Title: Integrated Benefits/Absence Management Operational Risk Management and Measurement from the Buyer
1Integrated Benefits/Absence ManagementOperational
Risk Management and Measurement from the Buyers
Perspective
- CAS/SOA Enterprise Risk Management Symposium
- July 30, 2003
- Washington, D.C
- Claus S. Metzner, FSA, FCAS, MAAA, Aktuar-SAV
- EPIC Actuaries, LLC
2Risk Management/Measurement
- Base Line
- Define and Measure the total cost of unplanned
absences Base Line - Direct benefit cost (retained by employer)
- Cost of replacement workers/additional staff
- Productivity cost
- Insurance cost
- Regulatory costs (OSHA)
- Legal costs
3Risk Management/Measurement
- Develop the Risk Tolerance Function
- What level of unplanned absence cost is
acceptable - Function of revenue
- Function of earnings
- Function of capital
- Function of payroll
- If current cost is not within acceptable range,
what improvement is necessary - Benchmarking is relevant
4Risk Management/Measurement
- Project Cost into the Future
- Base Line no change in current practices
- Alternatives change method of benefit delivery
integrate various delivery systems - Develop appropriate metrics
- What are the expectations for reductions in the
frequency/severity of unplanned absences - What are the implications on productivity
- What are the expected insurance cost savings
relative to the base line
5Risk Management/Measurement
- ROI
- Assess ROI on the basis of
- Marginal Cost of implementing an Integrated
Absence Management Program - Marginal Reduction of Direct and Indirect Costs
of Unplanned Absences - Alternative Risk Financing Programs (captives,
self insurance, higher Self Insured Retentions)
may lead to additional cost saving
6Risk Management/Measurement
- Monitoring
- Develop metrics to differentiate normal
statistical fluctuation from real change
relative to the baseline - Frequency may be a better measure than severity
- Severity should be by type of absence
7Role of Demographic Analysis
- Previous discussion focused on a macro oriented
review - Consider what do we know regarding employees
to refine the analysis - Employers may not be collecting all the data or
may not know, yet, how powerful their data base is
8Role of Demographic Analysis
- Comparisons/Benchmarking
- With other companies
- Over time within a company
- Between locations/business units within a company
- Comparisons shed light on potential competitive
advantage from optimizing costs of absences
9Role of Demographic Analysis
- Sources of information
- Insurance costs (may be retained by company)
- Short term disability
- Medical costs (including group health)
- Long term disability
- Workers Compensation
- The above provide a framework
10Role of Demographic Analysis
- Need to normalize the data to a comparable
distribution for each entity for which a
benchmarking is undertaken - Age
- Gender
- Type of employment
- Geographic cost differences
- Etc.
11Role of Demographic Analysis
- Need to work from individual employee
characteristics to a portfolio of employees - Obtain claim data per employee
- Employment/payroll records
- Medical claims
- Wellness and disease management information
- Workers compensation claims
- Short term disability claims
- Other unplanned absences
- Maintain appropriate mechanisms to assure privacy
is maintained
12Role of Demographic Analysis
- Obtain census data
- Age
- Sex
- Marital status
- Children in household
- Location
- Consider other data
- Insurance credit score may be relevant
13Role of Demographic Analysis
- Use Multi-Variate Analysis
- Develop a score for potential risk/risk profile
(similar to Auto Liability) - Statistical relevancy is the key
- Score measures relative frequency/severity
- Focus on employees exhibiting high scores
- Develop targeted absence management programs
- Use the individual scores to develop a company
wide average score for monitoring - Changes in score can be used to disaggregate
changes in cost between changes in score
(internal) versus changes in external costs
14Summary
- Integrated Benefits/Absence Management Is an
Operational Risk Management Issue - Historical Silo view is not optimal for
assessing overall costs/benefits - Can optimize the expenditure if we take an
integrated view - ROI Analysis is needed
- Framework as for other investment decisions
- Detailed Demographic Analysis is Necessary to
Obtain Relevant Insights - Multi-Variate Analysis is the key
- Can view this as a data mining exercise