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Office of Risk Management
Internal Operational Assessment
Project Charter Discussion and General Project
Status
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March 2002
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Agenda

• Team Introductions
• Project Charter
• Case for Action
• LLA Investigative Audits
• Cut the Fat Report
• Office of Inspector General
• Strategic Vision
• Critical Success Factors
• ORM Strategic Plan

• Project Status
• Technology
• Accounting
• Internal Controls
• Funding / Premium Development
• Loss Prevention
• Organizational Analysis
• Claims Management

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METHODS Project Team

• DEBRA LAZARE
• GARY LEE
• ANDRE COMEAUX
• JOHN LANDRY
• JOHN MILES
• PETER ROUSMANIERE
• KESHIA THOMAS
• RICHARD THOMPSON

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Integrated Project Team (as of 02/05/02)

• Kerry Dubea
• Karen Jackson
• Penny Buchanan
• Terry Grimball
• Richard Hollowell
• Sandra Porter
• Henry Rayborn
• Cindy Roman
• Jack Travis
• Greg Lindsay

• Angele Davis
• Whit Kling
• Patricia Reed
• Doris Copeland
• Terrence Ginn
• Ann Wax
• Bob Rachal
• Melissa Harris
• Pam Whiteside

• Debra G. Lazare
• Gary Lee
• Andre Comeaux
• John Landry
• Benedict Lazare
• John Miles
• Peter Rousmaniere
• Keshia Thomas
• Richard Thompson

ex officio members
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Defining the Project Charter
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ORM Case For Action

• External Perceptions
• Negative Audit Findings
• Tighter Budgets
• Decreasing Staffing Levels
• Increasing Levels of Expectation
• Increasing Risk Exposure
• Window of opportunity / doorway to the future

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ORM Case For Action

• Investigative Audit Findings
• Internal Fraud
• Procedural Controls
• Internal Audit Function
• Workers Compensation Claims / Reserving
• Staff Training

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ORM Case For Action

• Office of Inspector General Findings
• Vendor Contracts
• Over-billings

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ORM Case For Action

• Cut the Fat Report
• Technology
• Return to Work Program
• Staffing

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ORM Case For Action

• Recommendations

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ORM Strategic Vision

• Current Vision
• To provide innovative and creative
  leadership focused on outcomes and improvements
  that promote a new image of the Office of Risk
  Management.
• Does this articulate a realistic and credible
  view of a possible and desirable future for ORM?

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ORM Strategic Mission

• Current Mission
• is to develop, direct, achieve and
  administer a cost-effective comprehensive risk
  management program for all agencies, boards and
  commissions of the State of Louisiana and for any
  other entity for which the state has an equity
  interest, in order to preserve and protect the
  assets of the State of Louisiana.
• Does this define who you are, what you do and
  where you are headed?

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ORM Strategic Philosophy

• Current Philosophy
• is to assist in attaining the goals of the
  Administration by developing a professional,
  productive and dedicated staff which will produce
  a strong, effective and efficient risk management
  program that is sensitive to the needs of its
  client-user agencies.
• Does this represent the mental image held by the
  majority of ORM staff members?

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ORM Strategic Charter

• Recommendations
• Determine connection to vision, mission and
  philosophy.
• Discuss agreements and differences.
• Refine to align with today and desired future.

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ORM Critical Success Factors per Strategic Plan

• Indicator Documentation Sheet
• Indicator name
• Indicator type
• Rationale
• Data collection
• Frequency and Timing
• Calculation Methodology
• Definitions
• Aggregations
• Responsibility
• Limitations
• How Indicator is Used
• Action Plan

• Goals
• Objectives
• Strategies
• Performance Indicator Matrix
• Input
• Output
• Outcome
• Efficiency
• Quality
• Principal Clients Users
• Identification of External
• Factors

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ORM Critical Success Factors

• Recommendations
• Conduct review of existing plan with all staff.
• Obtain and incorporate comments.
• Live the Plan!

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General Project Status
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Areas of Emphasis

• Internal Controls
• Safety / Loss Prevention
• Actuarial / Fiscal Strategy
• Coverage Evaluation
• Provider Review
• Organizational Analysis / Design
• Underwriting / Premium Development
• Claims Administration and Management
• Business Intelligence / Knowledge Management

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Project Activities

• Interviews with clerical, professional,
  supervisory, mid-management and senior management
  personnel on-going
• Interviews with key constituents completed
• Interviews with client agencies on-going
• Process flowcharts being generated
• Key data requested and some analysis begun
• IT systems assessment ongoing
• Benchmarking other states on-going

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Technology Management
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Integration is Not a Luxury!

• Risk Information Management System
• Niche packages
• DOA systems
• Contract vendor systems
• Ancillary office automation products

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Business Intelligence is Not a Luxury!

• Data integrity
• Data collection
• Data accessibility
• Data transformation
• Data visualization

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Organizational Analysis
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Areas of Emphasis

• Salary
• Training
• Management Style
• Table of Organization
• Performance Reviews / Coaching
• Workload Distribution / Unit Structure
• Position Descriptions vs Responsibilities

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Lack of Confidence in Management Team

• Perception that 4th floor focuses on micro issues
  without supporting 1st floor on critical success
  factors
• Perception of favoritism and unequal treatment
• Diversity issues
• LACK OF COMMUNICATION

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Staffing Deficiency Perception or
Reality??
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Training is Not an Option!

• Leadership
• Management / Supervisory
• Communications
• Planning
• Functional
• Technology

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Workload Distribution / Unit Structure

• Lacking knowledge cross-pollination
• Lacking multi-disciplinary approach
• Lacking true customer-centric focus
• Evidence of inter-unit fragmented processes

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Accounting and Internal Controls
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• Perception--Favored unit
• No logical sense of linkage with Claims Unit
• Controls involve reliance on burdensome system of
  management sign-off and inspection
• Lack of exception / specialized reports
• Internal audit function needed

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Whats Next
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Funding and Premium Development
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• Actuarially-based approach has given way to a
  cash payments-based approach
• Is cash needs approach best for the state?

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• Premium allocation model is logical
• Actuarial study of retention levels is needed
• Insurance bidding process could allow blocking of
  competitive markets by single agent / broker
• Market opportunities not pursued
• Reinsurance as an experience-leveling mechanism
  needs to be reviewed
• Premium collections can be a problem

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Premium vs Cash Needs
Typical Claim Payout Pattern financed by Premium
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Premium vs Cash Needs
Cash Need Example
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Cost of Risk Allocation (CORA)
1. Estimate the Statewide Cash Need for the
Subject Period
2. Divide the Cash Need among the individual
Coverage Lines
3. Allocate each Coverage Line Cash Need to the
Agencies
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Cost of Risk Allocation (CORA)
1. Estimate the Statewide Cash Need for the
Subject Period
Average Loss and Loss Adjustment Expenses paid
in prior years
Approximate administrative costs for ORM
Cost of commercial excess insurance to be
purchased
Deficit Reduction Amount
Commercial Insurance Premium for Aviation
Marine Coverage
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Cost of Risk Allocation (CORA)
2. Divide the Cash Need among the individual
Coverage Lines
An average of four estimating methods are used
A. Prior year loss and loss adjustment expense
B. Prior year allocation of cash needs
C. Line premium need to total need
D. Cash need to premium comparison
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3. Allocate each Coverage Line Cash Need to the
Agencies
Workers Compensation Statutory
Workers Compensation - Maritime
Comprehensive General Tort Liability
Automobile Liability
Auto Physical Damage
Boiler Machinery
Building Property
Bonds
Crime Self Insured
Personal Injury Liability
Medical Malpractice
Road Bridge, Dam Tunnel Misc. Tort (NOC)
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3. Allocate each Coverage Line Cash Need to the
Agencies
Automobile Liability
Exposure Allocation (30)
Agency Mileage
Statewide Cash Need X
X 30
Statewide Mileage

Experience Allocation (70)
Agency Claim Experience
Statewide Cash Need X
X 70
Statewide Claim Experience
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3. Allocate each Coverage Line Cash Need to the
Agencies
Automobile Liability
Online entry was implemented for the 3rd Qtr 2002
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3. Allocate each Coverage Line Cash Need to the
Agencies
Automobile Liability
Loss Limitation on Individual Claims
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3. Allocate each Coverage Line Cash Need to the
Agencies
Workers Compensation Statutory
Workers Compensation - Maritime
Comprehensive General Tort Liability
Automobile Liability
Auto Physical Damage
Boiler Machinery
Building Property
Bonds
Crime Self Insured
Personal Injury Liability
Medical Malpractice
Road Bridge, Dam Tunnel Misc. Tort (NOC)
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Workers Compensation Statutory
Exposure Allocation
Agency Payroll
Statewide Cash Need X
X 20
Statewide Payroll

Experience Allocation
Agency Claim Experience
Statewide Cash Need X
X 80
Statewide Claim Experience
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Workers Compensation Statutory
ISIS HR Download
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Workers Compensation Statutory
Loss Limitation on Individual Claims
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Loss Prevention
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Areas of Emphasis

• Heading in the right direction
• Subjectivity vs. Objectivity
• Training and assessment of knowledge gained
• No procedure manual

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Underwriting
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Areas of Emphasis

• Policies and Procedures manual exists and is
  closely followed.
• Considerable knowledge and experience becoming
  eligible for retirement.
• Coverage language results from evolution.
• Contract evaluations are valuable but is enough
  being done??

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Claims Management
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OPPORTUNITIES ABOUND

• Paradox in claims low new claim count with high
  pending count
• Failure to close files timely
• Results in spiraling expenses/costs
• Result of many issues-all solvable
• Litigation Management costly, cost shifting to
  ORM, legal contracting drain on resources
• Technology, management and organizational
  redesign are answers to constant demands for
  staff resources

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WHERE ARE THE WEEDS?

• Perception of understaffing
• Crisis of confidence in management
• Technology outdated / expensive
• Training is lacking
• Morale is sinking
• Waste is apparent
• Internal focus ignores customer needs

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Status Summary

• Key trends emerging clearly and consistently.
• Need for complete reengineering is clear
• Opportunities for improvements 50 or more abound
• Funding for improved ORM may be found in cost
  reductions
• Organizational structure fostering culture of
  waste, inefficiency, lack of creativity and
  initiative, low morale, poor customer relations,
  lack of training
• Mission of office in need of clarification

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Progress

• Interviews with clerical, professional,
  supervisory, mid-management and senior management
  personnel completed
• Interviews with key constituents completed
• Interviews with some customers completed
• Key data requested and some analysis begun
• IT system review ongoing
• Benchmarking other states ongoing

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High Pending Claim CountsWhy?

• New claims per rep are low
• Little focus on closings
• Little control of diary / work management
• Lack of creativity
• Problems with defense side similar to claims
• LACK OF TRAINING

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Claims Management

• Limited planning
• Limited quantitative approach to operations
• Cumbersome, convoluted processes
• Employee/staff ratios very low
• Inadequate processes supported by inadequate
  technology
• ADJUSTING BEING REPLACED BY PAPER SHUFFLING

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Final Thoughts
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Whats Next

• Coverage Evaluation
• Provider Review
• Benchmarking
• SWOT Analysis
• External opportunities and threats
• Internal strengths and weaknesses