Archive for October, 2008

Cavalcade of Risk and other news

Thursday, October 9th, 2008

Check out Cavalcade of Risk #62 at Wenchypoo – the Wall Street Wipeout Edition!
The financial crisis and workers comp – According to a recent broker survey by Advisen, more than 75% of the respondents were confident or very confident about AIG’s financial security. Meanwhile, some preliminary news is starting to filter out about the effects of the market meltdown on workers comp. The Montana State Fund is down by about $26 million – the first of many such reports we are likely to hear. West Virginia is considering suing Wall St. firms due to losses in investments for public employee pension funds, workers comp, and other benefit programs. The meltdown is global. In Australia, WorkSafe Victoria reports a $600 million drop in the value of its investments.
New Jersey comp reform – Governor Jon Corzine just signed five bills to strengthen and reform New Jersey’s workers compensation system. The measures were taken to in response to an investigative series in the Star-Ledger last spring revealing a series of weaknesses and holes in the system which left injured workers facing lengthy delays for benefits and medial treatment. The new measures expedite hearings involving medical issues; mandate employer proof of workers compensation coverage and increases penalties for employers who fail to have coverage; increase the power of workers comp judges; and broaden public representation on the governing board of the Compensation Rating and Inspection Bureau.
Carrier preference surveyInsurance Journal recent conducted a survey of 1,600+ independent agents which offers a window on agent attitudes to the carriers they work with. Unsurprisingly, pricing is the the leading factor that influences most agents (63%) to select a new market over their preferred market. This is followed by coverage (55%), customer need or request (53%), or underwriting restrictions (51%). When asked why they avoid carriers, agents cited three issues: poor service, muddled carrier organization and erratic underwriting.

The AIG Saga: Joe Cassano’s Performance-Based Compensation

Wednesday, October 8th, 2008

One of the many fascinating sidebars in the decline and fall of the AIG empire is the saga of Joe Cassano. He was the genius behind AIG’s Financial Products Unit, which insured high risk sub-prime mortgage deals. In other words, he is the man most responsible for AIG’s abrupt demise. Perhaps you are wondering how much money Cassano made in the course of destroying AIG. Beyond that, I am sure you are concerned that Cassano may now be struggling, like the rest of us, to make ends meet. Well, this is at least one problem that you can take off your worry list.
Cassano raked in $280 million over an eight year period beginning in 2000. That’s an average of $35 million a year – pretty good even by professional athlete standards. Keep in mind that his salary and bonus were based on the scale of business generated by his virtually unmonitored unit. Cassano and his colleagues siphoned off 30 percent of every dollar generated in his (non insurance) division. The more they wrote, the more they made. And because AIG was so well collateralized, the company did not have to back up the risks with outside capital. Sweet. Like stealing candy from a blind man, right?
OK, it kind of fell apart once the nature of the risk became public. By February 29 of this year, losses in the Financial Products Unit reached $11 billion. Cassano was fired (appropriately enough on Leap Day). That’s the fate you would expect for a man who almost single-handedly brought down the largest insurance company in the world. Of course, he was allowed to keep his bonuses, which totalled $35 million. A man’s gotta live.
Free Market Run Amok
Congress has been interviewing former AIG executives. These former “masters of the universe” sound, well, both stupid and greedy. Former CEO Marty Sullivan was grilled by lawmakers for urging a compensation committee meeting in March (just weeks after Cassano was fired) to exclude losses from AIG’s Financial Products unit when calculating bonuses.
Accused of helping himself to more compensation, Sullivan said he did it to retain key executives. “I was focusing on them more than me.” What a guy. Sullivan himself was unretained shortly after this board meeting.
Would you be surprised to learn that Cassano is still on retainer as a consultant to AIG? His fee is his usual and customary $1 million a month. Why is he on retainer? Sullivan explained to Congress: “I wanted to retain the 20-year knowledge that Mr. Cassano had.” Gee, Marty, the guy lost $11 billion. How did you come up with a pricetag for that kind of expertise?
The Shank from a Tanked Hank
Hank Greenberg was too ill to testify directly in Congress; heck, if you lost $6 billion over one weekend, you might feel a little under the weather, too. He submitted written testimony denying any knowledge of Cassano’s risky actions. After detailing how he built up A.I.G. since the late 1960s and saying he placed tough controls on its derivatives business, Mr. Greenberg said the volume of A.I.G.’s credit default insurance business “exploded after I left the company in March 2005.”
Hank asserted that the company wrote as many credit default swaps on collateralized debt obligations in the nine months following his departure as it did in the preceding seven years. Maybe so. That might mean that just half the losses associated with this particular unit of AIG – $5.5 billion – occurred under his watch. Interesting enough, that is roughly the amount Hank lost when the stock tanked. Poetic justice, perhaps, of a very crude sort.
The most stinging assessment of AIG’s demise came from Lynn Turner, the former chief accountant at the SEC. When the hapless Robert Willumstad, yet another short-term AIG CEO, blamed the problems on financial discosure laws, Turner replied: “That’s like blaming the thermometer, folks, for a fever.” Touche. And good riddance.

Safety@Work Creative Awards 2008

Tuesday, October 7th, 2008

Creative work safety contests are somewhat rare but they can be a great way to get kids and young people thinking about workplace safety early. We were happy to see that this year’s winners in the Safety@Work Creative Awards for digital animation and poster design were recently announced.
Safety@Work Creative Awards is sponsored by the Workplace Safety and Health Council and Singapore Technologies Engineering Ltd in collaboration with Ministry of Manpower. The awards are designed to showcases local students’ creative talents in advocating the importance of safety at the workplace. The competition was open to all full-time students enrolled in tertiary institutes in Singapore, including ITEs, polytechnics, universities, as well as art academies, colleges and institutes. This year, there was a specific focus on fall prevention, which students could interpret as falls from heights or falling objects.
Here are the winning safety posters for 2008. They are very clever, and available for downloading. And be sure to scroll down the page to see winners from past years.
Here are the video clips of animation winners:
Gold – Life is Short
Silver – Falling bricks
Bronze – The Cleaner
Judge’s Choice Award – Safety harness
Here are a few winners from last year:
Take the lead – first prize
How do you protect yourself? – second prize
Take the lead – Third prize
It’s your safety – commendation
Dance – take the lead – commendation
Baa – commendation

Lollypops for Pain

Monday, October 6th, 2008

We have been following the market trajectory of Actiq, the lollypop for pain manufactured by Cephalon. Actiq contains fentanyl, a highly addictive substance about 80 times more potent than morphine. It provides relief within 15 minutes. The drug, intended for breakthrough cancer pain, costs about $2,400 for a month’s supply.
Cephalon bought the small company that developed the drug in 2000; annual sales of Actiq prior to the purchase were just $15 million – a limited market share dictated by the narrow target audience. By 2005 Cephalon had pushed sales to $500 million. That’s a lot of lollypops and, you might think, a lot help for cancer patients. Not so. Fewer than 20 percent of the patients receiving the drug have cancer. Actiq’s meteoric rise was fueled by off label prescriptions, most often involving doctors treating transient pain. (As many as 90 percent of prescriptions were off label.)
Back in 2006 John Carreyou wrote in the Wall Street Journal (subscription required) that Cephalon sales reps fanned out to visit all kinds of doctors, few of whom specialized in cancer patients. Doctors reported hundreds of visits from sales reps, who gave the doctors coupons for free trial doses. Nothing like freebies to stimulate sales.
Cephalon is supposed to self-monitor the off label use of its drugs. When they receive a report of a doctor prescribing the drug for non-cancer purposes, the company is supposed to send a (strongly worded?) letter to that doctor reminding him or her that Actiq is only for cancer pain. The company sent out more than 3,300 such letters. I would love to read one: a pharma company making the case against its own product…We can assume that the letters were rarely read and even more rarely effective.
Cancer and Comp?
Through aggressive marketing, Actiq worked its way into the workers comp system (where cancer is is almost never compensable). Lollypops for pain became a major player in comp pharma: NCCI reports that by 2006 Actiq ranked number 11 in frequency of prescription and number 4 in total cost. These are astounding numbers, given that virtually every prescription was off-label.
Cephalon describes itself as “a global biopharmaceutical company driven to expand the boundaries of science to improve human health.” It appears they confused expanding the boundaries of science with those of sales. The company states that they are “Driven by why.” Actually, they are driven by “why not?” Why not expand market share ten fold? Why not put this powerful drug in the hands of people with transient pain?
Well, here’s one reason why not: Cephalon recently agreed to pay a whopping $437 million to settle a bunch of federal and state claims. Our colleague Joe Paduda reports that they are also going to reveal the names of doctors they have paid to promote the drug. Insurers and PBMs take note: The list will be a compelling read.
So Long, Sucker!
Lollypops date from about 1784, but initially referred to soft, rather than hard candy. The term may have derived from the term “lolly” (tongue) and “pop” (slap). The first references to the lollypop in its modern context date to the 1920s. This latest incarnation of a “tongue slap” is a long way from a little sugar high. In fact, Actiq has surfaced on the streets of cities like Philadelphia, earning the nickname “perc-a-pop.”
Oh well, look on the bright side. It’s relatively hygienic: you can get stoned without sharing a needle and nobody wants to share a lollypop. Yuck!

Health Wonk Review – hot off the presses

Thursday, October 2nd, 2008

Jason Shafrin at Healthcare Economist offers 700 million reasons to read Health Wonk Review this week. From Wall Street to the election, health care policy issues grow more and more interesting – and imperative. Health Wonk Review offers analysis from some of the industry’s smartest thinkers and policy wonks, culling out some of the choicest bits from the last two weeks for those of you who don’t have time to follow these issues on a day-to-day basis.

Eight steps to controlling workers’ compensation costs in your company – part 3

Wednesday, October 1st, 2008

This is part 3 in a 3-part series. Click here for part 1 and part 2.
Step 6 – Establish a partnership with your claim service provider
The role of the insurer or third party administrator (TPA) is not to solve your workers’ compensation problem. That is something you do together. The insurer or TPA administers and manages your company’s claims according to relevant law and brings a diverse array of claims-related services to the table, including utilization reviews, intensive case management for catastrophic injuries and investigation of dubious claims. Your goal should be to develop a close working partnership. On your side, you need to report claims immediately and establish good documentation to serve as the basis for the insurer’s work.
Together, you and your insurer or TPA should maintain a steady and consistent focus on every open claim. Use all the tools and resources available to return your injured workers to the job; where this is not possible, work diligently to reach agreement on the appropriate way to reach closure on the case.
Step 7 – Measure and track results
You know the drill – what you measure becomes important.
Be sure to establish clear objectives for what you want to accomplish and communicate them in concrete terms.
Here are three simple, but effective, ways to measure performance. These are measurements that senior management can readily understand and track on a monthly basis.
First, measure the total costs of losses per full-time-equivalent (FTE) employee. Doing so factors out both overtime and part time employment.
Second, measure the cost of losses per hundred dollars of payroll.
Third, measure days lost due to injury per every 200,000 hours worked (equivalent to one hundred employees working 2,000 hours per year). This is the OSHA Severity Rate and is an excellent way to measure lost time.
With this data in hand, ask your insurance broker or carrier what the averages are for these metrics in your industry. They should be able to tell you. Then, benchmark yourself against your industry and yourself.
Track results and report them just as you would track and report production or quality objectives. Moreover, discuss the results with employees. If senior management pays consistent attention to the organization’s loss reduction performance, everyone else will, too.
Another measurement factor focuses on accountability: make support of your injury management system an ongoing part of performance reviews for management and supervisory staff. Not doing this sends a subtle message – safety and injury management are really not that important at your company.
Step 8 – Define and communicate responsibilities
In a well-coordinated injury management system, everyone knows his or her proper role and responsibilities. Each person must understand how to respond. Injured workers must notify supervisors immediately of any injury. Supervisors must respond in a caring manner and make sure that workers who sustain injuries are escorted quickly from the work site to the right medical provider. Supervisors also are charged with analyzing accidents and taking steps to ensure they don’t happen again. Supervisors should thoroughly document accidents and injuries with the assistance of injured workers. And senior management should follow through by making sure that corrective action identified actually does occur.
It is a truism of business that well-defined responsibilities go a long way toward assuring that objectives are met or exceeded. Workers’ compensation cost control is no different.
Conclusion
Workers’ compensation is not an insurance problem. It is a management problem. Employers committed to taking control can reduce costs significantly. At the same time, their companies will benefit from improved morale and productivity. Like so many of life’s thorny issues, workers’ compensation can be managed if you only have the will to do it.