JANICE K. BREWER
GOVERNOR

DAVID RABER
INTERIM DIRECTOR

ARIZONA DEPARTMENT OF ADMINISTRATION
RISK MANAGEMENT DIVISION

FISCAL YEAR 2010 ANNUAL REPORT

RESPONSIBILITIES/STATUTES
The Fiscal Year 2010 Annual Report, as required by ARS §41-623, summarizes liability,
property, and workers’ compensation expenditures, and provides information on loss
prevention efforts and overall achievements of the Risk Management Division during the
fiscal year.
The Risk Management Division was established in 1976, and is tasked with the
management and mitigation of liability, property and workers’ compensation claims.
Statutes found in ARS §41-621 et seq., and administrative rules found in AAC- R2-10101 through R2-10-601, outline the parameters of the program, including coverage for
agencies, employees, boards and commissions. The Risk Management Division provides
consultants to state agencies to assist agency personnel develop specific programs that
reduce or eliminate risk to the state. On an annual basis, Risk Management performs a
comprehensive evaluation of its insurance program to determine the proper mix of
purchased commercial insurance and risk retention.
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 and liability expenditures, 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 that assesses risk
exposure as well as historical losses.
 An actuarial projection is also developed for workers’ compensation time loss
expenditures, 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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ACHIEVEMENT AND GROWTH
Fiscal Year 2010 marked a year of significant achievements and continued growth.
 During Fiscal Year 2010, over 30,000 state employee driver records were reviewed
and monitored every two weeks through the Arizona State Employee Driver Record
Application (ASEDRA) Program. ASEDRA was developed in Fiscal Year 2009
allowing state agencies to obtain and review motor vehicle records of state employees
identified as authorized drivers in accordance with the AAC-Rule R2-10-207.12.
 The Loss Prevention Section utilized soft market negotiation strategies to reduce
excess insurance expenses by approximately 15% resulting in savings of $1,725,384.
 Loss Prevention conducted four separate Risk Insurance training sessions with a total
of forty-five attendees completing the curriculum. Each session consisted of four
separate components, including practice workshops, totaling approximately fourteen
to sixteen hours of training. The training materials included risk terminology, risk
identification, risk management alternatives and contract compliance.
 The Loss Prevention Section engaged in an analysis and evaluation of specialty lines
insurance coverage available to state vendors. Standardized insurance language was
developed and provided to agencies for utilization in future service contracts to
optimize risk transfer opportunities.
 Loss Prevention implemented a number of improvements and efficiencies to assist
state agencies address loss exposures:











Developed the Arizona Department of Administration’s asbestos management
program and procedures manual
Developed the Arizona Department of Administration’s electrical safety lock
out/tag out program
Reviewed and developed various state agency early return to work policies
Provided consultation during the relocation of the Department of Agriculture
laboratory
Recovered approximately $80,000 through the environmental unit’s subrogation
efforts
Provided migration of Risk Management training programs to on-line computer
based training
Developed a paperless process for environmental claim management
Completed the insurance policies migration to a user friendly, paperless system,
thereby reducing expenses related to pulling, copying and sending paper files
needed for coverage verification
Assisted the Arizona State Land Department in the abatement of a fire hazard
associated with an abandoned citrus orchard

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



Developed a patient handling video for training purposes at the Arizona
Department of Veterans’ Services
Assisted the Arizona Department of Game and Fish in the development of best
management practices for shooting ranges
Assisted the Arizona Department of Health Services with the closure of the
Tucson laboratory

 The Loss Prevention Section obtained two user licenses for a personal safety program
addressing student safety. Both Northern Arizona University and Arizona State
University have integrated the materials into their student safety programs.
 A Loss Prevention representative attended over 200 hours of the Department of
Economic Security caseworker training in an effort to identify opportunities to
mitigate exposures and strengthen defenses for claims filed against the state.
 The Loss Prevention Section continues to review cases with loss potential in excess of
$150,000. There are currently 65 active cases under review for exposure identification
or mitigation plan monitoring. Loss Prevention continues to work with agencies to
identify and appropriately address relevant exposures, develop mitigation plans,
implement plans, and monitor and/or modify plans for effectiveness.
 The implementation of a Document Management System (DMS) was completed for
the Property & Liability Section creating a paperless claims adjusting process. Claims
adjusting efficiency and effectiveness have been significantly improved through the
Document Management System. The Workers’ Compensation Section began
implementation of the DMS by scanning open claim files and will gradually implement
DMS claim processes in fiscal year 2011.
 Risk Management implemented RightFax which integrates desktop document
management with secure technology to provide flexible and efficient delivery and
receipt of business information.
 Risk Management conducted a customer satisfaction meeting with the three state
universities (Arizona State University, the University of Arizona and Northern Arizona
University) to improve agency interaction, communication and risk management
education.

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FISCAL YEAR 2010 COSTS AND COMPARISONS
Property expenditures in FY 2010 were $11.3 million; a decrease of $1.7 million from
FY 2009, and $1.7 million less than the five-year average of $13 million.
Liability expenditures for FY 2010 were $13.9 million - down from $17.2 million in
FY 2009. The five-year average for liability expenditures is $20.9 million.
Workers’ Compensation expenditures in FY 2010 showed no increase over FY 2009.
The following charts depict five-year cost comparisons:

PROPERTY CLAIM COSTS

LIABILITY CLAIM COSTS

30

40

25
20

In
millions of 15
dollars 10

28.2

16.9
1 3.5

30

13.0

11.3

10.6

25.7

In millions
20
of dollars

19.6

17.2
13.9

10

5
0

0

FY'06

FY'07

FY'08

FY'09

FY'10

FY'06

FY'07

FY'08

FY'09

FY'10

WORKERS' COMPENSATION
CLAIM COSTS
30
25 19.9
20
In
millions of 15
dollars 10

2 1.9

22.2
20.2

20.2

5
0
FY'06

FY'07

FY'08

FY'09

FY'10

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LIABILITY PROGRAM
In the Fiscal Year 2010, there were 2,989 liability claims reported to the Risk
Management Division. Total liability claim payments for Fiscal Year 2010, including
outside counsel and allocated loss adjustment expenditures, were $13.9 million. Figure 1
details the General Liability categories insured by the Risk Management Division. General
liability includes third party bodily injury and property damage, highway maintenance, and
negligence in oversight of state-managed 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 55% of the total cost. Personal Liability was second and
represented 28% of the total cost. Medical malpractice payments were $815,000. The
following table breaks down the number of claims and amounts paid by loss type.
Figure 1
Loss Type
General Liability – Bodily Injury
General Liability – Property
Personal Liability
Medical Malpractice
Automobile Liability – Bodily Injury
Automobile Liability – Property
Total

Frequency
356
1,357
643
44
60
529

Liability
Losses
$7,553,000
$658,000
$3,907,000
$815,000
$507,000
$416,000

2,989

$13,856,000

Figure 2 shows payments made in Fiscal Year 2010 for the agencies with the largest
liability losses ranked in descending order.
Figure 2
Agency
Liability Losses
Department of Economic Security
$4,972,000
Department of Corrections
$2,218,000
Department of Transportation
$1,441,000
Arizona State University
$1,237,000
Department of Public Safety
$925,000
University of Arizona
$881,000
Sub-Total
All Other Agencies
Total

$11,674,000
$2,182,000
$13,856,000

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PROPERTY PROGRAM
In Fiscal Year 2010, there were 4,907 property claims reported by state agencies. Losses
totaled $11.3 million.
The top two loss categories by frequency of occurrence and severity of payments were
real and personal property. Real property covers facilities owned by the state such as
office buildings, prison facilities and general infrastructure. Personal property includes
state owned vehicles, furniture, computers and other tangible property. Figure 3 shows
frequency of occurrence and severity of payments for property losses.

Figure 3
Frequency
Loss Type
Real Property
Environmental Property
Personal Property
Other
Total

845
16
4,037
9
4,907

Property
Losses
$4,501,000
$4,237,000
$2,578,000
$27,000
$11,343,000

The following table shows payments made in Fiscal Year 2010 for the agencies with the
largest property losses ranked in descending order.
Figure 4
Agency
Department of Administration
Arizona State University
Department of Transportation
University of Arizona
State Land Department
Department of Public Safety
Schools for the Deaf & Blind
Northern Arizona University
Department of Corrections
Department of Economic Security
Sub-Total
All Other Agencies
Total

Property Losses
$3,412,000
$1,370,000
$1,118,000
$864,000
$758,000
$747,000
$531,000
$398,000
$386,000
$317,000
$9,901,000
$1,442,000
$11,343,000

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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. This system involves
early notification of workers’ compensation claims by injured state employees or their
supervisors. Studies confirm that early notification allows for early claims management
intervention which translates to cost savings. The 542-WORK phone line, allows injured
employees or their supervisors to call in the first report of an industrial injury to the
workers’ compensation unit 24 hours a day, 7 days a week. During non-business hours,
state employees are able to respond to questions regarding their injury via an automated
system.

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 the 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.

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Figure 5 ranks the frequency and severity of payments for workers’ compensation claims
in Fiscal Year 2010 by agency.

Figure 5
Agency
Department of Corrections
Department of Economic Security
Department of Public Safety
Department of Transportation
University of Arizona
Arizona State University
Department of Juvenile Corrections
Northern Arizona University
Department of Health Services
Arizona Superior Courts

Frequency
871
342
159
205
286
195
113
151
135
155

WC Losses
$5,908,000
$2,412,000
$2,297,000
$1,486,000
$1,461,000
$1,094,000
$866,000
$839,000
$808,000
$615,000

Sub-total

2612

All other agencies
Total

389
3001

$17,786,00
0
$2,423,000
$20,209,00
0

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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:

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


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 Unit is to work with state agencies to
reduce or eliminate their exposure to risk. Risk Management Loss Prevention provides
professional services in a variety of areas including property, liability, environmental, and
worker protection.
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:
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

Construction Safety
Industrial Safety
Hazard Communication
Fire Safety
Fair Safety

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Security
Course of Construction
Motor Vehicle Safety
Emergency Planning

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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
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



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

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

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

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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 2010, 760 post-offer exams were conducted. The average number of days
to process exam findings was less than one day. Processing exam findings measures the
turn-around period from the time the staff nurse receives the prospective state employee’s
medical information until the agency is notified of the candidate’s status.
The total cost for Occupational Health Services exams in Fiscal Year 2010 was $73,900.

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