DOUGLAS A. DUCEY
GOVERNOR

KEVIN DONNELLAN
ACTING DIRECTOR

ARIZONA DEPARTMENT OF ADMINISTRATION
RISK MANAGEMENT DIVISION

FISCAL YEAR 2015 ANNUAL REPORT

RESPONSIBILITIES/STATUTES
The Fiscal Year 2015 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 2015 marked a year of significant achievements:
 The State prevailed in four of seven court trials. Of the three judgments that were lost,
one award was significantly less than the final plaintiff offer.
 Risk Management recorded cost savings of over $2.5 million through numerous
subrogation efforts.
 The Workers’ Compensation Section began the implementation of a Medical Cost
Containment Program aimed at significantly improving injured workers’ medical care
and providing an annual cost savings.
 The Workers’ Compensation Section conducted two seminars for state agency workers’
compensation liaisons. The first seminar addressed frequently-asked questions regarding
workers’ compensation procedures and legalities, and the second seminar introduced the
new Medical Cost Containment Program. Guest speakers included representatives of the
medical and legal communities. Seventy-eight state agency workers’ compensation
liaisons representing thirty-five agencies attended the seminars.
 The Loss Prevention Section provided training to eight hundred forty-two employees
from thirty-nine state agencies (curriculum included NFPA life safety code, fire alarm
and signaling code, fire alarm inspection testing and maintenance, fuel tank
management, underground storage tank operator training, emergency action plan
development, fire protection awareness, OSHA 300 log, asbestos awareness refresher,

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international travel awareness, ergonomics train-the-trainer, and forklift operator
training).
 The Loss Prevention Section reviewed and updated twenty-two Loss Prevention
Program Elements which provide guidance to state agencies for the development of loss
prevention programs.
 The Loss Prevention Section completed assessments of the following:
• 126 contracts reviews
• 50 building plan reviews
• 9 site program reviews
• 34 ergonomic reviews
• 11 industrial hygiene studies

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FISCAL YEAR 2015 COSTS AND COMPARISONS
Liability expenditures for Fiscal Year 2015 were $21.8 million. The five-year average
for liability expenditures (excluding two extraordinary bodily injury claims of $5 million
in Fiscal Year 2011, and $7.8 million in Fiscal Year 2015) is $15.6 million.
Property expenditures in Fiscal Year 2015 were $12.6 million. The five-year average for
property expenditures is $12.3 million.
Workers’ Compensation expenditures in Fiscal Year 2015 showed a $900,000 dollar
decrease over Fiscal Year 2014.
The following charts depict five-year cost comparisons:

PROPERTY CLAIM COSTS

28
24

22.0

20

IN MILLIONS OF DOLLARS

IN MILLIONS OF DOLLARS

LIABILITY CLAIM COSTS

21.8
17.5

15.4

14.1

16
12
8

20
16

13.5

15.0
12.6

11.3
12

9.2

8
4

4
0

0
FY'11

FY'12

FY'13

FY'14

FY'11

FY'15

FY’11 includes one extraordinary bodily injury claim of $5 million
FY’15 includes one extraordinary bodily injury claim of $7.8 million

WORKERS' COMPENSATION
CLAIM COSTS

IN MILLIONS OF DOLLARS

28
24

24.1
20.4

21.2

21.7

23.2

20
16
12
8
4
0
FY'11

FY'12

FY'13

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FY'14

FY'15

FY'12

FY'13

FY'14

FY'15

LIABILITY PROGRAM
In the Fiscal Year 2015, there were 3,289 liability claims reported to the Risk Management
Division. Total liability claim payments for Fiscal Year 2015, including outside counsel and
allocated loss adjustment expenditures, were $21.8 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 78% of the total cost. Personal Liability was second and
represented 9% of the total cost.
The following table lists by loss type the frequency of claims reported in Fiscal Year 2015 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 2015
418
594
72
75
1455
675

Liability Losses
FY 2015
$16,900,000
$2,000,000
$1,400,000
$500,000
$520,000
$480,000

3289

$21,800,000

The following table shows Fiscal Year 2015 liability losses and frequency of claims for agencies
with the largest liability losses:
Agency
Department of Transportation
Department of Economic Security
Department of Corrections
University of Arizona
Arizona State University
Department of Public Safety
Department of Forestry
Office of Attorney General
Department of Administration
Sub-Total
All Other Agencies
Total

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Liability Losses
FY 2015
$10,100,000
$4,500,000
$2,500,000
$1,700,000
$540,000
$486,000
$389,000
$332,000
$275,000

Frequency
FY 2015
708
384
932
190
91
249
1
22
122

$20,822,000
$978,000
$21,800,000

2699
590
3289

PROPERTY PROGRAM
In Fiscal Year 2015, there were 5,597 property claims reported by state agencies. Losses totaled
$12.6 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 2015 and
amounts paid regardless of occurrence date:
Loss Type

Frequency Property Losses
FY 2015
FY 2015
Personal Property
4493
$3,900,000
Real Property
1099
$8,600,000
Environmental Property
5
$100,000
Total

5,597

$12,600,000

Property losses and frequency of claims reported in Fiscal Year 2015 for the agencies with the
largest property losses are as follows:
Agency

Property Losses Frequency
FY 2015
FY 2015
Arizona State University
$4,600,000
606
Department of Transportation
$1,800,000
1145
Department of Corrections
$1,100,000
741
University of Arizona
$1,000,000
447
Department of Public Safety
$950,000
1002
Northern Arizona University
$623,000
359
Department of Economic Security
$485,000
599
Department of Administration
$322,000
197
Department of Game and Fish
$251,000
188
Sub-Total
All Other Agencies
Total

$11,131,000
$1,469,000
$12,600,000

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5284
313
5597

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 2015 regardless of occurrence date, and the
frequency of claims reported by agency:
Agency
Department of Corrections
Department of Economic Security
Department of Public Safety
Department of Transportation
University of Arizona
Arizona State University
Department of Health Services
Arizona Superior Courts
Department of Juvenile Corrections
Northern Arizona University

WC Losses
FY 2015
$7,900,000
$2,200,000
$2,000,000
$1,900,000
$1,600,000
$1,150,000
$1,000,000
$1,000,000
$1,000,000
$560,000

Frequency
FY 2015
1551
416
219
210
280
246
164
203
129
177

Sub-total
All other agencies
Total

$20,310,000
$2,890,000
$23,200,000

3595
574
4169

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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 2015, 1,138 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 2015 was
$93,159.

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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