JANICE K. BREWER
GOVERNOR

SCOTT A. SMITH
DIRECTOR

ARIZONA DEPARTMENT OF ADMINISTRATION
RISK MANAGEMENT DIVISION

FISCAL YEAR 2011 ANNUAL REPORT

RESPONSIBILITIES/STATUTES
The Fiscal Year 2011 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 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 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 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, 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 that assesses 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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ACHIEVEMENTS AND GROWTH
Fiscal Year 2011 marked a year of significant achievements and continued growth.
Risk Management contracted with a bill review and retro-utilization company for its
Workers’ Compensation Program. The contract allows the state's injured workers
continued coverage for appropriate medical care, while realizing an annual savings
potential of approximately $600,000. The Workers' Compensation Section will have realtime electronic access to historical, current, and pending bill information as well as
immediate access to treatment and disability guidelines. Through this program, a
prescription benefit was added at no cost to the state.
The Workers' Compensation Section implemented Phase I of the Document Management
System (DMS) and will begin Phase II in Fiscal Year 2012. The Document Management
System creates a paperless claims adjusting process to improve efficiency, work flow, data
integrity, security and response time.
Risk Management fulfilled its mandatory federal reporting requirement for Section 111 of
the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) of 2007. Section 111
requires all insurance companies (including self-insured entities) to report quarterly to the
Center for Medicare Services (CMS) on injury information for claimants who are
Medicare beneficiaries.
The Property and Liability Section implemented enhancements to the Document
Management System (DMS) and streamlined its internal processes and procedures to
increase efficiencies, eliminate unnecessary storage, and improve security and service
delivery:
 Identified approximately 3,700 documents per year that no longer need to be
uploaded and stored on the server
 Created Sub-DMS Data Collections to preserve documents that need to be
retained beyond the destruction date of the claim file. Therefore, reducing the
need to extend the retention date of closed claim files and avoiding the need to
store millions of documents longer than required. These documents include
legislative reports, agency responses, and annuities.
The Property and Liability Section met with the Departments of Economic Security,
Transportation, Game and Fish, Public Safety, Public Safety Personnel Retirement System,
and Veterans’ Services to discuss claim services and opportunities for process
improvements. Efforts continue for building stronger relationships with agency
representatives in order to better understand their needs and provide high-quality service
delivery.
Claims adjusters from the Property and Liability Section attended a large property loss
seminar and implemented recommended cross-training to address multiple loss exposure
types.

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The Loss Prevention Section continued to utilize aggressive negotiation strategies to
reduce excess insurance expenses by over a million dollars. The renewal savings for the
state’s excess liability program alone was $999,924.
The Loss Prevention Section conducted four separate Risk Insurance training sessions
with a total of sixty-seven 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. In addition to
classroom training, an e-learning alternative was implemented to reduce participants’
travel expenses.
The Loss Prevention Section is assisting the three state universities in securing cyber risk
insurance coverage.
Loss Prevention evaluated the potential exposure from the Defense Base Act as it applies
to universities and certain agencies for state employees working on federal contracts in
foreign countries.
The Loss Prevention Section completed a risk exposure survey to update exposure data
from all agencies, boards, commissions and universities. The information is used to
develop accurate data for Risk Management’s premium allocation process and to facilitate
the underwriting process for purchasing excess insurance.
The Loss Prevention Section conducted hundreds of individual agency interactions to
provide assistance to shield state assets from contractual risk assumptions.
Loss Prevention implemented a number of improvements and efficiencies to assist state
agencies address loss exposures:
 The Arizona State Employee Drivers Record Application (ASEDRA) continued to
review and monitor biweekly over 33,888 state employees who are authorized to
operate a vehicle on state business (all major state agencies and all three
universities have begun utilization of ASEDRA)
 Provided OSHA 30 -hour training for three large agencies: the Arizona
Department of Administration, the Arizona Department of Juvenile Corrections,
and the Arizona Department of Game and Fish
 Completed and submitted, on behalf of the University of Arizona to the Arizona
Department of Environmental Quality, the Part B Permit Application for the
hazardous waste facility at Page Trowbridge Landfill
 Implemented revisions to the Emergency Action Plan (EAP) beginning with the
Arizona Department of Administration’s (ADOA) occupied buildings and revised
the EAP template to be utilized for all ADOA-managed buildings
 Developed Computer Based Training (CBT) EAP for floor warden and employee
training as part of EAP revisions

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 Conducted a design review of Fire Alarm System Upgrades/Replacements for
buildings on the Capitol Mall
 Participated in the reissuance of the Environmental Pollutants Contract and
participated in the committee to select contractors
 Assisted in the scope of work development of an Arizona Department of Health
Services hazardous material disposal contract
 Assisted in the development of specifications and evaluation of contractors for the
demolition of a former uninhabited facility in Mesa, and worked with the Arizona
State Land Department and the City of Mesa to achieve final demolition of this
significant liability
 Facilitated adjuster training for the four-course Associate in Claims (AIC)
certification
 Facilitated the establishment of four training categories to consolidate training
and instructors including Fire Life Safety, Occupational Safety, CPR/AED/First
Aid, and Defensive Driving/Van Dynamics
Risk Management recorded significant savings through numerous claims adjusting
subrogation efforts:
 Environmental claim recoveries: $311,774
 Workers’ Compensation third party recoveries: $938,648
 Workers’ Compensation credit against future liability: $682,224

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FISCAL YEAR 2011 COSTS AND COMPARISONS
Property expenditures in FY 2011 were $13.5 million; an increase of $2.2 million from
FY 2010, but $500,000 less than the five-year average of $14 million.
Liability expenditures for FY 2011 were $22 million - up from $13.9 million in FY 2010,
however, liability expenditures during Fiscal Year 2011 included one extraordinary bodily
injury claim in the amount of $5 million. The five-year average for liability expenditures is
$20 million.
Workers’ Compensation expenditures in FY 2011 showed a slight increase over FY 2010.
The following charts depict five-year cost comparisons:

LIABILITY CLAIM COSTS

20
16 13.5

IN MI LL ION S OF DO LL ARS

16.9
13.5

13.0
11.3

12
8
4
0
FY'07

FY'08

FY'09

FY'10

28 25.7
24

22.0

19 .6

20

1 7.2
13.9

16
12
8
4
0

FY'11

FY'07

FY'0 8

FY'0 9

FY' 10

FY'11

FY’11 includes one extraordinary bodily injury claim of $5 million

WORKERS' COM PENSATION
C LAIM COSTS
28
I N M IL LIO NS O F DOL LAR S

IN M ILL IO NS OF D OL LARS

PROPERTY C LAIM COSTS

24

21.9

22 .2

20 .2

20.2

20 .4

20
16
12
8
4
0
FY'07

FY'08

FY'09

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FY' 10

FY'11

LIABILITY PROGRAM
In the Fiscal Year 2011, there were 2,856 liability claims reported to the Risk
Management Division. Total liability claim payments for Fiscal Year 2011, including
outside counsel and allocated loss adjustment expenditures, were $22 million. General
liability claims include 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 60% of the total cost. Personal Liability was second and
represented 20% of the total cost. Medical malpractice payments were $2,456,000. The
following table breaks down the number of claims and amounts paid by loss type:
Loss Type
General Liability – Bodily Injury
General Liability – Property
Personal Liability
Medical Malpractice
Automobile Liability – Bodily Injury
Automobile Liability – Property
Total

Frequency Liability Losses
357
$13,198,000
1,404
$795,000
469
$4,466,000
37
$2,456,000
67
$776,000
522
$365,000
2,856

$22,056,000

The following table shows frequency of occurrence and liability losses in Fiscal Year 2011
for the agencies with the largest liability losses:
Agency
Department of Transportation
Department of Game and Fish
University of Arizona
Department of Economic Security
Department of Corrections
State Land Department
Arizona Superior Courts
Department of Public Safety
Sub-Total
All Other Agencies
Total

Frequency Liability Losses
497
$4,000,000
8
$3,640,000
124
$3,075,000
388
$2,700,000
970
$2,484,000
3
$1,560,000
58
$1,463,000
280
$948,000
2,328
528
2,856

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$19,870,000
$2,186,000
$22,056,000

PROPERTY PROGRAM
In Fiscal Year 2011, there were 5,659 property claims reported by state agencies. Losses
totaled $13.5 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. Environmental property covers
state buildings and state lands that sustain environmental damage. Personal property
includes state owned vehicles, furniture, computers and other tangible property.
The following table shows frequency of occurrence and severity of payments for property
losses:
Loss Type
Frequency Property Losses
Real Property
995
$7,380,000
Environmental Property
9
$2,782,000
Personal Property
4,652
$3,338,000
Other
3
0
Total
5,659
$13,500,000
Frequency of occurrence and property losses in Fiscal Year 2011 for the agencies with the
largest property losses are as follows:
Agency
Department of Transportation
Arizona State University
Department of Administration
State Land Department
Department of Public Safety
Northern Arizona University
Department of Education
Department of Corrections
University of Arizona
Arizona State Senate
Department of Health Services
Department of Economic Security
Sub-Total
All Other Agencies
Total

Frequency Property Losses
1,388
$2,849,000
395
$1,767,000
587
$1,632,000
2
$1,432,000
1,255
$808,000
317
$758,000
2
$727,000
682
$656,000
350
$583,000
0
$385,000
4
$310,000
357
$292,000
5,339
320
5,659

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$12,199,000
$1,301,000
$13,500,000

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 quicker 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 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 ranks the frequency and severity of payments for workers’
compensation claims in Fiscal Year 2011 by agency:

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Agency
Department of Corrections
Department of Economic Security
Department of Transportation
University of Arizona
Department of Public Safety
Arizona State University
Department of Health Services
Arizona Superior Courts
Department of Juvenile Corrections
Northern Arizona University
Sub-total
All other agencies
Total

Frequency WC Losses
964 $5,914,000
317 $2,643,000
206 $1,745,000
308 $1,678,000
162 $1,302,000
257 $1,200,000
141 $1,054,000
151
$821,000
102
$742,000
121
$534,000
2729
452
3181

$17,633,00
$2,746,000
$20,379,00

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 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:






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.
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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

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 2011, 1,188 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 2011 was $162,981.

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