JANICE K. BREWER
GOVERNOR

BRIAN C. MCNEIL
DIRECTOR

ARIZONA DEPARTMENT OF ADMINISTRATION
RISK MANAGEMENT DIVISION

FISCAL YEAR 2014 ANNUAL REPORT

RESPONSIBILITIES/STATUTES
The Fiscal Year 2014 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 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.

ACHIEVEMENTS
Fiscal Year 2014 marked a year of significant achievements:
 The State prevailed in six of nine court trials. Of the three judgments that were lost, all
were awarded amounts significantly less than the final plaintiff offer.
 Risk Management recorded cost savings of over $5 million through numerous claims
adjusting subrogation efforts.
 The Property & Liability Section conducted in-house property procedure training for the
Northern Arizona University Risk Management Department.
 The Workers’ Compensation Section conducted a seminar for state agency workers’
compensation liaisons. The seminar topic was Post-Traumatic Stress Disorder (PTSD).
Guest speakers included representatives of the medical and legal communities as well as
an injured state worker (an Arizona Department of Public Safety officer). Forty-two
state agency workers’ compensation liaisons representing twenty-six agencies attended
the seminar.
 Risk Management enhanced its Document Management System (DMS) by streamlining
work-flow processes and procedures including:
 The implementation of a centralized repository gateway for all workers’
compensation email communications, documents, and images resulting in the
proper relocation of professional and support functions

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 A review of property and liability claims coding to begin clean-up procedures for
a more streamlined indexing scheme
 Loss Prevention implemented a number of improvements and efficiencies to assist state
agencies in addressing loss exposures including:


Provided ongoing development, support, and implementation of Emergency
Action Plans (EAP) for state buildings located on the Capitol Mall and at the
Tucson complex



Established a Capitol Mall emergency plan working group (consisting of
emergency coordinators from agencies located on the mall) to enhance
communication regarding safety and security issues



Deployed the Mass Communication System for over 10,000 employees located
on the Capitol Mall and at the Tucson complex which enables the Department of
Public Safety to alert employees of immediate security issues occurring at these
two complexes



Conducted risk insurance training sessions for three hundred fifty-five employees
from twenty-six state agencies (curriculum included dynamics of risk,
procurement insurance concepts and terminology, fidelity/insurance crime
prevention, special contingency risk management, and contract compliance)



Provided loss prevention training to six hundred sixty-five employees from thirtysix state agencies (curriculum included driver safety training, emergency action
plan development, fire protection awareness, OSHA 300, asbestos awareness
refresher, AED/CCO-SPR, OSHA 10 & OSHA 30 certification, and indoor air
quality)



Completed a health risk assessment of lead exposure at all (nine) Arizona
Department of Game and Fish outdoor shooting ranges resulting in the
implementation of revisions to best management practices to protect employees,
the public, and the environment



Partnered with the Arizona Department of Environmental Quality and the
Arizona State Land Department to mitigate the environmental impacts to
Boulder Creek caused by a large tailings pile from the Hillside Mine located on
State Trust Land

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FISCAL YEAR 2014 COSTS AND COMPARISONS
Liability expenditures for Fiscal Year 2014 were $17.5 million. Increases over Fiscal
Year 2013 resulted from higher than average medical malpractice settlements. The fiveyear average for liability expenditures, excluding an extraordinary $5 million bodily
injury claim in Fiscal Year 2011, is $15.6 million.
Property expenditures in Fiscal Year 2014 were $9.2 million. Fiscal Years 2011, 2012,
and 2013 include payments for a hail damage occurrence in Fiscal Year 2011. The fiveyear average for property expenditures, excluding extraordinary hail damage in Fiscal
Years 2011, 2012 and 2013, is $11.5 million.
Workers’ Compensation expenditures in Fiscal Year 2014 showed a $2.4 million dollar
increase over Fiscal Year 2013. Increases resulted from medical inflation and statutory
increases in lost time payments.
The following charts depict five-year cost comparisons:

PROPERTY CLAIM COSTS

28
22.0

24
20
16

IN MILLIONS OF DOLLARS

IN MILLIONS OF DOLLARS

LIABILITY CLAIM COSTS

17.5

15.4

13.9

14.1

12
8

20
15.0

16
12

13.5
11.3

11.3
9.2

8
4

4
0

0
FY'10

FY'11

FY'12

FY'13

FY'10

FY'14

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

IN MILLIONS OF DOLLARS

28
20.2

20.4

21.2

21.7

24.1

20
16
12
8
4
0
FY'10

FY'11

FY'12

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FY'12

FY'13

FY'14

FY’11 includes extraordinary claims due to hail damage of $977,744
FY’12 includes extraordinary claims due to hail damage of $1,571,372
FY’13 includes extraordinary claims due to hail damage of $113,468

WORKERS' COMPENSATION
CLAIM COSTS

24

FY'11

FY'13

FY'14

LIABILITY PROGRAM
In the Fiscal Year 2014, there were 3,032 liability claims reported to the Risk Management
Division. Total liability claim payments for Fiscal Year 2014, including outside counsel and
allocated loss adjustment expenditures, were $17.5 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 51% of the total cost. Personal Liability was second and
represented 20% of the total cost.
The following table lists by loss type the frequency of claims reported in Fiscal Year 2014 and
amounts paid regardless of occurrence date:
Loss Type
General Liability – Bodily Injury
Personal Liability
Medical Malpractice
Automobile Liability – Bodily Injury
General Liability – Property
Automobile Liability – Property
Total

Frequency
FY 2014
499
562
61
80
1238
592

Liability Losses
FY 2014
$8,950,000
$3,525,000
$3,125,000
$945,000
$585,000
$395,000

3032

$17,525,000

The following table shows Fiscal Year 2014 liability losses and frequency of claims for agencies
with the largest liability losses:
Agency
University of Arizona
Department of Corrections
Superior Courts
Department of Transportation
Department of Economic Security
Office of Attorney General
Department of Public Safety
Arizona State University
Department of Health Services
Department of Administration
Sub-Total
All Other Agencies
Total
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Liability Losses
FY 2014
$4,250,000
$3,185,000
$2,372,000
$1,934,000
$1,194,000
$1,200,000
$766,000
$486,000
$315,000
$269,000

Frequency
FY 2014
185
844
69
498
387
8
248
101
27
190

$15,971,000
$1,554,000
$17,525,000

2557
475
3032

PROPERTY PROGRAM
In Fiscal Year 2014, there were 4,683 property claims reported by state agencies. Losses totaled
$9.2 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 2014 and
amounts paid regardless of occurrence date:
Loss Type

Frequency Property Losses
FY 2014
FY 2014
Personal Property
3957
$4,247,000
Real Property
717
$4,230,000
Fidelity and Surety
0
$520,000
Environmental Property
9
$238,000
Total

4,683

$9,235,000

Property losses and frequency of claims reported in Fiscal Year 2014 for the agencies with the
largest property losses are as follows:
Agency

Property Losses Frequency
FY 2014
FY 2014
Arizona State University
$3,600,000
315
University of Arizona
$1,322,000
350
Northern Arizona University
$975,000
321
Department of Corrections
$703,000
726
Department of Public Safety
$679,000
883
Department of Game and Fish
$592,000
156
Department of Transportation
$488,000
995
Department of Administration
$353,000
221
Department of Economic Security
$346,000
543
Sub-Total
All Other Agencies
Total

$9,048,000
$177,000
$9,235,000

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4510
173
4683

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 2014 regardless of occurrence date, and the
frequency of claims reported by agency:
Agency
Department of Corrections
Department of Economic Security
Department of Public Safety
University of Arizona
Department of Transportation
Department of Health Services
Arizona Superior Courts
Arizona State University
Department of Juvenile Corrections
Northern Arizona University

WC Losses
FY 2014
$7,280,000
$2,440,000
$2,040,000
$1,876,000
$1,865,000
$1,456,000
$1,120,000
$1,111,000
$1,060,000
$550,000

Frequency
FY 2014
1537
432
196
291
229
207
234
257
142
148

Sub-total
All other agencies
Total

$20,798,000
$3,273,000
$24,071,000

3673
529
4202

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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:





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 2014, 1,297 post-offer exams were conducted. The average number of days to
process exam findings was less than six 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 2014 was
$96,048.

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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