Public Risk November/December 2018 by Moire Marketing Partners

PUBLISHED BY THE PUBLIC RISK MANAGEMENT ASSOCIATION NOVEMBER/DECEMBER 2018

INSURING FOR BUSINESS CONTINUITY UNDER THE NEW REALITIES OF TERRORISM PAGE 6

ALSO IN THIS ISSUE

CUTTING COSTS IN PHARMACY – YES, IT IS POSSIBLE PAGE 11

BENJAMIN FRANKLIN, AMERICA’S ORIGINAL RISK MANAGER

PAGE 16

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Insurance contracts are underwritten and issued by: 1. BITCO General Insurance Corporation and BITCO National Insurance Company; 2. Old Republic Insurance Company; 3. Pennsylvania Manufacturers Association Insurance Company, Manufacturers Alliance Insurance Company, Pennsylvania Manufacturers Indemnity Company.

NOV/DEC 2018 | Volume 34, No. 10 | www.primacentral.org

CONTENTS

The Public Risk Management Association promotes effective risk management in the public interest as an essential component of public administration.

PRESIDENT Jani J. Jennings, ARM Risk Manager City of Bellevue Bellevue, NE PAST PRESIDENT Amy J. Larson, Esq. Risk and Litigation Manager City of Bloomington Bloomington, MN PRESIDENT-ELECT Scott J. Kramer, MBA, ARM County Administrator Autauga County Commission Prattville, AL DIRECTORS Brenda Cogdell, AIS, AIC, SPHR Risk Manager, Human Resources City of Manassas Manassas, VA

Beyond Risk:

INSURING FOR BUSINESS CONTINUITY UNDER THE NEW REALITIES OF TERRORISM

Forestine Carroll Risk Manager Memphis Housing Authority Memphis, TN Sheri Swain Director of Enterprise Risk Management Maricopa County Community College District Tempe, AZ Donna Capria, CRM, CIC, AINS Risk & Insurance Coordinator WaterOne of Johnson County Lenexa, KS Michael S. Payne, ARM, HEM Risk Manager City of Fresno Fresno, CA Melissa R. Steger, MPA Asst. Director, Workers’ Compensation University of Texas System Austin, TX

By Lindsey Nieves

NON-VOTING DIRECTOR Marshall Davies, PhD Executive Director Public Risk Management Association Alexandria, VA EDITOR Jennifer Ackerman, CAE Deputy Executive Director 703.253.1267 • jackerman@primacentral.org ADVERTISING Jennifer Ackerman, CAE 703.253.1267 • jackerman@primacentral.org

Cutting Costs in Pharmacy – Yes, It IS Possible By Belva Hale

IN EVERY ISSUE

Benjamin Franklin, America’s Original Risk Manager By Wendell Bosen

Public Risk is published 10 times per year by the Public Risk Management Association, 700 S. Washington St., #218, Alexandria, VA 22314 tel: 703.528.7701 • fax: 703.739.0200 email: info@primacentral.org • Web site: www.primacentral.org Opinions and ideas expressed are not necessarily representative of the policies of PRIMA. Subscription rate: $140 per year. Back issue copies for members available for $7 each ($13 each for non-PRIMA members). All back issues are subject to availability. Apply to the editor for permission to reprint any part of the magazine. POSTMASTER: Send address changes to PRIMA, 700 S. Washington St., #218, Alexandria, VA 22314. Copyright 2018 Public Risk Management Association

| 4 NEWS BRIEFS | 19 ADVERTISER INDEX

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

MESSAGE FROM PRIMA PRESIDENT JANI JENNINGS, ARM

s we enter into holiday season, our thoughts turn toward gratitude for family and friends.

When someone says “count your blessings,” have you ever stopped to actually count them? Over the years, I’ve come to recognize and be grateful for all the things in my life: my family, my friends, good health. I’m also thankful for my opportunity to make a difference in my entity and community by my work as a risk manager. While some may tease and call it a “thankless job,” I remind myself daily of how fortunate I am to be doing a job that challenges me, which I love, and that makes a difference in people’s lives. As a risk manager, I have the opportunity to work collaboratively with other people, giving me the chance to share, laugh, encourage and provide comfort in challenging times. My work allows me to learn from and develop meaningful relationships with people I may otherwise not have had the opportunity to meet. I give thanks for their peculiarities, their quirkiness and their perspectives. It makes each day interesting. Some of these people will become valued colleagues and others will challenge me, but all these relationships are important and all come as a result of my job. I’m thankful for the opportunity to learn new skills, to set and achieve new goals and reach my full potential. With work, as in life, there is always room to grow and pushing myself to learn helps me to become better at my job. Serving with PRIMA has offered tremendous value to my life and has not only helped me be a better risk manager, but has afforded me the opportunity to develop my professional and interpersonal skills. I have so much gratitude

“

I feel grateful that as a risk manager, I am

making a small mark on the world, or at least to my community. There are many ways to contribute to the world around us and there are so many

challenges and problems that need to be fixed.

“

I Could Not Ask For More

It feels good to be one little person engaged in doing whatever I can to provide solutions.

for my colleagues at PRIMA and my life will be forever enriched because of them. Certainly, the money I make (however much or little) is high on the list for which to be thankful and when payday rolls around, I give thanks for direct deposit! The wages, healthcare benefits, as well as other benefits available, afford me the means to provide for myself and my family. I feel grateful that as a risk manager, I am making a small mark on the world, or at least to my community. There are many ways to contribute to the world around us and there are so many challenges and problems that need to be fixed. It feels good to be one little person engaged in doing whatever I can to provide solutions. Finally, I know that gratitude is linked to happiness, hope and optimism. It’s also contagious. The more I support and help

others, the more I feel that same support from those around me. And for that, I am extremely thankful. Perhaps if we all practiced expressing our gratitude at work to our staff, our co-workers, and our supervisors, we would all reap the benefits of gratitude. I encourage you to take some time during this season of Thanksgiving to find meaning in your work and be thankful for all the benefits it brings.

Sincerely,

Jani Jennings, ARM PRIMA 2018-2019 President Risk Manager City of Bellevue, NE

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

NEWS BRIEFS

NEWS Briefs

AFTER FLORENCE, NORTH CAROLINA SPENDS $4 MILLION TO FIGHT MOSQUITOES

“

Standing water is the perfect breeding ground for one of the South’s most plentiful pests.

Hurricane Florence dumped nearly 8 trillion gallons of rain over North Carolina, according to the National Weather Service in Raleigh’s estimate. That rain led to catastrophic flooding.

those eggs would probably

“Those counties include: Bladen, Beaufort, Brunswick, Carteret, Columbus, Craven, Cumberland, Duplin, Harnett, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Moore, New Hanover, Onslow, Pamlico, Pender, Pitt, Richmond, Robeson, Sampson, Scotland, Wayne, and Wilson,” according to the governor’s statement. “To help local communities in the aftermath of Hurricane Florence, I’ve directed state funds for mosquito control efforts to protect people who live in hard-hit areas,” Cooper said in the statement. The money will be available, and each county will get an amount of money determined by how much of their land needs treatment, the release said. “I’m grateful to Governor Cooper for taking this action to allow us to provide a critical public health service,” Craven County Health Director

PUBLIC RISK | NOVEMBER /DECEMBER 2018

die before ever getting a

chance to hatch… But with all

“

Gov. Roy Cooper ordered $4 million to be spent on mosquito control in counties “under a major disaster declaration.”

absence of a hurricane or

significant rainfall, most of

It’s a recipe for the biting little buggers Water is still standing in large swathes across the state and it’s creating a plague of mosquitoes the governor has vowed to take action against.

In a normal year, in the

the water that has come up, they

have gotten a chance to hatch. In some cases, the eggs may live one year.

North Carolina State entomologist Michael Reiskind

Scott Harrelson said in a statement. “This has been a serious issue for our county and many others impacted by Hurricane Florence.”

to wear insect repellent with DEET,” the North Carolina Department of Health and Human Services Division of Health tweeted.

A surge in mosquitoes isn’t uncommon after weather events that lead to major flooding, according to the governor’s office. And though most mosquitoes that “emerge after flooding do not transmit human disease, they still pose a public health problem by discouraging people from going outside and hindering recovery efforts.”

North Carolina State entomologist Michael Reiskind said the flooded areas are leading to a wider variety of mosquitoes hatching, according to The Fayetteville Observer. But they’re not new species and didn’t come from other parts of the state. They just usually aren’t as common.

“Large populations of mosquitoes can emerge after heavy rains or flooding & they can cause illnesses such as La Crosse encephalitis, West Nile virus & eastern equine encephalitis. Wear long-sleeved shirts and long pants, and be sure

“In a normal year, in the absence of a hurricane or significant rainfall, most of those eggs would probably die before ever getting a chance to hatch,” Reiskind said, according to the Observer. “But with all the water that has come up, they have gotten a chance to hatch. In some cases, the eggs may live one year.”

POLICE IN ATLANTA WILL GET A BIG PAY RAISE Atlanta Mayor Keisha Lance Bottoms announced that the city will increase police pay by 30 percent over the next three years, reports The Atlanta Journal-Constitution.

For years, the Atlanta Police Department has lagged behind other cities in police pay, leading to high resignation rates and difficulties in recruiting new officers, said Police Chief Erika Shields.

“This is an unprecedented step to improving public safety in our city,” Bottoms said. Starting in January, the city will add $10 million toward paying officers’ salaries. The increase will provide some cops with roughly an additional

“

$10,000 more a year. The city will provide two more $10 million increases in both its fiscal 2020 and 2021 budgets.

Bottoms’ plan to increase pay will effectively end those problems, Shields said.

This is an unprecedented step to improving public safety in our city.

“

Atlanta Mayor Keisha Lance Bottoms

MISSING: WHEREABOUTS OF 1,259 SEX OFFENDERS IN MISSOURI UNKNOWN Local authorities in Missouri do not know the locations of more than 1,200 sex offenders, including nearly 800 who would be classified as the most dangerous, according to a report by the state auditor. Missouri law requires those convicted or found guilty of sexual offenses to register their name, address and other information with local law enforcement, the auditor’s office said. The information is made public through a database and website maintained by the Missouri State Highway Patrol. But because of local officials’ inadequate enforcement of registration requirements, 1,259 registered sex offenders failed to follow law, Missouri State Auditor Nicole Galloway said.

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

PUBLIC RISK | NOVEMBER /DECEMBER 2018

INSURING FOR BUSINESS CONTINUITY UNDER THE NEW REALITIES OF TERRORISM BY LINDSEY NIEVES

he terrorism playbook in the U.S. has greatly changed since the September 11, 2001, attack on New York’s World Trade Center. Where once iconic buildings stood in the crosshairs of extremist organizations, today softer, smaller occupied spaces are also the likely targets of small group or lone wolf actors, yielding high human impact events and easily spawning copycat attacks. In fact, the increasing frequency and severity of these events globally is evolving the terroristic environment into one of violent risk. Planning for and protecting one’s organization from these unfortunate episodes requires specialized standalone solutions to address the full spectrum of perils that can impact a company’s people and assets and, potentially, those of their customers and suppliers, too. Public administration industry entities in particular may not realize how vulnerable, or how unprepared they may be given the new realities of terrorism.

In fact, the threat of active assailant incidents continues to evolve in its frequency and complexity. From Virginia Tech in 2007, the Sandy Hook School Shooting in 2012 and the San Bernardino Public Health Department Attack in 2015, to the Orlando Pulse nightclub shooting in 2016, the church shootings in Sutherland Springs, TX and Antioch, TN in 2017, and the recent high school shooting in Parkland this past February, it is clear that public business leaders especially must continually adapt to a world of ever-changing threats to be prepared to recover quickly in the worst case scenario. It is critical for public sector risk managers to understand that your entity’s risk is not only one of property damage or liability exposure. There are several aspects you need to think about:

• Assess your exposure – Don’t limit yourself to thinking about property damage or who’s liable. Consider the impact to your entity’s financial, reputational and emotional state. • Consider your insurance coverage – Do you have enough and/or the right coverage? Do you need to buy more to cover unexpected and catastrophic events which may limit reputational risk? • Address your risk management challenges – Do you need coverage for the grey areas such as unforeseen expenses for employee counselling, student medical bills, shutting down facilities or cancelling an event, the overtime of security and other personnel to run crisis management and prepare the facility to reopen?

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

BEYOND RISK: INSURING FOR BUSINESS CONTINUIT Y UNDER THE NEW REALITIES OF TERRORISM

KNOW YOUR VULNERABILITIES

Municipalities and public agencies may not see themselves as a target. Likewise, a school may not think themselves vulnerable to a terrorist attack. Unfortunately, history now proves otherwise. One only needs to look at the insurance take up rates, which have increased over the years because the make-up of these incidents have changed. The lesson for communities and local agencies alike is that you need to boost your preparedness in the event you find yourself the backdrop of a future incident. Start with the basics: Draw up a full risk management profile to understand all possible gaps or vulnerabilities you may have to deal with. Ask yourself some honest questions to

THERE’S A POLICY FOR THAT

To date, traditional standalone terrorism underwriting policies have been geared toward high severity events that happen with low frequency. They consider factors like location, occupancy or type of business, coverage, terrorism targets within a blast zone based on insured location, and account level target analysis based on pre-identified terrorism targets. These policies offer a broader coverage alternative to the Terrorism Risk Insurance Program Reauthorization Act (TRIA), which was born after the events of 9/11 as coverage for commercial risks and reauthorized through 2020, and offers limited coverage to only those acts certified by the U.S. government as an act of terrorism. While it is uncertain what, if any other, future extensions of the act may

In the dawning of a new violent risk environment, it’s clear that traditional coverage still leaves gaps and public entities vulnerable. Newer coverages and enhancements are now coming to market to fill those gaps. determine what needs to be done to reduce the risk of attack? Some examples may include: • Do you have the right controls in place over access to the premises and who’s authorized to go in and out? • Are you following good practices for vetting employees, vendors, students, and/or the general public • Are physical barriers needed in certain areas to reduce exposure to a physical attack by a vehicle? • Are you monitoring possible threats in your surrounding community, sub industry, and responding accordingly? • Is your insurance coverage up to date and right for your needs? • Do you have a plan to respond and do the right people know what they need to do to enact it?

PUBLIC RISK | NOVEMBER /DECEMBER 2018

account for in terms of scope of coverage, any traditional policy should ideally provide for a broad definition of terrorism. Standalone policies should address a broader spectrum of acts—with coverage for religions, political or ideologically motivated acts—without the need for government certification. In the dawning of a new violent risk environment, it’s clear that traditional coverage still leaves gaps and public entities vulnerable. Newer coverages and enhancements are now coming to market to fill those gaps. They are more holistic in approach, and account for factors such as business interruption, time-element risks and more. They cover crisis risk management and risk transfer solutions for property physical damage and business interruption as well as general liability, and

trigger first party expense coverage for those expenses incurred in the immediate aftermath of an event. In addition, policy extensions, flexible coverage, specifying indemnity periods are also included, as are any losses resulting from the suppression of a terrorism event by the government, police or military. Why is all of this so important? Schools and municipalities in particular may not have the business income on hand to pay for necessary extra expenditures needed right away. So it’s important they look for products that will not rely entirely on Commercial General Liability (CGL) policies, which are designed to respond to future legal liabilities. Consider the following Active Assailant, Loss of Attraction (LOA) and Threat coverage options (ALT). Active Assailant Event Insurance is designed to respond in the critical aftermath of an event with relevant coverage for expenses the public entity may need immediately. It provides coverage for necessities like hiring a public relations consultant to manage press, extra security to secure the scene, providing counseling services for those affected, and more without the need for a physical damage trigger, which is typical in the property or terrorism insurance world. In situations like these, this kind of insurance works to preserve a client’s reputation by helping them to respond as quickly, responsibly and as effectively as possible given the circumstances. Since policies for active assailant differ from one insurance company to the next, it’s important to compare coverage elements. Some product coverages are geared around liability. Others only cover certain handheld weapons, and may exclude events caused by an actor using a driven vehicle as a weapon. Loss of Attraction (LOA) policies are triggered when a covered violent act occurs at a thirdparty location within a specified distance of an insured location or at a pre-specified attraction property, and causes a business interruption loss to the Insured without any property damage to the insured’s property. This provides certainty of coverage to meet the needs of the affected business—something that a property policy “vicinity” condition may not achieve.

Policies for Threat cover malicious acts as well as terrorism threats, and are triggered if there is a specific threat against the insured to inflict bodily injury to an employee, or damaged to a scheduled property. Triggers can include evacuation, denial of access or a lockdown signed off by a relevant authority. In response to the escalating threat from lone-wolves or autonomous cells to employ technologies relevant for enabling chemical, radiological, biological or even nuclear materials as weapons (CRBN), entities that store these materials such as hospitals, research facilities, utilities and the like can now find products available to address these risks. Look for policies that account for any release, discharge or dispersal of these materials as a direct cause of a Malicious CRBN Act or series of acts by one or more persons.

options should your business be faced with an armed attacker, is a good place to start. Further down the line, workshops, training exercises and access to an online global risk platform can educate staff and provide a forum for employees to access and share knowledge and experience. Conducting a security risk assessment lets an organization know where it stands, identifies potential weaknesses, and allows time to prepare for a wide range of emergency situations. Crisis management consulting can help to facilitate the development of a corporate crisis management plan and offer immersive simulation exercises for your crisis responders. Furthermore, communications training will help businesses to become prepared to negotiate the complex challenges of crisis messaging.

If the unthinkable does happen, having access to trauma management services can provide support and empathy for those affected when it is most needed. In addition, a post-incident review to assess where lessons can be learned and improvements made, will help build resilience for the future. “No community or organization wants to be unprepared in the aftermath of a violent act,” Groves advises. “Taking action now to ensure that you can respond appropriately is a good step towards being prepared to withstand the unexpected.” Are you able to step in and manage violent act risk effectively under the new realities of terrorism? Lindsey Nieves is an underwriter for XL Catlin’s War Terrorism and Political Violence insurance business.

INSURE FOR BUSINESS CONTINUITY

If you’re thinking “what if ” a worst case scenario actually happens, you need to walk through how your organization can prepare and recover quickly from a violent event. Considering insurance coverage and enhancement options is essential. What’s also key is selecting coverage that also provides for risk management support services for business continuity planning. Not only will this help you determine the best policies to cover your entity’s risk factors and protect your from financial loss, it will also put you in the best position to respond immediately and effectively, perhaps even avoid violent disruption.

What might this support include? According to Groves, distributing an Active Assailant Handbook that outlines sensible response

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No community or organization wants to be unprepared in the aftermath of a violent act… Taking action now to ensure that you can respond appropriately is a good step towards being prepared to withstand the unexpected.

“

“To date, public organizations generally haven’t considered themselves to be businesses at risk. Even those with a proactive risk manager at the helm may not have engaged fully in business continuity planning,” says Mike Groves, Associate Director, Risk Analysis and Security at S-RM, a global risk consultancy. He recommends that “Organizations should be looking for insurance policies which can provide assistance with both pre-incident planning and post-loss business continuity services.”

Mike Groves, Associate Director, Risk Analysis and Security at S-RM

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

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NOT IF, BUT HOW

BY BELVA HALE

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

CUTTING COSTS IN PHARMACY – YES, IT IS POSSIBLE

NCE IN A BLUE MOON, the U.S. government allows the implementation of a program

that affords employers the opportunity to save money without inconveniencing or

costing employees more money. While you process that statement, think of what your

current spend is on pharmacy. What just a few years ago was a

small percentage of your medical cost, is now becoming a higher percentage of the total spend without a cost control method in sight, until now.

There are two programs that will be described in this article that can be incorporated into your self-funded health insurance plans: one is a limited program for qualified employers and the other is open to all employers. Describing the limited option is more complicated and therefore, will be the first part of this article. This limited option program is called Own Use. Own Use is not a new program, but one that has historically presented large hurdles to overcome before it could be practical or even feasible for eligible employers. The original

PUBLIC RISK | NOVEMBER /DECEMBER 2018

design of Own Use was an income-based program authorized by the federal government to allow 340B hospitals, a federally recognized designation, to offer indigent patients a less expensive way to purchase medications. Hospitals are permitted to purchase medications at reduced costs and then allowed to pass the savings on to those who qualify. The program provides significant savings to patients, but it is not without problems. Adherence to the strict federal regulations can cause hospitals to be hesitant in offering the program. Administration is extremely cumbersome, as the hospital must verify that each patient is eligible to receive the medication at the hospital’s purchase price

based on his or her household income. Lack of outside agencies equipped to administer this program means hospitals bear the responsibility of internal administration, which requires that they track the medications, shelve the medications and verify that they are dispensed to a qualified recipient. The hospital has to maintain all records necessary should there be a governmental audit. Another feature of the Own Use program allows any hospital, whether it is a non-profit or for-profit facility, the ability to dispense medications to its own employees and their family members. Since this aspect of the program is not income-based and eligibility is established through employment verification, it is an easier eligibility criterion. However, internal administration is still cumbersome and the employees in the program are relegated to purchasing their medications through the hospital’s pharmacy. All of these factors have hindered hospitals’ capability and quite frankly, their willingness to implement an Own Use program, even when it meant cost savings to their own health insurance plans. Reduction in costs can be as high as 25 percent of the total annual pharmacy spend and will vary based on the medications being prescribed. This demonstrates how problematic this program can be if this type of savings isn’t enough incentive for hospitals to implement. The ability to expand the Own Use program in situations other than the two previously mentioned occurred when the Federal Trade Commission issued an opinion letter to a Connecticut Hospital citing the Non-Profit Institutions Act (NPIA) as affording non-profit hospitals certain abilities not previously recognized. The NPIA exempts from the Robinson-Patman Act “purchases of their supplies for their own use by schools, colleges, universities, public libraries, churches, hospitals and charitable institutions not operated for profit.” This expansion didn’t address the issues of tracking and verifying that the recipient of the medications is eligible, how to purchase and dispense the medications to multiple employers, or how to be prepared for governmental audits. Another hindrance with this program is the margin retail pharmacies, Pharmacy Benefit Managers (PBM) and insurance carriers

There are now third-party administrators (TPA) with the capability of administering this program which takes the responsibility of verifying patient eligibility off of hospitals. Purchasing and dispensing the medications is less of an issue due to a national grocery chain becoming a partner in this program. In the past, the hospital’s pharmacy was the only dispensary option, meaning the pharmacy had to shelve all the medications and all participants had limited locations from which to purchase medications. With the inclusion of the grocery chain, medications can now be shelved and dispensed via their stores and hospitals are no longer the sole source. Even a national grocery chain will have areas in which it isn’t located and in those situations, negotiations will occur with smaller, locally owned pharmacies. This again provides employees multiple locations from which to purchase their medications.

“

The original design of Own Use was an income-based program authorized by the federal government to allow 340B hospitals, a federally recognized designation, to offer indigent patients a less expensive way to purchase medications. Hospitals are permitted to purchase medications at reduced costs and then allowed to pass the savings on to those who qualify. The program provides significant savings to patients, but it is not without problems.

“

gain from the current method of pharmacy administration. All of these complications now have systems in place to make this program a viable option and implementing this program can provide savings of up to 25 percent of your pharmacy spend. This program also provides 100 percent of wholesaler rebates; however, rebates could decrease due to the lower cost of the medications.

One of the last complications to address was the profit margin involved in pharmacy transactions. PBMs are not purchasers of medications, but are administrators who act as middle men between the wholesalers and the pharmacies. As a part of that process, the PBM establishes a “discount” off the Average Wholesale Price (AWP). The discount can vary by pharmacy, PBM and employer. The solution to this issue and the key to the employer keeping all the cost savings is finding a PBM who doesn’t keep any profit margin, who is transparent and who charges only a dispensing fee. With this solution, the final gap is closed in implementing a viable Own Use program. This is a multistep process and does take time to implement, but for those who qualify, this program is something to strongly consider reviewing. For employers who do not fall into one of the categories for Own Use, there is another

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

CUTTING COSTS IN PHARMACY – YES, IT IS POSSIBLE

program called Acquisition Cost Index that is available to all self-funded employers. While the savings are not as significant, groups have seen as much as 15 percent in savings for the first year. This program has a quicker implementation period, but again, requires a PBM and retail pharmacies who are willing to administer the program without a built-in profit margin. This program does not utilize Average Wholesale Price (AWP) or Maximum Allowable Charges (MAC) pricing models. The program takes the average acquisition cost of the medication on a specific day and that is what the employer pays for the prescription. A dispensing fee is added to the cost which is how the PBM and the retail pharmacy are paid for their services. Most retail pharmacies are willing to participate in this program, because they too are tired of how the current system

works and Amazon announcing they are entering the prescription business appears to be another driver. To determine what type of savings could be available in either program, claims data is collected and analyzed to determine the savings that would have occurred if the program had been in place for the previous 12 months. The analysis is thorough and the savings is established by including rebate changes, dispensing fee changes and if there is a medication that was purchased by your current provider at a lesser cost. What are the downsides? If you are currently with one of the BUCAH (Blue Cross, United Healthcare, Cigna, Aetna, Humana) carriers, they will not participate in the program. This

may change in the future, but none to date have agreed to participate. The program does require a separate PBM. If you currently do not have a separate PBM program, a change will be necessary. Contracts will need to be reviewed to verify what you could implement and your procurement policy may require an RFP or bid process be completed. It might require planning, but no item is insurmountable. Otherwise, these programs can be offered to your employees with little or no plan design changes and will provide savings to your self-funded plans. Belva Hale is the vice president for business development for Sherrill Morgan.

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L I N K N B E N FRA Americaâ&#x20AC;&#x2122;s Original

Risk Manager 16

PUBLIC RISK | NOVEMBER /DECEMBER 2018

BY WENDELL BOSEN

ENJAMIN FRANKLIN IS KNOWN BY MANY TITLES including: active citizen, successful businessman, famous inventor and scientist, thoughtful legislator, useful diplomat and accomplished philosopher. Additionally, of America’s founding fathers, Franklin, despite an incredible list of spectacular achievements, may be the one that people find the most approachable. There are two likely reasons for this: first, he came from humble circumstances; second, he wrote in a common and folksy style. He seems like someone we could sit down to dinner with and feel comfortable.

I attribute Franklin’s familiar persona to his efforts in risk management, especially regarding his reputation. When striving to portray himself as an industrious business person, he would push his own wheelbarrows through the streets of Philadelphia. When it was reported he had a hand in the much-hated stamp act, he had well respected people write denials on his behalf, along with writing his own strong denials. He exonerated himself by being a key player in the repeal of the act. Those of us practicing public risk management in the modern day, use two general types of risk management techniques: risk control and risk finance as outlined in the table below. Franklin was among the first to use many of these practices, still considered best practices today.

I propose that among the dozens of appropriate titles given to Benjamin Franklin, we can include “America’s Original Risk Manager.” To support this I will give examples from Franklin’s life that demonstrate some of the risk management techniques above.

RISK CONTROL

While he was only a teenager, Franklin was traveling by boat to New York from Rhode Island. He was becoming familiar with a couple of young female passengers. A kind, matronly lady he had befriended took him aside and warned that these were bad women to be avoided and gave him reasons he had not perceived on his own. After arriving in New York, the young women invited Franklin to their lodgings, but he decided against going

RISK MANAGEMENT TECHNIQUES RISK CONTROL AVOIDANCE LOSS CONTROL • Prevention • Reduction SEGREGATION • Separation • Duplication TRANSFER

RISK FINANCE RETENTION • Current Expensing • Funded Reserve • Borrowing TRANSFER • Contractual Transfer • Insurance HEDGING/SURETY …

based on the advice he was provided. It was well he avoided the risk, as the girls were soon arrested for stealing from the sea captain. Many of Franklin’s inventions were great improvements in loss control. One of the most frightening risks we face today is lightning, and in Franklin’s time, it was believed to be controlled only by divine powers making humans completely helpless. Franklin’s most famous invention may also be among the most useful loss control tools of all time: the lightning rod. For people in the eighteenth century, the lightning rod was nothing less than a miracle— lightning could be controlled! The lightning rod was only one of Franklin’s inventions that helped prevent fires. Another famous invention, a stove used as a fireplace insert, helped both prevent fires and heat homes more evenly and efficiently. Franklin knew all fires could not be prevented, and was not only interested in preventing hostel fires with lightning rods and safer stoves; but he also wanted to reduce the losses caused when they did occur. Franklin organized the Union Fire Company, which was incorporated in 1736. He was a stickler for details and included rules and fines for infractions. This group also had a social component; they met for dinner once

NOVEMBER /DECEMBER 2018 | PUBLIC RISK

BENJAMIN FRANKLIN, AMERICA’S ORIGINAL RISK MANAGER

a month to discuss and communicate ideas on the subject of fires. So many people wanted to join the fire company that it became the catalyst for starting sister fire companies. Fifty years later, when Franklin returned from Paris, he gathered the four remaining members of the company, along with their leather buckets and held meetings. Franklin was also a promoter of building codes to help prevent fires and reduce their damage. Two examples: plaster fire walls and methods to dampen a roof when a neighboring building was aflame. Franklin also addressed occupational health issues. Acting as an epidemiologist, Franklin was one of the first to discover that the severe illness called “dry belly ache” was caused by lead. He noted that the disease was more

RISK FINANCE

Franklin ever pragmatic, not only started Philadelphia’s first fire department but also helped organize the first fire insurance company. He saw the need to financially protect residents’ homes and valuables from fires. In 1752, he founded The Philadelphia Contributionship for the Insuring of Houses from Loss by Fire. The firm sold 143 policies in the first year. These first policies had a seven-year term and after the term, any unused premiums were returned to policy holders. Franklin also suggested other forms of insurance such as life insurance and annuities. In his youth, he even proposed insurance or pensions for widows and orphans. In 1755, Franklin was pleased when the British sent General Edward Braddock to America

Franklin personally gave significant sums of money to finance the very risky revolutionary war. He donated his entire salary as Postmaster General to help wounded soldiers during the war. He also gave General Arnold 300 pounds from his pocket during a trip to Quebec. Just before leaving for France, he withdrew from his own bank account more than 3,000 pounds and lent it to Congress for prosecuting the war. He seemed to know the infant country would not have any credit with the world banks. In his final will, he left money for public works in Philadelphia and Boston.

prevalent in trades where lead was commonly used (e.g. glazers, type-founders, plumbers, potters, white lead makers, and painters) and in people who drank beverages from stills that used lead coils. He suggested many prevention ideas, like using pure tin coils instead of pewter, which contains lead. Franklin was an early supporter of smallpox vaccinations. Ironically, one of the few tragedies of his life was that his four-year-old Francis (known as Franky) died of smallpox before Franklin had the chance to have him inoculated; he had delayed vaccination because Franky had been ill. Though considered risky, Franklin defended inoculation, citing statistics to support the practice.

PUBLIC RISK | NOVEMBER /DECEMBER 2018

to push the French out of the Ohio valley. Braddock threatened to return to England because the Americans had failed to come up with the supplies he needed. Franklin said Pennsylvanians would rally to his cause and was put in charge of the procurement of wagons, horses, and other supplies. Franklin acted very selflessly; when the farmers said they did not trust the pledge of an unknown general, he gave his personal bond (another form of risk financing). Braddock was soundly defeated and killed along with 2/3 of his army. Among the survivors was the American Colonel George Washington, who had two horses shot out from under him and four bullets, pierce his clothing. Franklin had

personally guaranteed 200,000 pounds, which had he paid would have ruined him. Just as the farmers started suing him, Governor Shirley, who became the new general ordered the farmers be paid from the army’s funds. Franklin personally gave significant sums of money to finance the very risky revolutionary war. He donated his entire salary as Postmaster General to help wounded soldiers during the war. He also gave General Arnold 300 pounds from his pocket during a trip to Quebec. Just before leaving for France, he withdrew from his own bank account more than 3,000 pounds and lent it to Congress for prosecuting the war. He seemed to know the infant country would not have any credit with the world banks. In his final will, he left money for public works in Philadelphia and Boston.

SLAVERY

Benjamin Franklin is a primary founding father of the United States, signing both the Declaration of Independence and the U.S. Constitution. He was a visionary and expected the country he helped create to become a dominate world power. At the end of his life, he actively addressed the huge risk he saw for his country. In 1787, Franklin accepted the presidency of the Pennsylvania Society for Promoting the Abolition of Slavery. It seems he could see the possible serious trouble his beloved country would soon face. In February 1790, only weeks before his death, he presented a formal abolition petition to the U.S. Congress. They decided they did not have the authority thus ignoring a risk that eventually led to a civil war 74 years later. After presenting the petition, Franklin published a scathing parody of the defenders of slavery—his last public act. I may be biased, but in part, based on the information included here, I believe that of all the descriptions of Benjamin Franklin, “America’s Original Risk Manager” should be towards the top! Wendell Bosen is the senior account executive with Moreton and Company.

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NOVEMBER /DECEMBER 2018 | PUBLIC RISK

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MANAGEMENT

STRATEGY IS DIRECTLY SUPPORTED BY STATES’

SPECIALIZED COVERAGE FORM,

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DOUG STONE director of risk management

city of springfield, missouri

states member-owner over

4 years

MEMBER-OWNER

“OUR OVERALL RISK

STATES OFFERS YOU: • A BROADLY INTERPRETED EXCESS LIABILITY COVERAGE FORM THAT IS SECOND TO NONE IN THE INDUSTRY. • PREMIUM STABILITY AND SOUND FINANCIAL RESULTS FOR OUR PARTNER MEMBERS – MEMBER PREMIUMS ARE INVESTMENTS IN THEIR OWN COMPANY. • EXCELLENT CLAIMS AND LOSS CONTROL SUPPORT, INCLUDING ON-SITE. • SPECIALIZED PUBLIC ENTITY-ORIENTED SERVICES FROM EXPERIENCED, SERVICE-DRIVEN PROFESSIONALS.

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