Leading indicators: the perfect storm is forming

In 1991, the crew of the Andrea Gail perished in a Halloween Noreaster known as “The Perfect Storm”. The captain and crew ignored warning signs, such as repeated warnings from other ships. They failed to recognize, in essence, leading indicators. On October 26, they set a course to return home after a machinery breakdown (their ice machine). They never made it.

Today, many organizations are navigating into dangerous waters. There is a perfect storm forming that will affect the future of safety and health programs. If organizations fail to see, evaluate and respond to the warning signs, they too may perish.

Workers’ Compensation Frequency & Severity Trends: The Good, Bad & Ugly

  • GOOD: Lost-Time cases are down 50% since 1991
  • GOOD: Fatality Rate is down 26% since 1994
  • BAD: Indemnity costs are up 6.6% since 2002
  • BAD: Medical costs are up 9.5%; 200% since 2002
  • UGLY: In 1993, 45% of claim costs were medical; 2006 it was 59%
  • UGLY: By 2016, medical costs are estimated to be 70% of the claim cost

Although we’ve made strides in the reduction of lost-time and fatality rates, there are still disturbing trends. Safety is starting to engrain itself into the fabric of organizations. But, with the increasing indemnity and medical costs, even a low number of lost time or fatalities could be detrimental to an organization.

Changing Demographics

According to the US Bureau of Labor Statistics, 25% of the working population will reach retirement by 2013. This could result in worker shortage of nearly 10 million people. However, with the economic downturn, the aging workforce may continue working because of decreases in their retirement portfolios. That means organizations either prolong the utilization of an aging workforce or hire retirees that are forced back into the workforce.

What is very alarming is that the U.S. Census Bureau indicates that the number of people age 55 and older will increase to 73% by 2020. The number of young workers will only grow 5%.

What does this mean? There will not be an abundance of young workers to replace the aging workforce. They will be in high-demand. They will be the most sought-after employee demographic in our nation’s history. To hire them, you will have to pay them…handsomely. Thus, the merry-go-round continues and if they are injured, the indemnity hit is even greater for organizations…all while having decreased profit margins and higher operational costs.

This means that the finish line known as baby boom retirings that organizations have been talking about doesn’t hold water because the workforce average age will be increasing as well. More older people (you and me by 2020) will be working longer. Companies must prepare now to address this.

Other Factors: Leading Indicators

Understanding leading indicators is the best way to prepare. Leading indicators tell what is happening around you, how well you are doing and help warn of impending issues so that you can take proactive action.

Recently, UL commissioned a survey to gauge the perception of leading indicators in various industries. The survey is still open and I encourage you to participate.

Key findings:

  • 53% surveyed think “3 – 5 leading indicators” is the right amount to use for their organizations
  • 60% surveyed believe leading indicators somewhat help indicate outcomes; 33 percent said they are able to correlate leading indicators to losses
  • Over half surveyed (52%) are unaware what their Workers’ Compensation Experience Rate is
  • Only 26% surveyed have total employee population involved in the safety decision making process

It’s apparent that a majority of safety & health professionals understand the importance of leading indicators, but they apply this information in different ways. Based on the responses, we know that organizations that utilize more than 3-5 leading indicators and have employee engagement in the safety process are performing better.

There are enough eye-opening results to focus an entire seminar at the 2012 ASSE Conference. If you’re in Denver for the conference, I encourage you to stop by.

“Do You Measure Up? Using Leading Indicators to Improve Safety, Health and More”

Presented by Todd Hohn, UL VP of Strategic Resources at ASSE Safety 2012

Tuesday, June 5, 3:00, Room 651

This session will present case studies showcasing the dramatic results companies achieve by using leading indicators and also explore how stronger, data-driven safety and health systems and processes, like those supported and enhanced by technology solutions can improve overall business performance.

Special thanks to Eric Glass, UL’s EHS Consultant, for his editorial contributions to the post.