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1. Office of Risk Management Internal Operational Assessment Project Charter Discussion and General Project Status Page Down to Navigate through presentation. 22 1 March 2002

2. Agenda • Team Introductions • Project Charter • Case for Action • LLA Investigative Audits • “Cut the Fat” Report • Office of Inspector General • Strategic Vision • Critical Success Factors • ORM Strategic Plan • Project Status • Technology • Accounting • Internal Controls • Funding / Premium Development • Loss Prevention • Organizational Analysis • Claims Management 2

3. METHODS Project Team • DEBRA LAZARE • GARY LEE • ANDRE’ COMEAUX • JOHN LANDRY • JOHN MILES • PETER ROUSMANIERE • KESHIA THOMAS • RICHARD THOMPSON 3

4. Angele Davis* Whit Kling* Patricia Reed* Doris Copeland Terrence Ginn Ann Wax Bob Rachal Melissa Harris Pam Whiteside Kerry Dubea Karen Jackson Penny Buchanan Terry Grimball Richard Hollowell Sandra Porter Henry Rayborn Cindy Roman Jack Travis Greg Lindsay Integrated Project Team (as of 02/05/02) • Debra G. Lazare • Gary Lee • Andre’ Comeaux • John Landry • Benedict Lazare • John Miles • Peter Rousmaniere • Keshia Thomas • Richard Thompson * ex officio members 4

5. Defining the Project Charter

6. External Perceptions Negative Audit Findings Tighter Budgets Decreasing Staffing Levels Increasing Levels of Expectation Increasing Risk Exposure Window of opportunity / doorway to the future ORM Case For Action 6

7. Investigative Audit Findings Internal Fraud Procedural Controls Internal Audit Function Workers’ Compensation Claims / Reserving Staff Training ORM Case For Action 7

8. Office of Inspector General Findings Vendor Contracts Over-billings ORM Case For Action 8

9. “Cut the Fat” Report Technology Return to Work Program Staffing ORM Case For Action 9

10. Recommendations: ORM Case For Action 10

11. Current Vision “To provide innovative and creative leadership focused on outcomes and improvements that promote a new image of the Office of Risk Management.” Does this articulate a realistic and credible view of a possible and desirable future for ORM? ORM Strategic Vision 11

12. Current Mission “…is to develop, direct, achieve and administer a cost-effective comprehensive risk management program for all agencies, boards and commissions of the State of Louisiana and for any other entity for which the state has an equity interest, in order to preserve and protect the assets of the State of Louisiana.” Does this define who you are, what you do and where you are headed? ORM Strategic Mission 12

13. Current Philosophy “…is to assist in attaining the goals of the Administration by developing a professional, productive and dedicated staff which will produce a strong, effective and efficient risk management program that is sensitive to the needs of its client-user agencies.” Does this represent the mental image held by the majority of ORM staff members? ORM Strategic Philosophy 13

14. Recommendations: Determine connection to vision, mission and philosophy. Discuss agreements and differences. Refine to align with today and desired future. ORM Strategic Charter 14

15. Indicator Documentation Sheet Indicator name Indicator type Rationale Data collection Frequency and Timing Calculation Methodology Definitions Aggregations Responsibility Limitations How Indicator is Used Action Plan ORM Critical Success Factors per Strategic Plan • Goals • Objectives • Strategies • Performance Indicator Matrix • Input • Output • Outcome • Efficiency • Quality • Principal Clients & Users • Identification of External Factors 15

16. Recommendations: Conduct review of existing plan with all staff. Obtain and incorporate comments. Live the Plan! ORM Critical Success Factors 16

17. General Project Status

18. Internal Controls Safety / Loss Prevention Actuarial / Fiscal Strategy Coverage Evaluation Provider Review Organizational Analysis / Design Underwriting / Premium Development Claims Administration and Management Business Intelligence / Knowledge Management Areas of Emphasis 18

19. Project Activities • Interviews with clerical, professional, supervisory, mid-management and senior management personnel on-going • Interviews with key constituents completed • Interviews with client agencies on-going • Process flowcharts being generated • Key data requested and some analysis begun • IT systems assessment ongoing • Benchmarking other states on-going 19

20. Technology Management

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22. Integration is Not a Luxury! • Risk Information Management System • Niche packages • DOA systems • Contract vendor systems • Ancillary office automation products 22

23. Business Intelligence is Not a Luxury! • Data integrity • Data collection • Data accessibility • Data transformation • Data visualization 23

24. Organizational Analysis

25. Salary Training Management Style Table of Organization Performance Reviews / Coaching Workload Distribution / Unit Structure Position Descriptions vs Responsibilities Areas of Emphasis 25

26. Lack of Confidence in Management Team • Perception that 4th floor focuses on micro issues without supporting 1st floor on critical success factors • Perception of favoritism and unequal treatment • Diversity issues • LACK OF COMMUNICATION 26

27. Staffing Deficiency: Perception or Reality?? 27

28. Training is Not an Option! • Leadership • Management / Supervisory • Communications • Planning • Functional • Technology 28

29. Workload Distribution / Unit Structure • Lacking knowledge cross-pollination • Lacking multi-disciplinary approach • Lacking true customer-centric focus • Evidence of inter-unit fragmented processes 29

30. Accounting and Internal Controls

31. Perception--“Favored” unit • No logical sense of linkage with Claims Unit • Controls involve reliance on burdensome system of management sign-off and inspection • Lack of exception / specialized reports • Internal audit function needed 31

32. 32

33. What’s Next 33

34. Funding and Premium Development

35. Actuarially-based approach has given way to a cash payments-based approach • Is cash needs approach best for the state? 35

36. Premium allocation model is logical • Actuarial study of retention levels is needed • Insurance bidding process could allow blocking of competitive markets by single agent / broker • Market opportunities not pursued • Reinsurance as an experience-leveling mechanism needs to be reviewed • Premium collections can be a problem 36

37. Premium vs Cash Needs Typical Claim Payout Pattern financed by Premium 37

38. Premium vs Cash Needs Cash Need Example 38

39. Cost of Risk Allocation (CORA) 1. Estimate the Statewide Cash Need for the Subject Period 2. Divide the Cash Need among the individual Coverage Lines 3. Allocate each Coverage Line Cash Need to the Agencies 39

40. Cost of Risk Allocation (CORA) 1. Estimate the Statewide Cash Need for the Subject Period Average Loss and Loss Adjustment Expenses paid in prior years + Approximate administrative costs for ORM + Cost of commercial excess insurance to be purchased + Deficit Reduction Amount + Commercial Insurance Premium for Aviation & Marine Coverage 40

41. Cost of Risk Allocation (CORA) 2. Divide the Cash Need among the individual Coverage Lines An average of four estimating methods are used: A. Prior year loss and loss adjustment expense B. Prior year allocation of cash needs C. Line premium need to total need D. Cash need to premium comparison 41

42. 3. Allocate each Coverage Line Cash Need to the Agencies Workers Compensation Statutory Workers Compensation - Maritime Comprehensive General Tort Liability Automobile Liability Auto Physical Damage Boiler & Machinery Building & Property Bonds Crime Self Insured Personal Injury Liability Medical Malpractice Road Bridge, Dam & Tunnel Misc. – Tort (NOC) 42

43. 3. Allocate each Coverage Line Cash Need to the Agencies Automobile Liability Exposure Allocation (30%) Agency Mileage Statewide Cash Need X X 30% Statewide Mileage + Experience Allocation (70%) Agency Claim $ Experience Statewide Cash Need X X 70% 43 Statewide Claim $ Experience

44. 3. Allocate each Coverage Line Cash Need to the Agencies Automobile Liability Online entry was implemented for the 3rd Qtr 2002 44

45. 3. Allocate each Coverage Line Cash Need to the Agencies Automobile Liability Loss Limitation on Individual Claims 45

46. 3. Allocate each Coverage Line Cash Need to the Agencies Workers Compensation Statutory Workers Compensation - Maritime Comprehensive General Tort Liability Automobile Liability Auto Physical Damage Boiler & Machinery Building & Property Bonds Crime Self Insured Personal Injury Liability Medical Malpractice Road Bridge, Dam & Tunnel Misc. – Tort (NOC) 46

47. Workers Compensation Statutory Exposure Allocation Agency Payroll Statewide Cash Need X X 20% Statewide Payroll + Experience Allocation Agency Claim $ Experience Statewide Cash Need X X 80% Statewide Claim $ Experience 47

48. Workers Compensation Statutory ISIS HR Download 48

49. Workers Compensation Statutory Loss Limitation on Individual Claims 49

50. Loss Prevention