Safeway's risk management program rewards stores for prevention effortsReprints
Supermarket chain Safeway Inc. generally looks to retain the more predictable risks across its various lines of exposures, self-insuring and self-administering its workers compensation and liability programs.
The company's risk management operation then uses tools such as premiums, charge-backs and incentives to reduce loss frequency and severity in its operations.
“For all intents and purposes, what we're trying to do here is run a theoretical insurance company within the organization,” said William M. Zachry, vice president of risk management for Pleasanton, Calif.-based Safeway. “We charge the divisions their premiums, we work with them on bringing down losses.
“We put an economic value to the process; most of the stores know that a loss is worth so much bread or so much meat or so much milk,” Mr. Zachry said. “We make it relevant to what they do in order to drive behaviors correctly.”
Zurich Insurance Group Ltd., Safeway's largest insurance trading partner, leads the company's property program, with Munich Reinsurance Co., Swiss Re Ltd., Lexington Insurance Co., PartnerRe Ltd., Scor S.E. and various Lloyd's of London syndicates also participating on the property tower.
Safeway's stock throughput program is anchored by RSA Insurance Group P.L.C., with numerous other insurers and Lloyd's syndicates on the program.
Ace Ltd. anchors Safeway's casualty coverage with Travelers Cos. Inc., Allied World Assurance Co. Holdings A.G., Zurich, Liberty Mutual Holding Co. Inc., Great American Insurance Group, XL Group P.L.C., Endurance Specialty Holdings Ltd., Catlin Group Ltd., Magna Carta Insurance Ltd., Iron-Starr Excess Agency Ltd., Chubb Corp., Canopius Group Ltd. and Argo Group International Holdings Ltd. completing the tower.
Zurich provides Safeway's excess workers compensation coverage.
Safeway's directors and officers program is anchored by Zurich with Axis Capital Holdings Ltd., Houston Casualty Co., Hartford Financial Services Group Inc., CNA Financial Corp., AWAC, Ace and American International Group Inc. on the tower.
The company's employment practices tower includes Alterra Capital Holdings Ltd., Argo, Zurich, AIG, AWAC and Endurance, in that order.
Ace is the primary insurer on Safeway's cyber risk program, with higher layers underwritten by AIG, Scor and Ironshore Inc.
“Essentially we have two brokers,” Mr. Zachry said. Marsh L.L.C. is the broker for Safeway's property and stock throughput programs, and Aon P.L.C. is the broker for the casualty, workers compensation, directors and officers, employment practices liability and cyber risk programs.
Safeway has two captive insurers, one in Hawaii and one in Bermuda, both managed by Aon. The Hawaii captive is used for some property and cyber exposures but mostly for the company's terrorism insurance program, Mr. Zachry said. “It really does a great job in terms of creating coverage for terrorism that's not too expensive,” he said.
The Bermuda captive is used for Safeway's property and common area maintenance coverages.
“The captives are very effective, and we've done some internal studies looking at opportunities for expanding the use of the captives,” Mr. Zachry said. “We continue to look for opportunities for that.”
While Safeway self-administers its workers compensation and liability programs, it does have occasion to use third-party administrators. “There are certain states that require administration within the state. New Mexico is a good example,” Mr. Zachry said. “We have four stores in New Mexico, not enough volume to warrant staffing in that state, and yet it requires local claims administration.”
“We've used Sedgwick (Claims Management Services Inc.), and we've used other smaller local ones for TPAs,” he said.
Safeway has a risk management information system bought from Aon that helps keep track of historic insurance program information. The company uses Computer Sciences Corp.'s Riskmaster Accelerator system for its claims management.
“We have a small (information technology) vendor that houses a lot of our documents, so it's a document management system, and it's actually a workflow system as well,” said Gilbert Cabrera, vice president of finance/corporate risk management at Safeway. “It works in conjunction with our claims system. We utilize it to be more efficient, so we don't have any more paper out there; it's all paperless. The bill review system is all automatic, including the matching of the (utilization review) decisions vs. the bills.”
Safeway also builds various analytical tools in-house, Mr. Cabrera said.
“Bill likes to involve our actuaries on our programs,” he said. “What I've been doing for the last six years with our actuaries is giving them more diagnostic tools to look at our data, to give them the confidence that we are doing what we say we're doing.”
The various analytical tools are an important part of tracking the success of Safeway's various risk management initiatives and justifying their existence.
“We don't do any programs just because we think it's going to work. We actually put returns on investment on everything we do,” Mr. Cabrera said. “That's really the backbone of what analytics for us is — looking at the numbers, making sure that we're making the best decision for the organization.”
The risk management department uses various incentives to reduce losses.
“The incentive that we use for the divisions themselves is really a returned premium incentive,” Mr. Cabrera said, indicating that divisions that meet risk management goals get back a portion of their premium.
Safeway uses a charge-back process with individual stores to reduce losses, both by charging stores for an incident but also acknowledging safe behavior. “Sixty-seven percent of all of our liability claims are slips and falls in the stores,” for example, Mr. Zachry said.
Typically, the charge-back system provides that in the event of a slip, trip or fall incident, a certain amount will be charged against the store.
“But if we go online and see the video of the store, and it has been swept or inspected within an hour prior to the slip, trip or fall, we will charge the store zero,” Mr. Zachry said. “What it does is it gives the incentive for the stores to make sure they're spending the time doing the sweeps and the inspections.”
An analysis showed the charge-back approach has reduced liability at stores enough to save Safeway $6 million, Mr. Zachry said.
“The success in the sweeps and the inspections went from 85% to 95% because of the incentive. So you put incentives in the right place, you try to drive the right behaviors, and you get better outcomes.”