Posted by Robert Phelan on Mon, Aug 23, 2010 @ 08:22 AM
If you’ve been buying commercial construction insurance for more than ten years you know that ours(construction insurance industry) is a cyclical business and we have sudden and unpredictable price corrections. For approximately eight out of every ten years, companies who sell business insurance are in a price war. When they all start to bleed badly, they raise prices and you the customer get whacked. Just when you thought life was good i.e. really cheap construction insurance quotes, you’re blindsided with a 50% rate increase. No fun.
I can’t wave a magic wand and eliminate market cycles. However, this focus on TCOR I have been espousing will minimize the upswing in rates for you.
Why?
By focusing on Total Cost of Risk, you are going to be preventing and mitigating losses. That’s where all the money is. Lost productivity, burdensome claim administration, and large business insurance rate increases all connect back to losses/claims. As I like to say, “Whoever has the lowest losses, wins!”
Pretend you’re an underwriter for a moment. Your boss has charged you with the responsibility of managing a book of business and pricing the business insurance policies so the book will be profitable. If you’re smart, what are you going to look for? The construction companies with the lowest losses. Low losses for you equals higher profits for you and your insurance company.
What happens when the market makes a correction and prices go up for everybody? You can’t avoid the correction entirely but you can ride low on the curve. What I mean is that when insurance companies are losing a lot of money and have to start charging more, there is a flight to quality. Getting profitability back has two pieces: one is raising prices and the other is only keeping the construction companies with the lowest loss levels. You want to be one of them.
Those construction companies riding high on the curve get the biggest rate increase and in a worst case may not even be able to buy insurance. The insurance company’s goal is to eliminate all business that is damaging their profitability. Conversely, they want to hang onto their most profitable accounts because they will contribute the most to improving profitability. If you are in this latter category, they don’t want to drive you away but want to attract you. They will do that by offering you the best pricing they can.
Rule #3 – implement every measure possible to reduce claims to their lowest level.
In my next post, I’ll explain more why it’s all about the losses and their prevention.
Posted by Robert Phelan on Fri, Aug 20, 2010 @ 01:56 PM
So now that you know that Total Cost of Risk (TCOR) is the primary criteria to measure, how do you go about it?
If you are going to “begin with the end in mind”, that means you are going to have a plan. I can see your eyes rolling back in your head as you read this. You’re already overwhelmed with work and now some guy is telling you that you have to have a plan to manage your business insurance.
Remember in Part 1 where I told you to find a Risk Advisor or Agent/Broker who can talk to you about TCOR? Well, If their orientation toward risk management has a TCOR focus, creating and implementing a risk reducing plan will be a core strategy they employ. It’s not about more work for you. It’s simply about finding the right adviser trained and skilled in the concepts of risk management vs. selling insurance policies.
If you need heart surgery, you don’t need to know how to perform it. You just have to find someone who does. Same with risk management. This isn’t a new skill you have to develop. You just have to find an advisor who will diagnose, design and implement a risk reducing plan. The reward for you will be much larger long term savings than simply focusing on cheaper insurance.
Rule #2 is to create a long term plan (or have one created for you) to reduce TCOR. Some of the savings will come instantly and some will take longer but this I will guarantee. If you focus on TCOR and have a smart advisor, you will always pay the lowest possible amount for business insurance. I’ll explain in my next post.
Part#1(If you missed it)
Look for Part #3 on Monday 8/23
Posted by Robert Phelan on Thu, Aug 19, 2010 @ 09:01 AM
A famous consultant, Steven Covey, wrote in his first book about a concept called, “Begin with the End in Mind”. In other words, as you begin any endeavor, first you have to consider the end game. What is your ultimate objective?
With business insurance, as in most business decisions, the owner of a construction company is either trying to increase profits (sales) or cut costs. That’s what we CEO’s focus most of our time on. We also know it’s not all about bottom line price on the cost saving side of the ledger. There are always other considerations.
With business insurance, those considerations usually come down to two items (not necessarily in this order):
- Price
- Relationship
When you consider that your business insurance is what safeguards you from disaster or even bankruptcy, should your end game be staying with my “friend” or finding the cheapest price?
I don’t think so.
Let me introduce a new concept and offer an alternative way to measure success. The concept is TCOR which stands for “Total Cost of Risk” or “True Cost of Risk”. All large companies who have professional risk managers base their decisions on TCOR. You would too if you had professional risk management training.
In the simplest terms, Cost of Risk is a measure of not only insurance but all the other factors related to risk as well. Some examples are:
- Insurance Deductibles
- Loss Prevention expenses
- Time your staff spends managing claims
- Uncovered claims
- Lost profits on construction projects you can’t bid because your Experience Mod (EMR) is too high
- Lost productivity due to worker injuries
This is lesson one so I’m going to introduce Rule #1. If you are buying commercial construction insurance from someone who can’t discuss your overall costs in the context of TCOR, fire them. The experts say insurance isn’t even 50% of the Total Cost of Risk. Google “total cost of risk + the state you company is based in(CT, VT, CA, etc)” and find an advisor who can explain the big picture. Then you’ll really start saving money.
If you're wondering whether your agent is addressing TCOR correctly, fill out our proprietary questionnaire to find out whether you have a Risk Advisor or an Insurance Agent
Posted by Robert Phelan on Wed, Aug 18, 2010 @ 01:40 PM
I am going to say some harsh things in my post today. Maybe it’s because I was listening to political talk radio at lunch today. Maybe it’s because it’s long overdue. Regardless, what I’m about to say could save your business so please pay close attention.
Business Insurance is not a commodity! I’ll say it again louder. BUSINESS INSURANCE IS NOT A COMMODITY!!!
If you believe me, then why do most Connecticut construction company owners put their business insurance out to bid and base their buying decision solely on price?
When I make this next statement, remember that I’m here to save your business and not make friends. Buying business insurance based solely on price is one of the more foolish purchasing strategies a construction company owner or CFO can make.
Why?
Because when disaster strikes, your business insurance is all that stands between you and bankruptcy. Disaster comes in many different forms. Ask the owners of Hartford Distributors or the owners of Kleen Energy. Whether it’s workplace violence, multi-million dollar lawsuits or a prolonged business shutdown, when disaster strikes, you don’t not want to rely on the cheapest insurance for your survival.
Think of what you’ve built. Think of the hours of work and the sleepless nights. Think of all the people who depend on your company for their livelihood. This income-producing asset you call a business is valuable. Do you entrust any of your other valuables to the cheapest protection you can find? Is that how you chose your car which is protecting your family or the alarm system at your house or the sprinkler systems in your building?
It absolutely drives me crazy when the owner of a well-established, well run construction company will give more analysis to buying a piece of equipment than buying business insurance. But you know what? I’m going to let you off the hook. It’s not your fault. It’s the insurance industry’s fault for promoting price as the most important decision criteria for their product.
So if price isn’t the main criteria, what is? Stay tuned for our next three posts on how Construction company insurance buyers can make the smartest decisions BEFORE their next renewal.
Posted by Robert Phelan on Tue, Aug 17, 2010 @ 03:42 PM
The workers compensation gurus at NCCI (National Council on Compensation Insurance) have declared a state of emergency. For the calendar year 2009, workers compensation had the largest single year deterioration in profitability in twenty-five years. Premium has declined an alarming 23% over the last two years alone. Combine that with a recessionary economy and negligible investment income and you have the “perfect storm”.
There are still only feint indications that there will be an immediate pricing correction to offset these losses. However, it isn’t too early for Connecticut contractors to prepare for what is certain to be a more punitive pricing environment in the near future.
When business insurance pricing is soft (as it has been since 2002) and underwriting standards are forgotten, every construction company gets a free ride. No matter how bad your losses are, there is always another underwriter standing in line ready to offer cheaper business insurance. Sad but true.
Change is near. Not today and maybe not tomorrow but definitely in the next 12 months. Workers Compensation and other forms of business insurance premiums are going to increase. Here are five things Connecticut contractors can do to be sure your workers compensation premiums (and overall business insurance) remain manageable:
- Focus on Safety – All underwriters believe that past loss experience is a predictor of future loss experience. If you asked them the most important underwriting factor of all, safety would always be #1.
- Focus on who you Hire – Most safety professionals believe that it is unsafe behavior which causes losses not unsafe conditions. Unemployment in construction is high and you have the ability to screen out those applicants who have a tendency to get hurt or who aren’t physically able to do the job. Find a Risk Advisor with the tools to assist you in this process.
- Focus on Training – Everyone in your construction company needs to understand the financial impact of workers compensation claims. Your construction company's success is their success, too. Be sure they understand it and are rewarded for it.
- Focus on stability – Some construction companies make the mistake of changing business insurance companies too often. If your experience has been good, you’ll have some chits to cash in when the market turns. If your experience has been bad, the insurance carrier will want to stick with you to earn their losses back. Loyalty still means something. (Don't shop it around EVERY YEAR!!)
- Focus on your Risk Profile – Imagine that you’re an underwriter of construction insurance. Your Risk Profile is everything that you would look at in a construction company to tell you whether or not that company is likely to have a loss in the future. This is everything from loss experience, to how you conduct safety meetings, to the jobs you do and more. Creating the proper Risk Profile could take a year or more. Hire a Risk Advisor today to help you design and implement an improvement plan.
The market will turn. It always does. Stay ahead of your competition by preparing for the inevitable.
Posted by Dan Phelan on Thu, Aug 05, 2010 @ 10:07 AM
Unfortunately, in the last three years, the construction industry as seen more crane related accidents than they would have liked. Several of which were very preventable. The most notorious of these crane accidents took place in Manhattan in March of 2008 when a 200 foot crane collapsed onto a building, completely decimating a townhouse and leaving 7 people dead.
And then in May of 2008, also in NYC, another collapse claimed the lives of two construction workers.The old OSHA rules for Crane and Derrick safety has been in place since 1971 and because of advances in technology and techniques, an overhaul was necessary and the very public crane constructoin incidents, unfortunately, were the impetus to speed up this overhaul. Here are a few of the major updates that will come into effect at the end of the year. To read the whole final ruling go HERE
A few highlights from osha.gov:
- The rule becomes effective 90 days after August 9, 2010, the date the final rule will be published in the Federal Register. Certain provisions have delayed effective dates ranging from 1 to 4 years.
- A copy of the regulatory text is available at: http://www.osha.gov/doc/cranesreg.pdf
- Until the date of publication, the full rule, including the preamble, can be found at http://www.ofr.gov/inspection.aspx. After publication, the rule can be found at the Federal Register or at www.osha.gov.
- This new standard will comprehensively address key hazards related to cranes and derricks on construction worksites, including the four main causes of worker death and injury: electrocution, crushed by parts of the equipment, struck-by the equipment/load, and falls.
- Significant requirements in this new rule include: a pre-erection inspection of tower crane parts; use of synthetic slings in accordance with the manufacturer's instructions during assembly/disassembly work; assessment of ground conditions; qualification or certification of crane operators; and procedures for working in the vicinity of power lines.
- This final standard is expected to prevent 22 fatalities and 175 non-fatal injuries each year.
- Several provisions have been modified from the proposed rule. For example:
- Employers must comply with local and state operator licensing requirements which meet the minimum criteria specified in § 1926.1427.
- Employers must pay for certification or qualification of their currently uncertified or unqualified operators.
- Written certification tests may be administered in any language understood by the operator candidate.
- When employers with employees qualified for power transmission and distribution are working in accordance with the power transmission and distribution standard (§ 1910.269), that employer will be considered in compliance with this final rule's requirements for working around power lines.
- Employers must use a qualified rigger for rigging operations during assembly/disassembly.
- Employers must perform a pre-erection inspection of tower cranes.
- This final rule requires operators of most types of cranes to be qualified or certified under one of the options set forth in § 1926.1427. Employers have up to 4 years to ensure that their operators are qualified or certified, unless they are operating in a state or city that has operator requirements.
- If a city or state has its own licensing or certification program, OSHA mandates compliance with that city or state's requirements only if they meet the minimum criteria set forth in this rule at § 1926.1427.
- The certification requirements in the final rule are designed to work in conjunction with state and local laws.
- This final rule clarifies that employers must pay for all training required by the final rule and for certification of equipment operators employed as of the effective date of the rule
- State Plans must issue job safety and health standards that are “at least as effective as” comparable federal standards within 6 months of federal issuance. State Plans also have the option to promulgate more stringent standards or standards covering hazards not addressed by federal standards.
- OSHA will have additional compliance assistance material available within the next month.
Construction Risk Advisors has the ball rolling on Connecticut safety training for whatever needs our contractor clients have. We will be upgrading our safety training options to include the new crane regs as soon as we can. So, if you're reading this, and you own a crane or rigging company in Connecticut, give us a call to get you and your crew up to speed. With the public crane incidents in the last 5 years, I have a hunch that OSHA is going to be very proactive in their enforcement of these new requirements.
Do you have any thoughts on the issue? Think any of the new regs are too heavy handed? Please leave a comment. We would love for this blog to become a place where Connecticut construction companies can interact with each other about what is going on in their backyard as well as in their industry.
Posted by Robert Phelan on Fri, Jul 30, 2010 @ 12:53 PM
While driving through a major Connecticut city recently, I saw a giant billboard labeled, “Truck Accident Counsel”. When I got back to the office I typed in the web address, www.truckaccidentcounsel.com and saw exactly what I expected, a law firm specializing in truck accidents.
For contractors in Connecticut (and any other company with heavy trucks) the game has changed. Just like in every other area of business, specialization is the order of the day. Unfortunately, you, the Connecticut construction company owner are the target.
More and more, the deck is stacked against you. There are literally hundreds of state and Federal laws for you to comply with. Now there are attorneys who specialize in understanding those laws and ready to nail you with a large verdict if you’re not in compliance and then cause injuries in an accident.
If you’ve read this blog before, you know we believe strongly in risk management that goes far beyond buying insurance. Do you still think risk management begins and ends with buying the cheapest insurance? If you do, here is one law firm ready to teach you a lesson.
Is your construction company up to date with all the laws and regulations governing the use of commercial vehicles? Is every vehicle in compliance? Are all your drivers properly trained and is safety emphasized every morning as your fleet of truck hits the road? Do you have written cell phone policies in place?
Learn the laws, commit adequate resources to safety or test your insurance policies in court. Your choice. Your business may depend on it.
Posted by Debbi Kuhne on Wed, Jul 28, 2010 @ 09:36 AM
Totally confused about how your experience mod was developed? Trying to weed through formulas can be daunting and really unnecessary for the employer(you!) to understand the basics of how the experience mod is developed.
NCCI (National Council on Compensation Insurance) collects data from your Construction Insurance Carrier. This data consists of audited payroll for the 3 years prior to your current year, as well as claim amounts for the same time period. The claim amounts are incurred dollars (reserves plus amounts paid).
NCCI develops expected loss rates for each WC classification each January 1st. The rate is multiplied times your payroll and the final amount or expected loss amount is compared to your actual claim dollars. If your actual claim dollars exceed the expected your mod is in excess of 1.00, or a debit mod. If your actual claim dollars are less than the expected loss amount your mod is below 1.00, or is referred to as a credit mod.
In today’s economy many employers are reducing their workforce and thus payrolls are decreasing. If you maintain the same amount of incurred losses, but payrolls are reduced and therefore expected losses are reduced you will be seeing an increase in your mod. Unfortunately, many employers had that happen in 2010. We hope to see a stablizing of the expected loss rates in 2011, but since NCCI does not release those until December, it's anyones guess!
There are many more intricate parts to the actual calculation, but as long as you know the basic of “expected losses versus actual incurred losses” you should have a better understanding of the calculation.
If you're a Connecticut construction firm that needs experience mod help; whether it means reducing claims or making a plan to get your experience mod back down to below 1.00, Construction Risk Advisors can help. Our two full-time, in house claim advisors spend a combined 100 hours a week helping our construction clients achieve their minimum experience mod and in doing so achieve the best workers comp insurance rates possible. Give us a call at 800-252-9864 or drop us a line if you want to see how low your mod can go!
Posted by Debbi Kuhne on Mon, Jul 26, 2010 @ 03:35 PM
If I’ve heard it once I’ve heard it a hundred times --- “he wasn’t hurt that bad – he should be back at work” or “he must not really have been hurt at work”! Many employers feel a substantial number of claims are fraudulent, but statistics show that this isn’t the case. The problem is malingering after the injury occurs; it is much more prevalent, but also can be controlled.
Malingering can occur for many reasons. First and foremost is that if the treating physician or Occupational Health Clinic doesn’t have a copy of the construction workers’ job description, then they can only go by what the injured worker tells them. The injured worker can embellish their job as much as they want because there is nothing concrete to back it up. So, one way to combat malingering is to have job descriptions that you can easily provide to the Dr. or other medical provider. Another issue is that not all providers understand the importance of returning someone to work, to their regular routine, so it’s beneficial for you to have an established relationship with a local Occupational Health clinic that understands the work your construction firm does and understands you want your injured workers back on the jobsite as soon as possible!
But there are reasons that the injured worker may be malingering that have nothing to do with the injury itself. Is it possible that the injured worker was having issues with a co-worker, construction foreman, supervisor, or another subcontractor prior to the incident, and is now looking for ways to avoid returning to work?
If you suspect there is a reason the injured worker is malingering, you should be telling the claim adjuster! The adjusters at the insurance carrier do have to work within the confines of the State statutes, but they are experienced enough to know a “malingerer” when they see one and appreciate any insight you may be able to give .
So the next time there is a delay in getting your injured worker back to work, don’t jump to the idea that the whole claim was fraudulent, discuss your concerns with the claim adjuster, give them some insight into the employee and hopefully another “malingerer” will be returned to work!
Posted by Debbi Kuhne on Fri, Jul 09, 2010 @ 09:03 AM
You don’t wake up one day saying to yourself “From now on I’ll be safe”. Being safe is being aware, it’s a learned activity and it becomes a habit. Do you lock the doors in your home? Do you look both ways when crossing a street? These were things that were brought to your attention as safety hazards, you learned what the proper way to prevent an injury was and it became habit. You need to do the same thing with Workplace and Construction Jobsite Safety!
Awareness is the first step in the process. Do your employees know the hazards of the jobsite? You might want to include discussion of the specific job site hazards in your weekly toolbox talks.
The next step is training. If an employee is working in an unsafe manor, allowing him or her to continue will not bring safety to the workplace. Nor will just yelling at them or disciplining them for being unsafe. You need to advise the employee of the unsafe operation and teach them how to do it safely and properly.
The final step is reinforcement of proper and safe workhabits. I have heard that it takes 2 weeks to form a new habit and 2 weeks to break an old one. So, reinforcement and reminders will help to make safe workplace practices the new habit on your jobsites!
Think of the upside to preventing construction injuries:
- Not having to deal with an insurance claim
- Not having an increase in your construction insurance premiums because of the claim
- Not having OSHA visit to investigate the claim
- Keeping your experience mod low, and in doing so not hurting your ability to bid jobs or work for specific general contractors
- Not having to spend money to replace and retrain a new worker to replace the injured one