When William M. Zachry came to Pleasanton, Calif.-based supermarket chain Safeway Inc. in 2001, his charge was to rein in runaway workers compensation costs.
Through innovation, determination, public policy involvement, support from company leadership and a great risk management team, he's accomplished that and much more.
There's also a good deal of passion for his job that flows through every facet of his efforts — efforts that have produced considerable results, including reducing Safeway's annual cost of risk by $86 million since 2004, while increasing its coverage for catastrophic events and reducing the company's open workers comp claims inventory from 12,869 in 2004 to 5,541 in 2012.
This year Mr. Zachry's efforts and achievements resulted in his selection as Business Insurance's 2014 Risk Manager of the Year®.
Today, risk management is integrated throughout the Safeway organization, valued by the company's senior management and viewed as a competitive advantage. And with the contributions risk management has made to the company's bottom line during Mr. Zachry's tenure, Safeway executives are willing to listen to ideas for new risk management programs and to provide the resources necessary to make them happen.
“I wasn't looking for someone to change the world,” said David Bond, who, as Safeway's senior vice president of finance and control, hired Mr. Zachry with the goal of getting a handle on Safeway's workers comp costs. “I was looking for a claims person. In that process, the headhunter found Bill — or I'd like to say Bill found me.”
After joining Safeway in 2001 as vice president of workers compensation, Mr. Zachry was given responsibility for the company's overall risk management operation in 2008 as vice president of risk management. In his current position at Safeway — which self-insures and self-administers its workers compensation and liability risk programs — Mr. Zachry is responsible for 315 risk management employees and a risk management budget that was $218 million in 2012.
That risk management budget has actually come down considerably from its $304 million level in 2004. Working on several fronts, including such internal steps as improving Safeway's claims-handling operation and the quality of information available to it and external efforts aimed at promoting state workers compensation reform, Mr. Zachry helped reduce Safeway's comp costs to $113 million in 2012 from $218 million in 2004.
Among the steps taken internally to control workers compensation costs were an emphasis on claims resolution, establishing a Culture of Safety program across Safeway, a pharmacy benefits management program, establishing a program of early identification and intervention in the case of injured workers at risk of delayed recoveries, and alternative dispute resolution.
All those efforts to reduce workers compensation costs were shaped by Mr. Zachry's belief that providing injured employees the best possible medical care reduces overall comp costs.
“What really struck me was he had a very fervent belief in delivering the best possible health care to injured employees,” Mr. Bond said. “His next statement was, "The best medical care is actually the cheapest medical care.' I have become absolutely convinced that the best medical care is the cheapest way to go.”
The money saved by reducing Safeway's workers compensation losses has helped Mr. Zachry and the company's risk management program invest in other areas of risk reduction and protect the company from exposures that can't be mitigated.
Safeway believes in retaining a large level of risk, according to Mr. Zachry, and under his risk management leadership the company has purchased insurance for potentially catastrophic events.
“Conceptually, if you want to take a step back and look at what we're doing from a risk management perspective, Safeway is a large organization. We can take risk,” Mr. Zachry said. “So we take the first $5 million on the casualty and on the property, generally speaking, and we take $2 million on the workers compensation.”
That large retention puts a focus on reducing working layer losses, with the company using tools like chargebacks and other incentives to drive desired behaviors. “We've been trying to bring down the frequency and severity of injuries, accidents and claims within our control, then we're strategically reinvesting some of that money in insurance for catastrophic events,” the risk manager said.
“The big exposures on the casualty side are trucking, pharmacy, food safety,” Mr. Zachry said. “Sixty-seven percent of my accidents in casualty are slips, trips and falls. Our goal this year is to eliminate more than 50% of the slips, trips and falls.
“Why do an easy goal?” he asked. “Ten percent's nothing; it's not going to make a difference. Fifty percent will give us another $10 million plus savings, both in the casualty and the workers comp.”
In looking at Safeway's exposures, Mr. Zachry identified areas of potential catastrophic losses for which the company previously wasn't covered.
“Bill came in and said, "What can I do to protect the balance sheet from volatility and severity? What can I do to make sure there's never a question of our ability to respond to something that's gone wrong?'” said Andrew D. Lennox, San Francisco-based strategic account manager and director at Aon Risk Solutions, one of Safeway's brokers.
“When I took over, I did not have any cyber coverage. I now have a substantial cyber program,” Mr. Zachry said. “I did not have employer's practices liability. I now have a really good program for employer's practices liability. I did not have a Side A tower for directors and officers. I now have a very good Side A tower.”
The company also didn't have insurance for losses from earthquakes at its retail stores. Looking at previous earthquake events, however, Mr. Zachry realized the most likely catastrophic loss at the stores in the event of an earthquake — or some other event — was to product falling from the shelves or spoiling.
“On the property side — the biggest exposure I have — earthquake's one of them,” he said. “But loss of power — if I lose power in 30 stores, and I have $1 million of perishable product in each store, that's a lot of loss.” In response, Safeway carved product out of its property program and covered it with stock throughput insurance.
“On earthquakes, you may not have any damage or little damage to the stores,” Mr. Zachry said. With both the 1989 Loma Prieta and 1994 Northridge earthquakes, “only one store got a lot of damage. But there was a lot of product on the floors. So that stock throughput protects us from a catastrophic event that doesn't destroy the store,” he said. “It's really effective at protecting us from catastrophic events.”
Safeway's insurance programs also have benefited under Mr. Zachry in the way the company treats its insurers and the information it provides them. “It's an overused word, but he treats (Safeway's insurers) as partners,” Mr. Lennox said.
“When I started, I came out of the workers comp side and I had very little experience with some of the other programs,” Mr. Zachry said. “So I spent an inordinate amount of time with each of the brokers talking to them about the structure, organization, weaknesses and strengths of what we had.”
Among the observations emerging from those discussions were that Safeway didn't have a close relationship with its underwriting partners and that its presentations and submissions weren't comprehensive enough. “The way we marketed Safeway when we went to insurance markets was just all wrong,” said Mr. Bond.
Mr. Zachry worked to change that. “One of my initial goals was improving the quality of the submittals to the community,” he said. “The one thing we've been very aggressive about is going out into the marketplace and working on our relationships with the various partners.”
“Underwriters expect to pay a loss, but they don't expect to pay a loss that comes as the result of a surprise,” said Mr. Lennox. After seeing the more thorough Safeway submissions provided under Mr. Zachry, their underwriters “would stand up and say, "Thank you. This is the best submission that I have seen and I don't have additional questions.'”
“We materially changed the way that Safeway was viewed by the marketplace,” Mr. Lennox said.
Among the ways Safeway has benefited from that changed perception is the ability to obtain multiyear deals from insurers. “Every one of the (primary layers), we're in a three-year deal,” Mr. Zachry said. “We have multiyear deals with some people who literally do no multiyear deals with anyone else anywhere in the world.”
Mr. Zachry and Safeway's risk management team have become expert at quantifying not only exposures, but also the results of their efforts, something that's helped the risk manager sell the company's leaders on the benefits of risk management and its insurance program.
“We're also very good at communicating to senior management about the programs we have in place,” Mr. Zachry said. When the Target Corp. data breach hit, “we sent an email up the line saying, "Here's our cyber coverage. and here's how it would work.'”
“Our former CEO used to joke with me that we get everything we ask for, and it's because of the results,” said Mr. Bond. “With that reputation, you get all the resources you want.”
“When Bill first came on board, the perception of the insurance buying department was not very high,” said Mr. Lennox. “We've really worked very hard to build the bridges internally. The strength of the relationships that he and his department have built within the organization — there's a high degree of trust there.”
“It used to be the risk management was a separate function standing alone and not part of the frontline operations,” Mr. Zachry said. “But now risk management is a piece of the frontline operations, and the responsibility really rests with the same people who are responsible for sales or anything else. And they've bought into it; it's part of the culture.”
As an example, the Safeway risk manager cited Robert L. Edwards, the company's CEO and president, talking in an earnings release about the company's Culture of Safety effort and injury prevention program as a strategic advantage in the low-margin grocery business.
“That's a remarkable level of involvement by senior management,” Mr. Zachry said. “And without that level of senior management support, we wouldn't be where we are today.”
Across Safeway's various divisions now, there's a recognition that risk management is there to help them accomplish their initiatives while protecting the company, he said.
“They all know that if they come to us, we don't say no, we say, "OK, how do we make it work for you?'” Mr. Zachry said.