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March 2002
Internal Operational Assessment
Office of Risk Management
Project Charter Discussion and General Project Status
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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)
Angele Davis* Whit Kling* Patricia Reed* Doris Copeland Terrence Ginn Ann Wax Bob Rachal Melissa Harris Pam Whiteside
* ex officio members
Kerry Dubea Karen Jackson Penny Buchanan Terry Grimball Richard Hollowell Sandra Porter Henry Rayborn Cindy Roman Jack Travis Greg Lindsay
Debra G. Lazare Gary Lee Andre’ Comeaux John Landry Benedict Lazare John Miles Peter Rousmaniere Keshia Thomas Richard Thompson
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
o Inputo Outputo Outcomeo Efficiencyo 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!
General Project Status
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Areas of Emphasis
Internal ControlsSafety / Loss PreventionActuarial / Fiscal Strategy
Coverage EvaluationProvider Review
Organizational Analysis / Design Underwriting / Premium Development
Claims Administration and ManagementBusiness 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
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
o Data collection
o Data accessibility
o Data transformation
o Data visualization
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
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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From Administrative Section
Yes
NoSee Other Payments Flowchart
1. Why is sequential invoice file used to reference payment data?2. Can positng of form 160's to FACS sofrtware be done when initially prepared? If so, can FACS produce the form 160?3. See question concerning ageing spreadsheet on Flowchart of Accounts Receivable Sales and Invoicing Procedures.
Flowchart of ORM Procedure for Receipts Appliable to Premium Payments
Checks From Administrative Section
Funds Transfer Form 160
Check Log From Admin Section
Proprietary Accting Specialist Receives Cks, Prepares Deposit Form 140 and ClassifiesReceipts According to Type
Is ReceiptFor Premium Payment?
Accting Specialist Cross References the Premium Invoice From the Sequential Inv File With the Pay-In- Voucher # and Date Received
Payment Posted IntoMIP Software by Ck#,Doc # amd Date By The Accting Specialist
Proprietary Acct 1 Records Invoice Pmt Against The Accts Rec Aging Spreadsheet By Deleting the Paid Invoice-
See Flowchart for Sales and Invoicing
Form 160's Posted into FACS Software By the Accting Specialist
Sequential Invoice File
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What’s Next
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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Typical Claim Payout Pattern financed by Premium
Premium vs Cash Needs
1985 1986 1987 1988 1989 1990 1991 19921984
AY84
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Cash Need Example
Premium vs Cash Needs
1999 2000 2001 2002 2003 2003 2004 20051998
AY98
AY99
AY00
AY01
AY02
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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
Cost of Risk Allocation (CORA)
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1. Estimate the Statewide Cash Need for the Subject Period
Average Loss and Loss Adjustment Expenses paid in prior years
+ Commercial Insurance Premium for Aviation & Marine Coverage
+ Deficit Reduction Amount
+ Cost of commercial excess insurance to be purchased
+ Approximate administrative costs for ORM
Cost of Risk Allocation (CORA)
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2. Divide the Cash Need among the individual Coverage Lines
An average of four estimating methods are used:
D. Cash need to premium comparison
C. Line premium need to total need
B. Prior year allocation of cash needs
A. Prior year loss and loss adjustment expense
Cost of Risk Allocation (CORA)
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3. Allocate each Coverage Line Cash Need to the Agencies
Workers Compensation Statutory
Boiler & Machinery
Auto Physical Damage
Automobile Liability
Comprehensive General Tort Liability
Workers Compensation - Maritime
Building & Property
Road Bridge, Dam & Tunnel
Misc. – Tort (NOC)
Medical Malpractice
Personal Injury Liability
Crime Self Insured
Bonds
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3. Allocate each Coverage Line Cash Need to the Agencies
Automobile Liability
Statewide Cash Need X X 30%
+
Agency Mileage
Statewide Mileage
Statewide Cash Need X X 70%
Agency Claim $ Experience
Statewide Claim $ Experience
Experience Allocation (70%)
Exposure Allocation (30%)
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3. Allocate each Coverage Line Cash Need to the Agencies
Automobile Liability
1995 1996 1997 1998 1999 2000 2001 20021994
$$ ??Auto Liab. Claim Experience
CorporateSystems
Users
Users
Users
Users
Mileage
ORM Agency
MailRequest
MailInfo
Quarterly
CORASupport
Online entry was implemented for the 3rd Qtr 2002
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3. Allocate each Coverage Line Cash Need to the Agencies
Automobile Liability
Loss Limitation on Individual Claims
0
$15,000
$30,000
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Workers Compensation Statutory
Boiler & Machinery
Auto Physical Damage
Automobile Liability
Comprehensive General Tort Liability
Workers Compensation - Maritime
Building & Property
Road Bridge, Dam & Tunnel
Misc. – Tort (NOC)
Medical Malpractice
Personal Injury Liability
Crime Self Insured
Bonds
3. Allocate each Coverage Line Cash Need to the Agencies
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Workers Compensation Statutory
Statewide Cash Need X X 20%
+
Agency Payroll
Statewide Payroll
Statewide Cash Need X X 80%Agency Claim $ Experience
Statewide Claim $ Experience
Experience Allocation
Exposure Allocation
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Workers Compensation Statutory
1995 1996 1997 1998 1999 2000 2001 20021994
$$ ??Work Comp Claim Experience
CorporateSystems
Users
Users
Users
Users
Payroll
ORM Agency
MailRequest
MailInfo
Quarterly
CORASupport
ISIS HR Download
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Workers Compensation Statutory
Loss Limitation on Individual Claims
0
$15,000
$30,000
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
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??
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 Counts…Why?
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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0
200
400
600
800
1000
1200
1400
1998-1999 1999-2000 2000-2001
CLAIM ACTIVITY: CGL
NEW/REOPENEDCLAIMS
CLOSED CLAIMS
ENDING PENDING
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0
2000
4000
6000
1998-1999 1999-2000 2000-2001
CLAIM ACTIVITY: WORKERS' COMPENSATION
OPEN/REOPENEDCLAIMS
CLOSED CLAIMS
ENDING PENDING
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0
500
1000
1500
2000
1998-1999 1999-2000 2000-2001
CLAIM ACTIVITY: MEDICAL MALPRACTICE
NEW/REOPENEDCLAIMS
CLOSED CLAIMS
ENDING PENDING
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0
500
1000
1500
2000
2500
3000
3500
4000
1998-1999 1999-2000 2000-2001
CLAIM ACTIVITY: TRANSPORTATION
NEW/REOPENEDCLAIMS
CLOSED CLAIMS
ENDINGPENDING
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0
500
1000
1500
2000
2500
1998-1999 1999-2000 2000-2001
CLAIM ACTIVITY: ROAD HAZARDS
NEW/REOPENEDCLAIMS
CLOSED CLAIMS
ENDING PENDING
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0
500
1000
1500
2000
2500
1998-1999 1999-2000 2000-2001
CLAIM ACTIVITY: PROPERTY
NEW/REOPENEDCLAIMS
CLOSED CLAIMS
ENDING PENDING
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10000
10500
11000
11500
12000
12500
13000
13500
14000
1998-1999 1999-2000 2000-2001
TOTAL ORM CLAIM ACTIVITY
NEW/REOPENED CLAIMS
CLOSED CLAIMS
ENDING PENDING
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0500
100015002000250030003500
WINDSHIELD CLAIMS PAID
1998-1999 1999-2000 2000-2001
CLAIMS BY FISCAL YEAR
FIRST-PARTY WINDSHIELD CLAIMS PRESENTS A PROCESS IMPROVEMENT OPPORTUNITY
TOTALTRANSPORTATIONCLAIMS
TOTAL WINDSHIELDCLAIMS
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0
5,000,000
10,000,000
15,000,000
1998-1999
1999-2000
2000-2001
LEGAL EXPENSE TRENDS
AG EXPENSES
CONTRACTATTORNEYEXPENSES
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0
100,000
200,000
300,000
400,000
500,000
1998-1999 1999-2000 2000-2001
EXPENSE TRENDS
Miscellaneous
IME's
Indep. Adjusters
SIU
Bill Review
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0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
Dollars Recovered 1998-1999 1999-2000 2000-2001
Fiscal Year
RECOVERY TRENDSSecond InjuryFund Salvage
Subrogation
ExcessInsuranceTotal Recovery
Final Thoughts
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What’s Next
Coverage Evaluation Provider Review Benchmarking SWOT Analysis
– External opportunities and threats– Internal strengths and weaknesses