DOUGLAS A. DUCEY
GOVERNOR

CRAIG C. BROWN
DIRECTOR

ARIZONA DEPARTMENT OF ADMINISTRATION
RISK MANAGEMENT DIVISION

FISCAL YEAR 2016 ANNUAL REPORT

RESPONSIBILITIES/STATUTES
The Fiscal Year 2016 Annual Report, as required by A.R.S. § 41-623, summarizes
liability, property, and workers’ compensation expenditures, and provides information
on loss prevention efforts and several achievements of the Arizona Department of
Administration Risk Management Division during the fiscal year.
The Risk Management Division was established in 1976, and is responsible for the
management and mitigation of liability, property, and workers’ compensation claims.
Statutes found in A.R.S. §41-621 et seq., and administrative rules found in A.A.C. R210-101 through R2-10-601, outline the parameters of the program, including coverage
for agencies, employees, boards and commissions. The Risk Management Division
provides consultations with state agency personnel to recommend programs and
procedures aimed at reducing or eliminating risk. On an annual basis, Risk Management
performs a comprehensive evaluation of its insurance program to determine the proper
combination of purchased commercial insurance and risk retention.

ACHIEVEMENTS
Fiscal Year 2016 marked a year of significant achievements:
 Risk Management successfully outsourced the Workers’ Compensation Medical
Processing and Cost Containment Program aimed at significantly improving injured
workers’ medical care and providing an annual cost savings. After accounting for
medical inflation, savings for FY 2016 are $1.2 million and are expected to approach
$1.5 million in FY 2017. Savings resulted from better medical pricing, a reduction in
unnecessary care, a decrease in emergency room utilization, and internal cost reductions.
We also estimate a minimum annual productivity savings of $500,000 by returning
employees to work sooner.
 The State prevailed in three of five court trials. Of the two judgments awarded, one was
significantly less than the final plaintiff offer.
 Risk Management recorded savings of over $2.8 million dollars through numerous
subrogation efforts.
 Based on workers’ compensation claim data, Risk Management identified several
significant loss exposures and developed and presented 29 new training courses for 774
state employees (curriculum addressed employee safety, security, emergency response,
and environmental and occupational safety compliance issues).
 The State recorded its lowest occupational injury and illness incident rate in the last
fourteen years (3.64 compared to the national average of 3.80 as reported by the Bureau
of Labor Statistics).

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 Risk Management implemented a statewide vehicle-use policy aimed at setting
minimum vehicle-use standards. The policy was presented to all agency fleet operators
and vehicle training programs were updated. The State recorded its lowest frequency in
auto liability losses in five years.
 Risk Management applied LEAN to several of its processes and achieved significant
improvements by:
 decreasing the Vehicle Incident Review Committee (VIRC) determination
process from an average of 144 days to 4 days
 standardizing and completing 45 building plan reviews
 decreasing the property and liability pre-claim notification process from 8 to 4
steps
 decreasing the property and liability pre-claim notification turnaround time
from 24- 48 hours to 4-8 hours
 streamlining the Document Management System (DMS) property and liability
claim coding indexing scheme from 176 to 94 codes
 developing an electronic exchange between Risk Management and the
Industrial Commission of Arizona that reduced workers’ compensation claim
processing time from 3 hours to 30 minutes per day
 reducing the workers’ compensation supportive care medical benefit
eligibility authorization processing time by 50%

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FISCAL YEAR 2016 COSTS AND COMPARISONS
Liability expenditures for Fiscal Year 2016 were $32.8 million. The five-year average
for liability expenditures (excluding an extraordinary bodily injury claim of $7.8 million
in Fiscal Year 2015, and four extraordinary bodily injury claims totaling $8.7 million in
Fiscal Year 2016) is $14.7 million.
Property expenditures in Fiscal Year 2016 were $13.7 million. The five-year average for
property expenditures (excluding an extraordinary real property damage claim of $2.8
million in Fiscal Year 2016) is $11.8 million.
Workers’ Compensation expenditures in Fiscal Year 2016 showed a $2.8 million dollar
increase over Fiscal Year 2015.
The following charts depict five-year cost comparisons:

PROPERTY CLAIM COSTS

40
36
32
28
24
20
16
12
8
4
0

IN MILLIONS OF DOLLARS

IN MILLIONS OF DOLLARS

LIABILITY CLAIM COSTS

32.8
21.8
15.4

17.5
14.1

20
15.0
16
12.6

11.3

12

13.7

9.2

8
4
0

FY'12

FY'13

FY'14

FY'15

FY'12

FY'16

FY’15 includes one extraordinary bodily injury claim of $7.8 million
FY’16 includes four bodily injury claims resulting from similar
circumstances totaling $8.7 million

IN MILLIONS OF DOLLARS

24

21.2

21.7

24.1

23.2

26.0

20
16
12
8
4
0
FY'12

FY'13

FY'14

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FY'14

FY'15

FY'16

FY’16 includes one extraordinary real property damage claim of
$2.8 million

WORKERS' COMPENSATION
CLAIM COSTS

28

FY'13

FY'15

FY'16

LIABILITY PROGRAM
In the Fiscal Year 2016, there were 3,349 liability claims reported to the Risk Management
Division. Total liability claim payments for Fiscal Year 2016, including outside counsel and
allocated loss adjustment expenditures, were $32.8 million. General liability claims include third
party bodily injury and property damage, resulting from alleged negligence in oversight of statemanaged programs. The category of personal liability includes such areas as employment
discrimination, defamation, and civil rights violations. Medical malpractice includes errors and
omissions by state medical professionals. Automobile liability includes third party claims for
injuries and property damage resulting from the use of automobiles by state employees engaged
in state business. General Liability – Bodily Injury claims were the most expensive claims in the
liability category, representing 64% of the total cost. Auto Liability – Bodily Injury was second
and represented 21% of the total cost.
The following table lists by loss type the frequency of claims reported in Fiscal Year 2016 and
amounts paid regardless of occurrence date:
Loss Type
Frequency
Liability Losses
FY 2016
FY 2016
General Liability – Bodily Injury
693
$21,000,000
Automobile Liability – Bodily Injury
124
$6,800,000
Personal Liability
591
$3,150,000
General Liability – Property
1135
$950,000
Automobile Liability – Property
752
$600,000
Medical Malpractice
54
$300,000
Total

3349

$32,800,000

The following table shows Fiscal Year 2016 liability losses and frequency of claims for agencies
with the largest liability losses:
Agency
Liability Losses
Frequency
FY 2016
FY 2016
Department of Transportation
$16,900,000*
531
Department of Corrections
$7,800,000
916
Department of Public Safety
$936,000
362
Department of Forestry
$880,000
1
University of Arizona
$878,000
169
Department of Administration
$838,000
152
Department of Health Services
$686,000
33
Department of Economic Security
$620,000
312
Department of Child Safety
$619,000
136
Arizona State University
$543,000
95
Sub-Total
All Other Agencies
Total

$30,700,000
$2,100,000
$32,800,000

*includes four bodily injury claims resulting from similar circumstances totaling $8.7 million

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2538
811
3349

PROPERTY PROGRAM
In Fiscal Year 2016, there were 5,457 property claims reported by state agencies. Losses totaled
$13.7 million.
The top two loss categories by frequency of occurrence and severity of payments were personal
and real property. Personal property includes state-owned vehicles, furniture, computers and
other tangible property. Real property covers state-owned facilities such as office buildings,
prison facilities and general infrastructure. Environmental property covers state buildings and
state lands that sustain environmental damage.
The following table lists by loss type the frequency of claims reported in Fiscal Year 2016 and
amounts paid regardless of occurrence date:
Loss Type
Frequency Property Losses
FY 2016
FY 2016
Real Property
867
$9,900,000
Personal Property
4587
$3,600,000
Environmental Property
3
$200,000
Total

5457

$13,700,000

Property losses and frequency of claims reported in Fiscal Year 2016 for the agencies with the
largest property losses are as follows:
Agency
Property Losses Frequency
FY 2016
FY 2016
Arizona State University
$6,500,000*
506
Department of Corrections
$1,300,000
844
University of Arizona
$1,200,000
355
Department of Public Safety
$800,000
770
State Fair and Coliseum
$775,000
3
Northern Arizona University
$750,000
434
Department of Administration
$550,000
526
Department of Transportation
$500,000
891
Department of Economic Security
$200,000
356
Department of Child Safety
$170,000
82
Sub-Total
All Other Agencies
Total

$12,745,000
$955,000
$13,700,000

*includes one extraordinary real property damage claim of $2.8 million

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4767
690
5457

WORKERS’ COMPENSATION PROGRAM
The State Workers’ Compensation Program provides benefits to state employees injured during
the course and scope of their employment. The program pays medical, surgical, lost wages and
hospital disability benefits as provided by law under the Arizona Workers’ Compensation Act.
The Managed Care Incentive Program provides quality medical care for state employees injured
on the job. More than 48 hospitals, 3000 physicians and 12 industrial clinics are available to
employees within the network.
The Early Claims Notification System continues to be successful with sixty-five percent of
injured workers using the service. This system involves early notification of workers’
compensation claims by injured state employees or their supervisors, allowing them to call in the
first report of an industrial injury to the workers’ compensation section 24 hours a day, 7 days a
week.
The Early Return to Work with Modified Duty Program continues to prove effective in many
state agencies. A disability management specialist works with injured workers, their supervisors
and managers to find positions within their agency that allow the injured worker to return to
work as soon as possible. Placing an injured worker in these modified duty positions enables the
employee to make a smooth and safe transition to their former duties or to a new position that is
suitable for them. In addition to managing the Modified Duty Program, the disability
management nurse has helped implement an in-house Utilization Review Program. All medical
diagnostic procedures must be reviewed for medical necessity and appropriateness before
authorization. This process is typically completed within 24 hours to help ensure recovery of
injured employees.
The following table lists amounts paid in Fiscal Year 2016 regardless of occurrence date, and the
frequency of claims reported by agency:
Agency
WC Losses Frequency
FY 2016
FY 2016
Department of Corrections
$8,200,000
1845
Department of Public Safety
$2,700,000
228
Department of Economic Security
$2,200,000
411
Department of Transportation
$1,900,000
218
University of Arizona
$1,750,000
300
Arizona State University
$1,500,000
220
Department of Health Services
$1,400,000
183
Department of Juvenile Corrections
$1,300,000
123
Arizona Superior Courts
$1,000,000
252
Northern Arizona University
$630,000
182
Sub-total
All other agencies
Total

$22,580,000
$3,420,000
$26,000,000

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3962
700
4662

LOSS PREVENTION PROGRAM
The Arizona Revised Statutes require each state agency to conduct risk identification and
assessment, and implement a loss prevention program to reduce frequency and severity of losses
in the following areas:





Real and personal property protection
Employee safety in the work environment
Federal and state standards for industrial hygiene and environmental protection
Negligent acts that cause harm to third-parties

The primary responsibility of the Loss Prevention Section is to work with state agencies in a
variety of areas including property, liability, environmental, and worker protection to reduce or
eliminate their exposure to risk. Loss Prevention provides professional safety consultants,
industrial hygienists and environmental specialists to assist agencies in developing and
implementing loss prevention programs. Safety consultants also provide assistance in solving
everyday loss prevention problems in the following areas:






Construction Safety
Industrial Safety
Hazard Communication
Fire Safety
Fair Safety






Security
Course of Construction
Motor Vehicle Safety
Emergency Planning






Site and Hazard Assessment
Health and Safety Education
CPR
Ergonomics

Assistance is provided in risk assessment and corrective action, program development and
implementation by means of Assessment, Consultation, and Evaluation (ACE) Reports. An ACE
report is a focused inspection and consultation to assess a particular risk exposure, along with
written recommendations for corrective actions. The top three ACE subjects and recommended
corrective actions are:
Fire and Security






Fire Extinguisher Inspection, Maintenance, Service and Training
Training on Fire Protection Practices
Wildfire Preventative Actions
Security Lighting Enhancements
Fire Door Repair

Safety Inspection





Guardrail Installation
Emergency Evacuation Plans (Drills)
Repair of Emergency Lighting/Exit Signs
Secure Machinery

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Building Indoor Air Quality
 Air Diffuser Cleaning
 General HVAC Maintenance
 Mold Consultation/Testing/Mitigation

OCCUPATIONAL HEALTH SERVICES
Occupational Health Services is responsible for the post-offer physical examinations of potential
state employees whose jobs put them at risk of occupational illness or injury. Occupational
Health Services schedules, evaluates, and pays for these examinations for various state agencies.
In Fiscal Year 2016, 1,252 post-offer exams were conducted. The average number of days to
process exam findings was less than 11 days (measures the turn-around period from the time the
agency requests a physical exam for the prospective state employee until the agency is notified
of the candidate’s clearance). The total cost of post-offer exams in Fiscal Year 2016 was
$94,897.

RISK MANAGEMENT FUNDING SOURCES
Funding for Risk Management programs is provided from the Risk Management Revolving
Fund. Revenues into the fund are generated as follows:
 An actuarial projection is developed for property, liability, outside counsel and allocated
loss adjustment expenditures. In addition, estimates are prepared for costs of administration,
insurance premiums, and attorney general defense. The total is then allocated and invoiced to
agencies based on a formula assessing risk exposure as well as historical losses.
 An actuarial projection is also developed for workers’ compensation time loss, medical,
outside counsel, and allocated loss adjustment expenditures. In addition, estimates are
prepared for costs of administration, insurance premiums, and attorney general defense. The
total is then allocated to agencies based on an allocation method from the National Council on
Compensation Insurance (NCCI). The NCCI method calculates a rate per payroll using
employee classifications modified by the agency’s historical losses.

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