 75.90% 65.40% 10.50% 21.40% 1.30%Ratio of Paid Medical to Total Paid 56.30% 56.00% 0.40% 6.70% -8.00%% of Litigated Claims 4.20% 5.60% 1.40% 5.10% -0.90%

Average of Client ActualsSpread of Imbalance

[> 45 years "exceeding" < 45 years]

Aon Risk Solutions Proprietary and Confidential Laser Research; we have reviewed more than $3B in WC Values since 2011.


The Impact of Aging on Workers’ Compensation Costs

Key Cost Drivers on Claims

• Percentage of WC claims with Temporary Total Disability (TTD) payments>5 %

• Average TTD days per TTD claim>13 days

• Average value of indemnity paid claim with greater than 7 days of TTD>70%

• Medical only to Indemnity claim conversion rate (for all claims)>4 %

• Claim Closure Rate (within the most recent 12 months)<7 %

• Percentage of Litigated claims>2 %

“Laser results indicate the average cost of claimsfor the 45 to 55 age group is 52% higher than the25 to 35 age group”


What Can Employers Do?The Challenges of our changing workforce has spawned a new way of thinking about

our workplaces among healthcare and safety professionals

“Ageonomics” and leveraging data to create “Prescriptive Wellness Solutions” are the latest trends in the application of Ergonomic principles in the workplace


Integrating Confidence Levels and Financial KPI’s Will Provide a Greater Understanding of Volatility in Go-Forward Program Design

Establishes appetite levels for enterprise risks and tolerance levels for insurable risks which are linked to corporate performance objectives and volatility thresholds

Generates a thorough understanding of current insurance exposures, individually and/or in portfolio

2. Dynamic RiskModeling

3. Design & ProgramStress Testing(including funding)

Provides a cost/benefit comparison of various risk management strategies including captive and alternative risk strategies

1. Risk Appetite Analysis

Understand Expected Losses

Understand Tradeoffs between Mitigation Tools

Enterprise View of Risk and its Financial Contribution

Risk

Appetite

Dynamic Risk Modeling

Design & Program

StressTesting

Capital Deployment Efficiency

Aon Risk Solutions | Global Risk Consulting | Proprietary & Confidential

Understanding Impact of Volatility


Risk Financing Decision PlatformIdentifying the Efficient Frontier

$20

$25

$30

$35

$40

$45

$50

60% 65% 70% 75% 80% 85% 90% 95% 100%

X-Axis: Conf idence Level

Unlimited Current Alternative Risk Tolerance

Y-Axis: Total Cost of Risk ($ in millions)

Events Frequency (Events/Years)

1/10 1/20 1/1001/5

Program Expected TCOR Risk Appetite TVaR at

(Premium + Loss) Breach Point 95%

Unlimited $22.8 million 86% $39.1 million

Current $26.1 million 78% $32.2 million

Alternative $23.4 million 87% $33.9 million

Aon Risk Solutions | Global Risk Consulting | Proprietary & Confidential


K. Max Koonce

Sr. Director Risk ManagementWalmart Stores, Inc.


Walmart Stores, Inc. is comprised of:Walmart U.S. (approx. 1,400,000 associates)

• 4,005 Walmart Retail Stores• 602 Sam’s Clubs• 142 Distribution Centers

Walmart International (approx. 800,000 associates)• 6,148 Retail Units• 27 Countries


Wor

kers

’ Com

pens

ation

• Self-insurance – 13 states

• High deductible insurance coverage – 36 states

• Administration through wholly owned subsidiary TPA – 35 states

• Administration through outside TPA – 14 states

Walmart’s property and casualty program utilizes the following structure:

Gen

eral

Lia

bilit

y

• Self-insurance – all states

• Administration through wholly owned subsidiary TPA – 49 states

• Administration through outside TPA – 1 state


The Walmart Property & Casualty Focus:

• Receive prompt and appropriate medical care that is focused on their recovery and return to gainful employment;

• Receive prompt and appropriate disability benefits;• Compliance.

Workers’ Compensation ensure associates that suffer work injuries:

• Addressed promptly and appropriately while recognizing the importance of our customers in the retail environment;

• Compliance.

General Liability Program ensure all customers claims are:


Opioids are continuing to present challenges in workers’ compensation injuries.

The use of opioid medications, particularly long-acting opioid medications, is an independent risk factor for the development of catastrophic claims. (Michigan WC Study published in J Occup Environ Med, 2012 Aug.)

Too often, opioid use results in extended disability and additional medical concerns for claimants.


Will the Affordable Care Act impact workers’ compensation?

The combination of guaranteed issue and individual mandates thatbecome effective in 2014 with expanded Medicare eligibility isexpected to facilitate coverage for an additional 30 million lives. NCCI Annual Issues Symposium 2013.

Impact on access to Medical ProvidersCost Shifting

• Charges / Utilization• Claims filed as WC because 100% coverage

Impact on co-morbiditiesImpact from Employers moving employees to Part Time Status:

• Safety / Training?• Injury increase?


How do we manage the total person, “Biopsychosocial”?

“Must meet the reasonable needs of the whole person in the context of their life predicaments in order to address healing from the injury and resolve the situation.”

Study at the University of Montreal published in Work 2013: 44(2): 117-32, stated the following, “The results show the importance of addressing chronic work disability in research and rehabilitation from a multidimensional perspective although psychosocial variables were the most significant predictors…”

Co-morbidities

Social Constraints

Economy


What does it take to ensure quality decision making?

Predictive Modeling

We are really helping people avoid poor outcomes, which materially affect the quality of their lives,” said George Neale, Boston-based executive vp and general claims manager for Liberty Mutual Group Inc. “And that's the real benefit of this modeling from a responsibility standpoint.”

Seattle-based SeaBright Insurance Co. uses a similar predictive model, called CATT, as part of its BrightCure PDQ program for complex workers comp claims. Richard Seelinger, senior vp of policyholder services for SeaBright, said the model, created in 2008, is used to identify difficult claims and assign peer-to-peer counseling for physicians who treat those injured workers.

Sources agree that predictive models can't replace experienced claims handlers who can interpret workers comp cases. Still, they believe it's an effective tool to lighten the workload of busy claims adjusters, as well as to provide additional assistance for less experienced staff.

Business Insurance, April 8, 2014 – Predictive Modeling flags potentially costly workers’ compensation claims.

• How do you determine when a claim is off track?

• How do you ensure appropriate and timely allocation of resources?


Legacy claims will continue to be challenging to resolve and determine exposure.

Medical Uncertainty, Prescription Over Utilization, etc….?

What does the future look like in comparison to what you know today?


What solutions can be provided from a legislative perspective?

NCCI projects an immediate impact on overall benefits cost of 12.9% reduction due to 2013 OK Workers’ Compensation Reform (SB 1062)

WCRIB estimated impact of California SB 863 (2012) = 6.2% rate decrease. Current projections = ?

What drives the difference in impact:

Reactive - Is it simply focusing on fixing specific gaps and issues.

Proactive - Complete reform beginning at what is and should be covered by a Workers’ Compensation Act?

Alternatives to the Workers Compensation Act.


David T. Smith

Divisional Vice President Family Dollar Risk Management


Roundtable Discussion

Implications of the ACA

WC Non-Subscription

• Emerging Issues

Workplace Violence/Crisis Management

Captive Utilization

Collateral – Alternatives

Fraud


• 55 year anniversary• Fortune 300 company • 8,100+ stores

– “Small Box”– One new store every 17 hours– 1 to 3 team members staff the stores– 1 billion customers per year

• 11 distribution centers• 46 states• 60,000 team members• Annual sales in excess of $10 billion

Family Dollar Stores, Inc. Corporate OverviewCharlotte, NC based stores offering quality merchandise at everyday low prices,

in easy-to-shop neighborhood locations


Casualty Claims Profile

Annually

8,400 workers’ compensation incidents

• 1,400 pending

• 10,800 general liability incidents

• 1,250 pending

Most expensive claims paid in the past 11 years

• 2003 WC claim: $3.2 million

• $2 million in pharmacy

2007 GL Claim: $1.75 million• Slip & Fall

o Eggshell Claimant

o Spoliation of Evidence

Annual developed loss pick

• ~$80 million


Implications of the ACA

Consumer AwarenessMSA’sMedicareMedical EBay/PricelineIntegration with BenefitsSubrogation


Alternatives to Workers’ Compensation

Emerging IssuesNon- SubscriptionTexas, OklahomaAdditional Jurisdictions

• Employer CoalitionExcess Coverage

• Carrier ConcernsImproved Work Injury Medical Care for Employees


Workplace Violence/Crisis Management

FBI National StatisticsOne robbery every

54 secondsAverage cost = over $19,200

National Retail Industry StatisticsOne Commercial Robbery Every 4

Minutes

Every Day, An Estimated:16,400 threats are made723 workers are attacked43,800 workers are harassed

Workers’ Compensation claims related to workplace violence, have the second highest cost per claim, behind motor vehicle accidents

Retail RiskStores are accessible and inviting

• Personnel• Customers• Brand

Response & the cost of inaction

Workplace Violence/Crisis Management SolutionsCrisis Intervention ProgramProgram ROI


Captive Utilization

Traditional• Casualty• Property• Executive Risk

o EPLIo Cyber

• Warranty

Benefits• STD/LTD• Health• Life

Collateral Alternatives

Creative Risk• Difficult Coverage Alternatives• Internal Business Alternatives• MSA’s


Questions, Final Comments and Contact Information


Janine Kral As vice president of risk management for Nordstrom, Inc., Janine Kral is responsible for all aspects of risk; assessment, mitigation and management. She oversees all litigation and claims for the company, insurance procurement, risk control/safety and business continuity planning. The risk management department is comprised of 69 individuals who provide direct risk management support to all Nordstrom locations. Janine started at Nordstrom as a regional risk manager in 1987. Prior to joining Nordstrom she was a Claims Manager at Epic Insurance Services and Liberty Mutual Insurance. Janine received a degree in Communications and Psychology from the University of Washington and has an Associate in Risk Management (ARM) designation. She is on the Board of Directors for the Workers Compensation Research Institute (WCRI) and is member of Risk Insurance Management Society (RIMS). She is a 25 year volunteer with the juvenile court system in Seattle, Washington.


Carol L. MurphyCarol Murphy is the U.S. Casualty Sales Leader and Leader of Aon’s Loss Portfolio Transactions Practice. She is the Broking lead for our Laser risk diagnostic platform and the Casualty leader to our Retail and Food and Agricultural client industry practices as well as serving on our Casualty Broking Executive Committee.

She started her career with Travelers and Johnson & Higgins before joining Aon. Aon roles included Chicago Casualty Practice Leader (1996), Managing Director and Strategic Account Manager (1997) and Executive Vice President, ARS California (1999). Carol assumed leadership of Aon Broking’s Central Region casualty team in 2007 and grew the business to an industry-leading market share in the largest client segment. She has developed a national reputation as a leading innovator in the casualty risk discipline and for exceptional advocacy of Aon’s largest and most complex clients. She serves several customers as broker and was on the team that invented Aon’s patent-pending Laser diagnostic tool.

Carol earned her BA in Economics at Bates College and MBA at the University of Chicago. She has chaired Aon’s Women’s International Network globally and has been recognized as a top “Power Broker” by Risk & Insurance for six years and as a “Responsibility Leader” in 2012. Ms. Murphy has also been honored as a “Woman to Watch” by Business Insurance, a “Woman Worth Watching” by Diversity Journal and one of the “Top 50 Women in Insurance” by Reactions in December, 2013.


K. Max Koonce K. Max Koonce is the Senior Director of Risk Management for Wal-Mart Stores, Inc. Mr. Koonce received a B.B.A. degree in Economics from Harding University and a J.D. degree from the University of Arkansas at Little Rock School of Law.

As an attorney, Mr. Koonce practiced primarily in the area of insurance defense and employment matters. He has served as an Administrative Law Judge with the Arkansas Workers’ Compensation Commission. Mr. Koonce has also served as a Justice on the Arkansas Court of Appeals.

Mr. Koonce is licensed to practice law in the State of Arkansas and is a member of the Arkansas and American Bar Associations. Mr. Koonce is also a Board Member of Circle of Life Hospice, Board Member of the Northwest Arkansas Medical Centers, Member of the National Association of Social Insurance, Executive Board Member of the National Council of Self-Insured Employers, and Board Member of UWC (National Workers’ Compensation and Unemployment Organization). Mr. Koonce is a former Board Member of the Arkansas Self Insurance Association, the West Virginia Self Insurance Association, Past President of the National Council of Self-Insured Employers, and former Board Member of A+ Charter School.


David Smith Mr. Smith, with an MS from Syracuse University and more than 30 years of diverse experience in the insurance sector, is Divisional Vice President – Risk Management for Charlotte, NC based Family Dollar Stores, and President of Family Dollar Insurance, Inc. Family Dollar is a Fortune 300 company with more than 60,000 employees, more than 8,000 stores and annual revenues in excess of $10.5 billion.

Mr. Smith has served as Vice President and Board Member for the Carolina’s Risk and Insurance Management Society (RIMS), has served as Workplace Task Force Co-Chair & Executive Committee Member – National Action Alliance for Suicide Prevention, under Secretary of Health and Human Services, Kathleen Sebelius, and Secretary of the Army, John McHugh.

Smith is currently serving on the Board of Directors for the South Carolina Captive Insurance Association (SCCIA).

Mr. Smith has been featured in Risk & Insurance, published in Claims Management magazine and has spoken on various Risk Management, Disability Management, Crisis Response, Business Continuity, Disaster Response, Workplace Violence, Litigation Management, ERM, Fraud, Pharmaceutical Abuse before multiple professional organizations, including the American Bar Association and the Risk and Insurance Management Society (RIMS). For his work in the development of successful post traumatic response to workplace violence and acceleration of return to work, Mr. Smith received Risk & Insurance Management Magazine’s Risk Innovator of the Year award and Liberty Mutual’s Responsibility Leader Award.


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retailer risk: the tipping point wednesday, april 30, 2104 ind019

Documents

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greater risk

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private sector page

yearsupply chain page

balance sheet page

key risk issues

great tug of war page