1. Chargeback Program Design
The Carrot or the Stick

2. Chargeback Program Design
MELISSA DUNN
VP & Managing Director
Helmsman Management Services
RICHARD FRESE
Principal and Consulting Actuary
Milliman
TOM FULLER
Manager, Risk Management Consulting
Liberty Mutual Insurance

3. Issues to consider when designing/revising a cost allocation system
Objective
Issues to consider when designing/revising a cost allocation system
Case Studies

4. Current System What are currently doing to allocate costs?
What’s working well?
What’s not working well?
Desired improvements?

5. Motivate positive behavior
Cost Allocation Goals
Accounting accuracy
Motivate behavior
Motivate positive behavior
Reduce accidents
Minimize costs after accidents
(to reduce cost)

6. COST ALLOCATION ATTRIBUTES
SIMPLE
COST ALLOCATION ATTRIBUTES
TIMELY
EQUITABLE

7. Can I design the perfect chargeback system for my company?
Perfect System?
False
Always tradeoffs
Can I design the perfect chargeback system for my company?

8. Initial Decisions Who should be involved? Competing interests?
Stakeholder concerns/priorities/perspectives?

9. Initial Decisions What cost components? How often to allocate?
To what level will allocate?
Prospective or retrospective?

10. Initial Decisions Need to completely allocate costs?
Need to smooth results?
Reward productive behavior?

11. COST ALLOCATION STRUCTURE
EXPOSURE
CLAIM COUNTS
INCURRED LOSS
PAID LOSS
ULTIMATE LOSS
COST ALLOCATION STRUCTURE

12. Cost Allocation Structure
EXPOSURE
CLAIM COUNTS
INCURRED LOSS
PAID LOSS
ULTIMATE LOSS
COST ALLOCATION STRUCTURE
Mix of claims and loss?
Target specific behavior?
Prompt claim reporting credit?
Charge per TTD day?
Target specific injuries?
TTD = Temporary Total Disability

13. Cost Allocation Issues
Motivates desired behavior?

14. Unique Situations & Challenges
Divesting/acquiring business units
Lack of historical experience
Change in risk profile
New Management

15. Advanced Considerations
More complex designs
Predictive analytics

16. COST ALLOCATION PROCESS
MONITOR
Continue to assess needs and objectives
Revise system as necessary
Produce management / allocation reports
Continue to obtain feedback and “buy-in”
SET OBJECTIVES
Identify needs and objectives
Evaluate current allocation system
Obtain “buy-in” from corporate stakeholders
IMPLEMENT
Test system
Provide any necessary training
Develop management information reports
Design allocation reports
DESIGN
Identify potential constraints
Develop alternative designs
Evaluate alternatives
Select “best” system

17. Case Studies

18. Q A
&
Melissa

19. Contact Information
MELISSA DUNN
VP & Managing Director
Helmsman Management Services
RICHARD FRESE
Principal and Consulting Actuary
Milliman
TOM FULLER
Manager, Risk Management Consulting
Liberty Mutual Insurance