Auditors: Louisiana Risk Management Privatization Saved $10M

Louisiana has saved more than $10 million in the first two years of a privatization contract for claims processing and loss prevention services for the Office of Risk Management, auditors told lawmakers Thursday.

Members of the Legislative Audit Advisory Council said they wanted the legislative auditor’s office to keep tracking the $75 million contract to make sure the state continues to save more money than it would have spent keeping the work in-house.

Gov. Bobby Jindal’s administration hired Mandeville-based F.A. Richard and Associates Inc., or FARA, in June 2010 under a five-year contract to take over much of the Office of Risk Management’s workload.

The Legislature’s joint budget committee agreed to the outsourcing deal.

“We are very happy with the audit findings. We think it reflects a successful partnership,” said Steven Procopio, chief of staff for the governor’s Division of Administration.

The risk management office is the state’s self-insurer, with agencies paying premiums for lines of insurance covering items such as medical malpractice, worker’s compensation cases, property damage and road hazards.

Procopio said the two-year savings through June 30, 2012, were more than double the initial forecast of $4.8 million. The administration projects $22 million in anticipated savings over the five-year deal, which ends June 30, 2015.

The contract was supposed to cost $68 million, but it was bumped up to $75 million in 2011. Procopio said that’s because the phase-in of the privatization was accelerated and the company was doing more work than originally proposed.

The audit said the speed-up of the privatization that caused a 10 percent increase in the contract’s costs was needed because of a high rate of employee turnover at the risk management office after the outsourcing deal was done.

According to the audit, FARA had taken over management by 2012 of nearly all lines of insurance and services that had been handled in-house by staff of the Office of Risk Management, except for road hazard and auto liability insurance. Those lines of insurance were supposed to be turned over to FARA this month.

Auditors said that once the private contractor had picked up all lines of insurance and associated services, the risk management staff will have dropped by 80 workers, from 140 people in 2010 to 60 employees.