Construction Risk Blog

Does Your Construction Jobsite Safety Program Need a Jump Start?

Does your safety program need a jump start?
The medical profession has learned that most of us aren't going to eat a healthy diet and exercise regularly. That's why they've invented Lipitor, beta blockers and other drugs that will help delay the inevitable. The ultimate rescue device is the AED or Automatic External Defibrillator. With one of these gizmos we can be just like the doctors we see on TV calling out "Clear", applying the paddles or pads, and shocking the heart back into its normal rhythm. AEDs save a lot of lives and you see them everywhere now, from hallways in buildings to construction jobsites.

Every construction company needs a healthy diet of safety training to prevent worker injuries and avoid excessive workers compensation insurance costs. Do you have a safety culture that constantly reinforces the importance of safe work practices or is it almost time to prime the defibrillator paddles because disaster has struck and your experience mod rate (EMR) is about to enter the RED Zone?

Unfortunately, the average construction company is like the average person. We want to implement the quick fix when we receive the diagnosis. We don't want to proactively do the right things every day so we avoid the problem in the first place. As individuals, we'll go on the starvation diet and get ourselves back in shape but we won't commit to a regular practice of diet and exercise.

A construction company can act the same way. Safety doesn't become a priority until something bad happens and insurance costs spike. Then, instead of focusing on the cause i.e. unsafe workers, you go on the equivalent of a starvation diet, going out to bid to buy cheaper insurance. Just like a Yo-yo diet, you get into a circular loop because you never treat the cause.

Construction companies, like individuals, have a choice to make. You either stay focused on diet/exercise/safety OR you endlessly bounce back and forth between the edge of disaster and recovery, never knowing what it's like to always be in the safe zone.

Don't wait until your company requires the equivalent of an AED. Hire a Risk Advisortoday and create a permanent culture of safety. It will be the best investment you make this year.

When Buying Cheap Insurance Leads to Disaster

Bad insurance decisions can sometimes have catastrophic consequences for construction companies. In most cases, cheap insurance is the culprit.

We came across a very successful third generation company with a large, loyal client base. But they had an insurance problem. Typical workers comp claims for one year usually totaled $50 - $100,000. Now they had a year with $1M in claims, ten times the average. Their EMR (Experience Mod Rate) had spiked to 1.24 costing them an extra $100,000 per year.

How does that happen? Two things had gone wrong. They chose an insurance company selling cheap insurance. They chose an insurance agent who provided no services to help them with their problems.

When we arrived on the scene (Risk Advisors to the rescue), their workers comp was Code Blue. We needed to prime the paddles and get the patient stabilized. When a company of this size has a million in claims in one year it isn't just bad luck. They had been buying cheap insurance from insurance agents for too long and it finally caught up with them.

How does a Risk Advisor approach this challenge differently than an insurance agent? An insurance agent has no tools in the toolbox other than insurance products. Unfortunately, this wasn't an insurance product solution. A Risk Advisor has a wide range of services and when the patient has no pulse, you need to diagnose quickly and then begin treatment. Here's what we did:

• Explained to management the financial consequences of a high EMR (they were stuck with that bad year for three years at an extra cost of $100,000 per year). They had to take immediate action because another bad year in the formula would compound the problem

• Obtained management's buy-in to invest in safety

• Provided customized safety training to all employees at all locations to create a safe culture throughout the company

• Trained middle management to understand the importance of a RTW (Return to Work) program. They needed to understand both the financial consequences as well as the importance of a quick recovery for the injured worker

• Worked with the HR department to manage all open claims for prior years (If you read my last post, this is another important distinction between a Risk Advisor and an insurance agent. Insurance agents don't service policies they didn't sell. A Risk Advisor does whatever it takes to solve the problem)

• Intervened with prior carrier (the one with the cheap insurance) to make them manage their claims properly so our client wasn't unduly penalized in their EMR.

Fortunately, this story has a happy ending. The patient was resuscitated before it was too late. They suffered for three years but their EMR is about to drop 40 points and return to normal. They're going to save $100,000 per year going forward AND provide a much safer workplace for their valued employees.

 

 

To Test Drive or Not to Test Drive

First of all, what do I mean by a Test Drive. Test Drive what? Test Drive the Risk Advisor's service program and the team that will deliver it. Depending on how many of my posts you've read, it might be unclear what I mean by Risk Advisor. Since my company is the first Risk Advisory firm dedicated to the construction industry, I will explain.

There are over 30,000 property/casualty insurance agencies in the U.S. The people who work in these companies are defined by the BLS (Bureau of Labor Statistics) as follows:

Property and casualty insurance agents sell policies that protect individuals and businesses from financial loss resulting from automobile accidents, fire, theft, storms, and other events that can damage property. For businesses, property and casualty insurance can also cover injured workers' compensation, product liability claims, or medical malpractice claims.

The operative words in that definition are, "sell policies". Insurance companies produce/manufacture polices and their agents sell them. That's all they do. There is a very small % of progressive agents (less than 1%) who provide a wide array of services to their clients. I don't know of any that provide free services before they sell some insurance.

A Risk Advisor provides insurance (25% of their role) but their primary functions are to:

1) Design and execute Risk Reduction Plans^TM to reduce your Total Cost of Risk (TCOR) 

2) Make you more attractive than all of your peers in your industry/niche to the insurance marketplace

So what you will Test Drive is the Risk Advisor team's ability to design and execute a Risk Reduction Plan^TM. And you do this for FREE. In our model there is no cost for the test drive. What that Test Drive will consist of, and how long it will run, will be determined by mutual agreement.

What makes this so sacrilegious to the insurance industry is that valuable services are being provided by the Risk Advisor for FREE. You will rarely see this business model from anyone other than a Risk Advisor for the following reasons:

1) Small agents don't have the professional staff or the services to Test Drive

2) Larger agents/brokers are publicly-owned, bank-owned, private-equity-owned or just plain big insurance agencies without any distinctive services. With those guys you pay to play.

At this point you are probably saying to yourself, "How is a Risk Advisor able to do anything of value for free?" There is an easy answer to that. Our relationships are long-lived. We feel confident enough in what we do that we're willing to work for free until you recognize how different we are from insurance agents. This might take a week or it might take a year. We'll invest our time and resources in your success to earn the privilege of being your Risk Advisor.

In my next post, I'll tell a great story about how a Risk Advisor made a difference in the future of one of its clients.

Take Our Insurance Program for a Test Drive

Have you ever bought a suit without trying it on? Have you ever bought a car without a test drive, without really putting it through its paces, checking the stereo quality, making sure the skis or golf clubs fit in the trunk? Or a TV? If you're like most of us, you stare at the techno wizardry from Asia, all lined up neatly on the wall of the "home theatre" display and try to be the clever one who can discern the nuances of picture quality. You probably even test drive cell phones before you buy them; reviewing and watching the young geek explain all the bells and whistles, even holding it in your hand to try yourself.

When it comes right down to it, is there any significant purchase you make without a test drive?

If not, then you have to answer this simple question and solve a mystery that has confounded me for my whole career. Why on God's green earth do you buy insurance for your business with no test drive or try out whatsoever??

Your ANNUAL insurance budget is 5x the expense of the car, maybe 100x the expense of the phone but you virtually buy it sight unseen. Sure you've met the agent and you've heard of the insurance company she is offering but what else do you know about how they will perform. More importantly, how do you know how well they will design and execute a plan to reduce your risks and make you more attractive to the insurance marketplace so that you are GUARANTEED to pay the lowest possible premiums in the future?

Sadly, because the average insurance agent has given you no better buying process, all you end up comparing is the price of one insurance company vs. another. In most cases, you know nothing about the capabilities of the carriers being compared or the agents representing them.

Why don't you treat your commercial insurance program like the other purchases you make in your personal and business life? WHY???? Simple answer. Until now, you have never been offered a Test Drive of the service program that will accompany the insurance policies.

In the old days of selling, this test drive concept was referred to as the "Puppy Dog" close. It was based on the premise that once you took the puppy home you owned it. Once the kids saw the puppy you were never bringing it back.

I used to joke about a puppy dog close for insurance. "Here Sam, take these polices home for the week-end and see if you like them. Tell me how they perform if the house burns down." Ha, Ha. Obviously, that wouldn't work. Most people and businesses can go years without an insurance policy responding to a claim.

Here's the problem. The insurance industry presents itself to the public as a product business. If you're buying car insurance from GEICO or Progressive, maybe you should focus only on the price. When they tell you "Save 15% in 15 minutes or less' it would seem they are saying they are a commodity and you should compare them to their peers based on price alone.

But you and your associates and maybe your father and grandfather and brothers and sisters and sons and daughters have devoted their working life to building a successful construction company. For all of you, that business represents a major part of your net worth. And you're going to choose the people and the companies that are going to protect it the same way you buy your personal car insurance? Isn't it time to re-think this process? Shouldn't you at least devote the same attention to buying business insurance and risk-reducing services that you do to other purchases that you test drive?

I'll take you off the hook on this. It's not your fault. I'll repeat that. It's not your fault. It's our fault. It's the fault of every representative of the insurance industry that hasn't offered you a better way.

Well, we're changing the model. It's way overdue. Now you are going to get what you deserve, a real Test Drive. In my next post I'll explain what this is and why it will change your thinking forever.

 

No More Mr. Nice Guy

You probably don't realize that the more you focus on safety the more you could be helping your competition. That's right. If you buy what we call "Guaranteed Cost" insurance, and you have an excellent safety record, you're actually subsidizing the premiums of your unsafe competitors.

You don't believe me? Think about how insurance works. All the contractors in a given state pay premiums to their respective carriers. Those who focus on safety are profitable to their insurance company. The best ones (what you want to be) might make their carrier 30-40 cents on the dollar. Most aren't in that category. Most are marginally profitable or worse, unprofitable. In an average year they could cost their carrier 20 cents on the dollar. If they have a catastrophe, one claim could be worth 2 to 3 to 4 years' premium.

The insurance companies are publicly owned and have to meet Wall Street expectations of profitability. So what happens? They take the money from the bucket of profitable contractor clients and use it to subsidize the unprofitable clients. You don't get any money back as a reward for your safe record, do you? Not a nickel. It goes to your competitors. If the insurance companies couldn't use your money to subsidize the losers, they would be out of business. How do you like them apples!

So what can you do? Get out of the Guaranteed Cost market and get into a Loss Sensitive program. A Loss Sensitive insurance policy is one where your premium floats with your loss levels. If you feel confident in how you manage safety and know that your loss levels will be better than your competitors, this is the only way to fly. The insurance company won't keep your insurance profits. You will.

To learn more about this concept see this special report: "How the Smartest Contractors Pay the Least for Insurance".

You don't help your competitors with their bids. Why would you help them with their insurance? No more Mr. Nice Guy. You win. They lose. As it should be.

 

How Smart Contractors Reduce Their Insurance Costs

For way too long the perception of commercial insurance buyers has been that insurance agents get paid to quote cheap insurance. In some cases this is carried to an extreme where the agent who is perceived "best" is the one who sells the cheapest insurance.

In actuality, insurance agents only want to provide cheap insurance when it's in their best interests - either acquiring your business for the first time or when they are threatened by even cheaper insurance from competitors. As businesspeople, what they really hope for most of the time is expensive insurance because that's when they make more commission. What is wrong with a system where the buyer wants a completely different outcome than the seller? Everything!

Here is what we propose as an alternative - Performance-Based Risk Management^TM. Most service professionals of every stripe are paid to produce an outcome. In order to get paid they have to produce a result expected by the client i.e. tax return is filed on time with the most deductions taken, lawsuit is won with the least amount of hassle, new software is installed and productivity goes up 25%, etc.

As a contractor, cheap insurance should not be the result you are looking for. Your insurance costs are determined by two primary factors:

1) overall market conditions 

2) your Risk Profile (with a heavy emphasis on loss experience and safety culture).

Most insurance agents pretend to look like heroes as they ride the soft market down the curve, bringing ever cheaper insurance to you each year until the market turns and then as soon as premium pricing starts to increase, they shift all of the blame onto the insurance carriers . They shouldn't be a hero or a villain because they have absolutely no control over the market.

Risk Advisors can help construction companies improve their Risk Profile and this is what they should get paid to do. Regardless of market conditions, if your Risk Profile is maximized (underwriters are falling over themselves to get your business), you win. This is the result or outcome you want. If you pay your Risk Advisor a fee to help you get this result, then your incentives are identical and you both win.

Why doesn't your insurance agent propose this? Because they don't have the tools to help you.

Call a Risk Advisor today. They have all the tools to improve your Risk Profile. Sign a performance agreement with them and watch your insurance costs plummet.

Singing that Safety Song

When you're in the Risk Advising game you can go long periods of time wondering if any of your clients are really listening to you. Last week I had one of those moments when my world brightened. I knew I had made an impact.

Ten years or more ago I was sitting with a client who was starting to struggle with workers comp losses. I made an impassioned speech about how the world was changing and safety needed to be a top priority. I even predicted that he would have his own safety director in the future. He listened politely but I could tell he thought I was a little crazy.

Then disaster struck one day. An experienced supervisor working without proper fall protection fell and broke both femurs. Ultimately, the claim settled for $700,000. My client's EMR (Experience Mod Rate) went through the roof and his insurance tripled over night. Profits were gone. Work was harder to come by.

He was a smart guy and maybe he remembered more of safety speech than I gave him credit for. It was easy for him to connect the dots. It was time to get some safety training.

Last week one of my associates visited this client to discuss their current claim situation which is pretty good. He had just hired his second safety professional and this company only has 30-35 employees. He related the day he heard me make my speech and told my associate how incredulous he was at the time. "Safety training is what the insurance companies" provide he remembered thinking to himself. This guy Phelan is nuts if he thinks I am going to spend money on safety. Now he has two safety professionals in a 30 employee construction company

It's a down economy and they're doing well. They aren't cutting back on safety. They're investing even more. Do you know what the difference is between this contractor and most others I visit? A lot! He gets it. Most others don't. A contractor's emphasis on safety could very well determine their financial future but instead they focus on buying cheap insurance.

Are you going to wait for the serious accident before you emphasize safety or are you going to start today? Learn from the lessons of others. Call me. It will make my day and may very well save the life of a valued employee

New Facebook Fanpage

Due to some underlying problems with the search engines, we have to delete the constructionriskadvisors.com facebook page and have replaced it with the New CRA Facebook Page.  Thanks for being a fan, and have a great weekend!

The Contractor's ROI (Return on Insurance)

You've heard the term ROI in the context of "Return on Investment". When you buy equipment, hire new people or invest in new technology, you try to figure out the ROI before you open your checkbook. Why do you make decisions about insurance differently? For many of you, the annual investment is significantly higher than hiring a foreman or buying new estimating software, but do you ever calculate the "Return on Insurance".

What do I mean by "Return on Insurance"? Simple. What do you get from your carrier for the premium you pay them but more importantly, what do you get from your agent/broker for the commission they are paid by the insurance company?

We visit with contractors every day and in most cases the ROI from their agent/broker is insignificant. What troubles me more is they don't seem to care. The system is so well-entrenched that most contractors accept it. They pay a large premium and a large commission and they accept whatever they get. I think it's because they don't understand that the agent/broker has a job to do beyond getting them quotes and providing reactive service.

Since agents/brokers aren't doing their job or defining their role any differently than their grandfathers', we've created a new category for what we think a modern-day agent/broker should be. It's called Risk Advisor. A Risk Advisor does everything that your agent/broker has done in the past (quoting and reactive service) but that is only half their job. The other half is this:

1) Design and implement a Risk Reduction Plan to reduce all the costs associated with risk in your company

2) By doing #1, they make you as attractive as possible to the insurance companies so you are offered the lowest possible premiums by the marketplace

Here's the real kicker. We believe that if your Risk Advisor doesn't provide the ROI you expect in the execution of jobs 1 and 2 above, then they shouldn't be paid. How do you like them apples? We really believe this. Execute or don't get paid. Execute or be fired. Execute or cease to exist. You don't get paid if you don't execute your contracts according to the specs, right? How come you're willing to pay your insurance agent/broker when they don't even have a plan to execute?

We think it's time for a change. In my next post I'll explain an alternative.

Does Your $5 Million Umbrella Policy Provide You With Enough Coverage??

The following article is taken form the web site of Connecticut-based law firm Stratton Faxon who represented the plaintiff in the case described here. There are four points for contractors to pay attention to:

1) Safety has to be a cultural imperative for your company

2) You have to read all contracts and understand the liabilities imposed by them

3) Think twice about using temporary help. What looks inexpensive in the short run can be very expensive in the long run if you lose your immunity to be sued by an injured worker

4) Re-think your limits of liability. This is a precedent-setting case and an injury like this can happen to a contractor of any size. $10 Million is the new minimum limit.

November 2, 2009

BIG SETTLEMENT RAISES JOB SITE LIABILITY ISSUES
In the highest-ever construction injury settlement in Connecticut history, and one of the state's costliest personal injury cases, a North Canaan laborer has settled a federal negligence suit for $11.35 million.

The case of Benjamin Wohlfert v. Stop & Shop and Pyramid Contractors is bound to raise serious new questions about construction hiring practices and insurance. Contractors might now think twice about hiring tradesmen from temporary agencies without paying directly for their workers' compensation coverage. While not paying workers' comp premiums saves money at the outset, it leaves contractors more vulnerable to unpredictable tort liability down the line.

"We have seen a trend toward the hiring of temp workers because the contractors feel it is cheaper to do that than employ a union laborer," said plaintiff's attorney Joel Faxon of New Haven's Stratton & Faxon. "Historically, unions have had very strict training and safety practices. In the temporary worker market, there's no specific safety training requirement."

Benjamin Wohlfert, then 29, was working for Providence, R.I.-based Pyramid in March 2006 at the construction site of a North Canaan supermarket. Pyramid hadn't hired Wohlfert directly. Torrington-based Alternative Employment Inc. "leased" Wohlfert to Pyramid.

Wohlfert was with two other men -- carpenters Gerald Bates and Jean Kennedy -- both of whom were working for Pyramid in a similar arrangement with other temp agencies.

It happened to be St. Patrick's Day. "The boys are probably thirsty," said Faxon. "It doesn't take a genius to find that."

Perhaps that's what led them to do something dangerous. Before knocking off for the day, they had to retrieve from the roof of the project a metal-cutting tool, known as a plasma cutter. But the one ladder to the roof had already been removed by the roofers. So Bates, who was the de facto foreman, instructed Kennedy and Wohlfert to get into a three-sided plywood box used for picking up construction debris.

Bates then lifted the box with a type of forklift that was not designed to pick up people. When the lift was some 25 feet in the air, the box began to break apart. Kennedy jumped to the roof - and to safety. Wohlfert fell to the ground, severely injuring his spine, and became a paraplegic. He required spinal fusion surgery, two months of hospitalization, and was transferred to a Colorado rehabilitation facility for "several more months," according to federal court documents.

After returning to Connecticut, he suffered from infections and had to be hospitalized again. During the second hospital stay, he contracted the drug-resistant bacterial infection known as MRSA, and had to have a substantial portion of his hip removed.

Temp Pros, Cons
The use of construction workers from temp agencies has some advantages for general contractors. By paying the agency a premium over the worker's normal hourly wage, the contractor no longer has to handle the paperwork and expense of workers' compensation coverage, payroll or unemployment insurance. Union contracts, requirements and protections also don't come into play.

As one Pyramid supervisor testified in a deposition, a worker doesn't need to be fired or laid off. The temp agency is simply notified that he or she is "no longer needed," with a notation on his or her time card. This effortless termination process removes the threat of a suit for discriminatory firing.

But because Pyramid did not pay the workers' compensation insurance for Wohlfert, it did not get the benefit of the workers comp "bar" to a civil suit. In other words, Wohlfert was able to collect workers' comp payments without jeopardizing his ability to sue Pyramid, which wasn't his actual employer.

Wohlfert went on to sue Pyramid and Stop & Shop directly in federal court, and that was the case that recently settled for $11.35 million. At first he was represented by Trumbull lawyer Richard G. Kascak Jr., of Mihaly & Kascak, who referred the matter to Stratton & Faxon.

Most often, co-workers such as Wohlfert, Bates and Kennedy cannot sue each other for on-the-job injuries. But that was not the case here, because all were hired by temp agencies. Wohlfert sued Kennedy, TradeSource, Bates and Spec Personnel in Bridgeport Superior Court. That case is scheduled for trial in May 2010.

Pyramid was represented by James G. Geanuracos, of West Hartford's Malliet & Geanuracos. "We're under a confidentiality agreement to only disclose the name of the plaintiff and the settlement amount," Geanuracos said. "I can't comment further."

Pyramid also sued several third party co-defendants. They included carpenter Bates, an Orleans, Mass. resident; his Fairfield temp agency, Spec Personnel; carpenter Kennedy; and his Warwick, R.I., temp agency, TradeSource Inc.

After Pyramid brought in TradesSurce and Kennedy as co-defendants to share in any potential liability imposed, TradeSource countersued Pyramid. The personnel agency said that its employment contract had an indemnity clause purportedly requiring the general contractor to hold TradeSource harmless from any on-the-job liability. On Oct. 29, TradeSource and Pyramid settled and withdrew their federal court claims.

Unexpected Deep Pocket
Normally workers' compensation coverage limits the liability exposure of contractors and building project owners, like Pyramid and Stop & Shop. But the fact that separate employment agencies were making the payments to the three key workers prevented the contractor and owner from enjoying the protection and benefit of the workers' comp bar. In such a case, the injuries suffered by Wohlfert become liabilities in the less predictable realm of tort law, to be compensated from general liability coverage. It was no different than if a member of the general public was injured on the job site.

In this regard, this case is analogous to the momentous construction case of state case of Pelletier v. Sordoni-Skanska, in which a subcontractor's employee won a $23 million verdict against the general contractor. The defendant in that case, like the defendants in the Wohlert case, had the means to pay a huge judgment. But in the Pelletier case, Sordoni won a 2008 reversal at the state Supreme Court, and contractors breathed a sigh of relief.

In the current case, no new case law has been created, but the large settlement is a loud and clear warning of the potential risks when hiring temporary workers through an agency.

General contractor Pyramid, in its federal court actions, has advanced an untested legal theory. It noted that it paid a premium over the workers' normal salary to the three temp agencies. Pyramid contended that by doing so, it was in essence paying for their workers' comp insurance, and deserved to get the legal benefits of doing so.

Various defendants in the federal case had motions for summary judgment pending when the case largely settled, and U.S. District Judge Alfred V. Covello had not ruled on any of them. Now that the two main defendants have settled the federal action, there is no longer any need for Covello to rule on the outstanding summary judgment motions. It is therefore not likely that any court will now rule on the defendants' theory of "pass- through" workers' compensation immunity.

Covello, in a ruling on a motion to dismiss last year, signaled that he was unlikely to embrace that theory, said Faxon, because a Connecticut statute specifically states that the temp agencies are responsible for paying the workers' comp coverage. Another statute says the benefit or tort immunity flows to the employer paying the workers' comp premium, he added.

"The statute is very specific about who can claim workers' comp immunity from suit in a leasing arrangement," said Faxon, "and it's only the temp agency.