From the CFO desk: Evaluating Retro Groups

As the CFO of Vigilant I am often asked how I would evaluate a Retro program in Washington State and what would be my greatest objectives for such a program. Although my responsibilities as CFO lie largely in the financial area, my top objective would still be to provide a safe working environment for employees. Having each employee go home in the same shape as he/she came to work will always be job number 1. This is followed by lowering overall workers’ compensation premiums which, as you know, are a significant expense. And finally, few things make me happier than getting nice big checks in the mail. Consistently large refunds would be my third objective. Below please find the things I would explore to determine the likelihood my objectives will be met by a Retro group.

The performance of the group: One of the most important things to consider (if not the most important thing) is the quality of the current risk pool of companies participating in the Retro. This is the most determinative factor in the group’s ability to deliver significant refunds. Additionally, consider sub-industry concentrations within the Retro and how changing macro-economic trends might positively or negatively impact the group. I recommend you ask a lot of questions about underwriting of new as well as existing members.

The entire cost of participating in the group: It is important to first understand the fee structure associated with a Retro group and then any requirements that may result in higher expenses. For example, some Retro groups mandate an unlimited Kept on Salary (KoS) policy. While this policy can enhance the overall performance of the group, it can also be extremely costly when paying out wages over several years.

The amount of refunds and how they are distributed: As CFO, I am looking for the best net results (i.e. earned refund less fees paid to the administrator). Watch for Retro programs that take a high percentage of refunds to cover fees; this model is effectively charging the best performers a higher net cost. You want to look for a group where refund distribution is based on a meritocracy where the highest performers (i.e. lowest loss ratios) receive the highest refunds.

The services included in group participation: In order to truly lower your workers’ compensation premiums over time, increase your share of the refund pie, and keep your workers safe, you must take a holistic approach. You want a partner who does the same. Ask about the investments a Retro group makes in services such as safety (including root cause analysis), data analytics, return on investment analysis, claims management, employment law compliance, and HR.

These are the four areas I would focus on when evaluating a Retro program. They are applicable whether looking for a change, evaluating a Retro for the first time, or just assessing the value of your current group. I would, of course, also crunch a lot of numbers and consult with my HR and Operations leaders. There are a lot of details and nuances embedded in each of these areas. If you have any questions from a CFO’s point of view, I’d be more than happy to talk with you. I can be reached at BrandonD@vigilant.org.

Best Regards,
Brandon Dion, Vigilant Chief Financial Officer