1. WC Claim Cost Reduction Strategies for Contractors Willis Claim Practice September 12, 2013 The information in this presentation was compiled by Zurich American Insurance Company and Wilils from sources believed to be reliable for informational purposes only. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this presentation, including any information contained herein.

2. 5 Key Issues for Takeaway WC Trends indicate economy is recovering, frequency is down, severity is up, recession recovery driven severity Aging Workforce and Obesity affecting WC Industry Two factors (people) determine the WC Claim Outcome Keep Score You need to manage the medical, especially the drugs 1

3. Key Issue #1 WC Trends indicate economy is recovering, frequency is down, severity is up, recession recovery driven severity 2

4. Employment slowly recovering..Along with industry payrolls 3 Economy Recovering Significant recession impact, very slow recovery Source: Bureau of Labor Statistics

5. Frequency Down Injury and Illness Incidence Rates Cases per 100 Full-time Employees 4

6. Frequency & Severity By State : All WC Claims 5

7. Frequency and Severity Lost-Time Claims for all NCCI states Frequency: -3% per year Severity: +6% per year (7% Medical; 5% Indemnity) 6 Data developed to Ultimate; 2011 preliminary 6

8. Severity Cost per Claim Trends: Lost-Time Cost per LT claim at 12 months: Trending higher for SIC 15 (Building Construction) Roughly flat for SIC 16 (Heavy Construction) and SIC 17 (Specialty Trades) 2010 dip and 2011 bounce likely recession related Developed cost (at 60 months) is roughly 2x that for 12 months 7 7

9. Key Issue #2 Aging Workforce and Obesity affecting all WC Industry 8

10. AGING WORKFORCE Avg. age of injured workers rising, higher average WC cost with older workers 9 9

11. 10 OBESE WORKFORCE Obesity is rising in U.S.

12. 11 Obesity & Workers Compensation Duke Study Claims Per 100 FTEs Lost Work Days per 100 FTEs Truls Østbye, MD, PhD; John M. Dement, PhD & Katrina M. Krause, MA (2007). Obesity and Workers' Compensation Results From the Duke Health and Safety Surveillance System, Arch Intern Med.167:766-773. The average medical claim costs per 100 employees were $51,019 for the obese and $7,503 for the non-obese.

13. AGING AND OBESE WORKFORCE Employee selection, orientation & training A shortage of qualified workers will only increase this risk A 2013 AGC study suggests that there is a quickly developing workforce shortage issue* Macro construction economy is expanding, estimated at 5% for the next 5 years Contractors are facing staffing shortages as the work force ages Many construction workers permanently left the industry during the recession, forcing contractors to bring on inexperienced labor By 2017, there will be two million fewer workers than positions available: How are you going to get the best possible workforce? * AGC News – Worker Shortage in Construction Industry, January 2, 2013 12

14. Key Issue #3 What do you think are the two most important predictors of the outcome of a WC claim? Who matters the most in the process? 13

15. 14 What are Most Important Factors of a WC Claim: THE CLAIM The Worker -attitude -job satisfaction -integrity The Doctor -RTW mentality -Focus on worker Claim Rep Defense Counsel Supervisor Employer Nurse Union Your broker HR

16. 2 Most Important Factors How to get best Employees Background Check Drug Test Financial Background Check Integrity Testing Skills/Personality/Academic Testing Physical Capabilities Testing Training Conditioning Orientation Supervisors 15 Zurich study indicates that 25% of workforce has been on the job less than 2 years Those same workers generate 43% of WC losses

17. 2 Most Important Factors How to get best Doctors 16 Traditional  Preferred Provider Networks  Nurse Case Managers  Adjuster Feedback Advancements  Early Intervention  Outcomes Based Network

18. Connecting with the Injured Worker First Fill text 17

19. Two Most Important Factors Reduce Lag Time: Claim Intake App 18

20. Two Most Important Factors How to get the best Doctors 19 Beware of physician dispensed meds Beware of unnecessary ER Visits Over prescription of physical therapy Meet with your doctor/clinic when appropriate Invite physicians to job site when possible

21. Key Issue #4 “If you aren’t keeping score, you’re practicing.”- Vince Lombardi 20

22. Keeping Score Pitfalls of Metrics Skip Metrics Skip to Metrics Fail to align with your strategy Fail to consider impact Too many metrics Not understood by users 21

23. Keeping Score Primary and Secondary Metrics Primary Direct measurement ($) Clear correlation Normalized, developed Examples Closed LT Claim at 24 months Developed cost per $100/payroll Accident Frequency Rate 22 Secondary Indirect measurement Examples Lag Time – 24 hour contact Claim Closure Rate PPO penetration rate % of Savings from Carrier/TPA

24. Keeping Score Metrics for you Experience Modification Factor AFR: Accident Frequency Rate Cost of Closed Lost Time claim at 12, 24 months Cost of Closed Medical Only claim at 12, 24 months Average LTWD by year/per EE Developed Losses per 100 FTEs per $100 payroll. 23

25. Key Issue #5 You need to manage the medical, especially prescription drugs. 24

26. 25 Pharmacy Issues Trends with opioids National epidemic Growing concern in work comp Originally end stage cancer drugs Actiq “lollipops”= $30 42% get opioids in year 1, 16% are still on opioids in year 2. 16,000 deaths per year from opioid usage, WA had 33 deaths in one recent year Claim is 4X as likely to have a total cost over $100,000 In California, 3 % of the state’s doctors prescribe 55% of the opioids

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32. Pharmacy Issues A Growing Concern in Work Comp Source: WCRI data from Oct. 1, 2008 – Sept. 30, 2009 claims, with fills thru March 31, 2011 31

33. Pharmacy Issues The longer the use, the more the risk User trends vary widely by state Source: WCRI data from Oct. 1, 2008 – Sept. 30, 2009 claims, with fills thru March 31, 2011 32

34. Pharmacy Issues It’s not just Rx Drugs: Within the construction and mining industries, it is estimated that 1 in 7 workers has a serious alcohol problem: In addition, workers in these industries are 25% - 45% more likely to have a serious alcohol problem than the average U.S. worker 2011 Society for Human Resource Management survey found: The number of employers reporting high WC incidence rates prior to a drug-testing program decreased by approximately 50% after introducing testing Drug testing has also been found to reduce claims as much as 12%, first aid injury reports by 18%, accidents by 51% and EMRs as much as 11.4% 33

35. Come Monday…. Use metrics and determine where you are today. Are you doing better or worse? Where do you want to go? How do you get there? Your workers are getting older and weigh more. How are you going to get better workers? Get with HR and come up with plan to test and validate candidates. Train, condition your athletes. Change the way you do things. Get the best docs. Make sure your employees know how to access the docs. Know that as soon as opioids are prescribed, you have a potential problem claim. Construction industry needs to communicate. Different forms, different methods, different sources, and often. Multiplicity and duplicity is key to success. 34