TALLAHASSEE, Fla.—Private-sector risk management practices are paying dividends for one of the nation's largest public entities—the state of Florida.

In fact, greater emphasis on loss prevention, encouraging workers to return to work sooner rather than later and other techniques adopted from the private sector saved Florida about $12 million in 2009, state Chief Financial Officer Alex Sink wrote in her introduction to the Division of Risk Management's 2009 annual report.

In the area of workers compensation, injured employee satisfaction with the state's services rose 30% while lost-time claims fell 28%, she wrote. The state also achieved savings by reducing litigation costs associated with employment discrimination, she said.

Since becoming CFO in 2007, Ms. Sink—a former Florida president of Bank of America—has stressed using private-sector approaches to save money at the Florida Department of Financial Services, which includes the Division of Risk Management. She invited experts from leading private employers in Florida to suggest ways to improve risk management.

The state plans to improve its risk management practices even more through a new Advisory Council on Risk Management. The council, which held its first formal meeting this year, consists of three private-sector risk managers, a state official and an insurance professor (see story, page 17).

R.J. Castellanos, who became director of the Division of Risk Management in 2008, said Florida “wasn't doing that poorly to begin with as far as claims experience,” and compared favorably with many private and public programs in frequency and severity of claims. But the division had no clear legislative authority to require agencies participating in Florida's self-insurance program—which covers everything but some catastrophic property exposures—to implement loss-control programs.

“As a result, we were not always getting cooperation with the agencies,” Mr. Castellanos said. “We also didn't always have the top management of the agencies involved in the risk management program.”

In her message, Ms. Sink advocated that state lawmakers this year establish “comprehensive risk management requirements for all state agencies and to reward agencies that demonstrably improve their performance.”

Mr. Castellanos noted that private-sector workplaces must comply with regulations from the Occupational Safety and Health Administration.

“There's more emphasis from a cost perspective on the part of the private sector,” he said. “We knew they had stronger programs. They also usually have a better command-and-control structure. We're really a pool of public entities as far as our risk management program.”

Workers comp is the state's major cost, he said. To rein in expenses, the state implemented a new approach, which began with quickly getting the right kind of medical care for injured workers through physicians who are knowledgeable about occupational injuries and disease, Mr. Castellanos said. The plan includes a greater emphasis on return-to-work programs, he said.

“We conducted extensive training sessions all over the state to get as many managers as possible to understand the change in methodology we were undertaking and their role in making this new approach successful,” he said. “We had some resistance because of the time involved in taking these managers from their jobs, but received very good feedback once they understood the new processes,” he said.

“We've seen dramatic results there, where our indemnity costs—lost salary—have been reduced by about 30%” in 2009 compared with 2008, said Mr. Castellanos.

While only about 10% of injuries are serious enough to keep employees out of the workplace, they represent about 80% of costs, he said.

“It still takes time for the savings to accumulate, but we hope that will result in substantial savings over the next several years,” Mr. Castellanos said.

“We also looked at how to reduce the millions spent every year in legal costs on employment discrimination claims,” Ms. Sink wrote in her message. “Early review and intervention in discrimination claims saved more than $800,000, and application of this process to federal civil rights claims reduced litigated cases and saved the state more than $7.5 million.”

“We did this by asking the legal departments of state agencies to send us notices of any complaints filed with Equal Employment Commission or Florida Human Relations Commission that are required to be filed before the claimant can pursue litigation for employment discrimination,” Mr. Castellanos said. “Because those are administrative proceedings, we were not being notified of those filings since our coverage did not include defending administrative claims, and previously it was only when we were notified of subsequent litigation that we became involved in those claims. When we started receiving these notices, we could then intervene earlier in the process to settle those claims that we felt had merit or could be settled for lower cost than if they proceeded to litigation.”

An insurance industry observer with no ties to the effort praised the state's enhanced risk management efforts.

“With Alex Sink, we have a chief financial officer with real-world enterprisewide risk management experience,” said William Stander, assistant vp in the Property Casualty Insurers Assn. of America's office in Tallahassee. “And she has proven that she knows how to apply her business background to improving the way the state of Florida runs.”