Construction Risk Blog

Five Ways to Prepare Your Construction Company for a Market Change

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:

1. 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.
2. 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.
3. 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.
4. 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!!)
5. 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.

Need Help Understanding the Basics of Your Experience Mod?

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 1^st.  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!

Who Wants Some Free Experience Mod Help ?

One of my salespeople had a conversation today with an irate prospect. This company owner had just learned that their workers compensation experience mod rate (EMR for short) is about to go up significantly. This wasn't just going to cost more money but possible threaten this company's ability to bid work. Wouldn't you be upset, too?

You should never be surprised by a change in your workers comp experience mod. Whether your experience mod goes up or down, you should know well in advance. If you don't, then you have a problem with your insurance agent.

Unfortunately, most insurance agents think that it's YOUR experience mod so it's YOUR problem. To a point that is true. There is only so much that any outsider can do to help influence the direction of your experience modification factor and the safety procedures of a Connecticut Contractor. But why are you paying your agent a commission on that workers comp policy? Is their only job to show up once a year and say, "I'm sorry but your experience mod went up 20 points because of that loss three years ago which means your premium is up $32,000 (which means I make more money). And by the way, maybe you should hire a safety manager".

What's wrong with this picture? The insurance agent brings bad news. The insurance agent provides no services to help you solve the problem. The agent makes more money which you pay him as part of your premium. You suffer. That sounds like a win/win!

Forgive my sarcasm. I just can't figure out why business owners put up with this treatment. Not only will they accept this lousy service, but they'll stay with a joker like this as long as he keeps bringing them cheap insurance. If your experience mod keeps going up, you don't have cheap insurance.

Whether your experience mod is presently high or low, you should have a plan in place to improve it to its lowest possible level. You may never achieve the goal of getting your experience mod to this level, but you'll be a hell of a lot better off than your competitor who has no goal.

Last week we brought great news to a contractor client. After three years of working together, we achieved their lowest possible experience mod. When they initially signed on as a client, their experience mod was a 1.12, and by implementing our expert claims management and improving their safety program, we helped them get down to a .84!It was exhilarating for both of us. They saved a lot of money and with our help, will continue to save (around 12K annually!). We executed the plan we promised and delivered the results.

Don't let your experience mod be a mystery any longer. Work on it every day like any other goal you set for your construction firm, and you too, will celebrate success.

Are you a Connecticut Contractor that needs experience mod help? The workers compensation experts at Construction Risk Advisors are only an email or phone call away. We'd be happy to take a look at your experience mod and safety program, and offer any help we can to make you a safer and more profitable construction firm as part of our innovative Test Drive program.

Does Your Construction Risk Management Program Propel Your Company Forward?

That may not be a fair question because it assumes you have a risk management program. Most mid-sized construction companies don't have one. At least not a formal one. It's more likely that they just have a construction insurance program that is reviewed annually.

If you did have one, what would it look like? And if you'll forgive my boating analogy (I'm looking out the window at beautiful sunny skies and wish I was riding the waves right now), is your risk management program propelling you forward or keeping you anchored in place?

If you had a risk management program it would start with strategic objectives. Just like any strategic objective a construction company might have, you would then put a plan in place to achieve it. Let's start with the strategic objectives and consider what they might look like.

If this doesn't sound like your construction company, you're not alone. When I talk to prospective customers for the first time, almost none of them have any kind of risk management plan (most have never heard of such a thing). Why should risk management be any different than other critical areas subject to financial measurement? You are certainly going to measure the profitability of a job. You are certainly going to measure productivity on a job. Then why aren't you going to measure the Cost of Risk?

The answer is simple. You don't know how. No one has ever taught you or assisted you. And why is that? Because the people who should be focused on helping you don't know how to manage risk either. They manage insurance. You know them as your insurance agent. Once a year they focus on the "price" of your insurance. Unfortunately, this short term focus on insurance price can lead to a long term disaster on cost.

Back to my boating analogy. If your risk management program is propelling you forward, you are making continual progress at reducing your total cost of risk. Soon your costs will be lower than other construction companies and you will have a competitive advantage. If you're anchored in place, your smart competitors will soon be beating you.

If you'd like to implement a risk management plan and put your cost of risk on a downward trend forever, contact us to see how a Risk Advisor is different from an insurance agent.

Getting Injured Workers Back to Work….even Contractors

You have heard about the benefits and cost savings if you bring an injured contractor back to modified duty. But, how can an injured worker bring any value to a construction site?

Before we examine ideas on return to work, first we need to recognize that "RTW" is beneficial for both the employee and employer. Statistics show that workers who remain in their regular routine recover quicker then those that don't! In fact, the majority of injured workers who are out of work for 12 weeks or more never return to their original jobs. The benefit to the employer? Why reduced workers comp claim costs of course and therefore, a positive impact on your experience mod and the morale of your work force!

Your employee handbook should include your "RTW" policy. This policy should clearly state that modified duty will be provided when possible, for a limited time period. The limited time period is important as you most likely do not have a modified duty position that can be a permanent position.

So, now that we have covered the benefits of returning injured workers and the importance of having a statement in your employee handbook, you are still saying "but we don't have anything for him/her to do". When it comes to modified duty you should first look at what can be temporarily changed in the worker's usual job - can someone else do the heavier lifting? But if there is absolutely no way to modify the current job, you may need to be a bit creative in providing meaningful and productive work. Is it time for an inventory review? Can the person (within their restrictions) be a safety or traffic person at the Construction Site? Do you have paperwork to be done in the jobsite trailer? Did you know that you can even pay your employee while they work at the local soup kitchen, library, or retirement home? As long as the employer is providing modified work within the medical restrictions and the employee gives their consent, the employee and the employer are both benefiting!

The next time you have an injured worker released to modified duty don't immediately say "We're a Construction Company, what can they possibly be thinking". Instead, think outside the box and help the injured worker recover quicker and help you to save workers compensation claim dollars.

Contractors: Is your Experience Mod accurate?

At least 50% of the NCCI mod worksheets we review for our clients are in error. The most likely error is missing payroll. Not from your standard program but if you are a contractor engaged in OCIP(Owner Controlled Insurance Program) and CCIP(Contractor Controlled Insurance Program) jobs, that's where the errors occur!

A few years ago we had a large contractor that was hovering at a 1.00 mod - and we all know what that can mean! While verifying their mod worksheet we noted that all the payroll and Workers Comp claims under the standard program were included, but realizing a high percentage of work had been done under OCIPs and CCIPs we wondered why that wasn't reflected on the experience modification worksheet. After several months of tracking down the individual at each carrier responsible for filing the data and finally having that data provided, the mod went from 1.00 to .97!

Missing payroll is not the only error that can occur. Incorrect payroll, misclassification of construction workers, or duplication of claims also cause many, many errors. Your experience mod rate is only as good as the data that is entered into the system!

So, if your mod hasn't been verified lately now is the time to do it! Who knows, you may be able to reduce your mod by several points!

Need someone to verify your experience mod?  The claims team at Construction Risk Advisors has been successfully recovering misallocated premium and experience mod dollars for Connecticut contractors for a long time!  

Who's the Bodyguard for your Construction Company?

Returning from a business trip recently I was relaxing in the Delta Sky Club at Hartsfield International in Atlanta. As I sipped a soda and ate some pretzels, Hulk Hogan walked in with a small entourage. He looks the same in real life as on TV - as big as a mountain and a little older but the same guy, the same twelve-time world heavyweight champion. He's 56 years old but you wouldn't want to mess with him. He is still "winning" fights this year! Read about it on wikipedia

What does Hulk Hogan have to do with insurance for contractors? A lot, if you look at the world through my eyes.

If you ever needed a bodyguard, he's your man. Read his biography at the link above. He got in the ring with the biggest and the baddest and came out on top. He was the face of WWF(Now WWE). He is a winner and the world knows it. Hogan fought to the finish and intimidated other giants of the game. If I could choose a bodyguard, Hulk Hogan would be my first choice.

If you're a business owner, after protecting your life and family, your business would probably come next. For most construction company owners, their business is their most valuable asset. But surprisingly, I can almost guarantee, none of you know the biography of the person you have chosen to protect your business, your insurance agent or broker. Why is that? How could that be?

It's simple really. Contractors buy insurance the same way they operate in their own world - low bidders win. So instead of making insurance choices based on the capabilities of the people providing the service, they buy cheap insurance.

Do you really think there is no difference between a risk advisor with thirty years of experience and a trainee insurance agent with a cheap price? After all the hard work you've put into building your business, do you really want to entrust its protection to someone you've just met? Someone whose training and skills are unknown to you?

Insurance for contractors is as complex now as it has ever been. The risks you encounter can easily produce multi-million dollar liabilities. If your workers compensation claims aren't managed properly, your EMR (experience Mod Rate) can skyrocket and destroy your ability to compete.

Don't trust the protection of your business to just anyone. When you look across the desk the next time you make an insurance buying decision, ask yourself this: Is this the Hulk Hogan of insurance agents? If you have any doubt, reconsider. Your business depends on it.

7 Ways to Prepare Your Construction Firm for the Hard Market

I know. We are still in a recession and you're more worried about getting your next job than you are about how to survive a hardening insurance market. However, chances are highly likely that the construction market will still be depressed when insurance prices spike. Here are seven steps you can take to be sure your company doesn't get hammered when the market turns:

1) Have a safety culture firmly in place and supported by senior management. This is what every underwriter looks at first. Even if you have had a rough patch with significant losses, insurance underwriters will be willing to hear your story if you are sincerely committed to focusing on safety and working with them to turn it around.

2) Understand your contracts, both upstream and downstream. Insurance companies don't want clients who get left holding the bag, particularly if it's due to sloppy language in a contract. It's important that you transfer as much risk as you can and not accept risk that isn't covered by insurance.

3) Make sure your website accurately represents what your company does. Don't brag about jobs that may look alarming to an underwriter.  Like that one time your Rigging Company trailered a space shuttle!

4) Do brag on your website about safety awards your company has received as well as your commitment to a safe workplace.

5) Commit to a return-to-work program for all injured employees. Insurance underwriters want to know that workers comp claims will be minimized.

6) Develop a Risk Management Philosophy that you can articulate. Insurance underwriters want to know that you aren't just out to buy cheap insurance. They want to know you care about preventing and minimizing losses. Here's ours

7) Work with your broker or Risk Advisor to write a three year plan to improve your company in all areas of risk management. This will truly blow the underwriters away.

This may sound like a lot of work and it probably is if you attempt it by yourself. Test drive our services or hire us as your Risk Advisor and we'll have you looking like a shiny new penny to the underwriters. Your premium may still go up but you'll be on the low side and beating your competitors when the construction market improves.  If you want to avoid the market swings of the insurance industry entirely, we have a great solution for that too. And here is a special report about 'How the Smartest Contractors Pay the Least for Insurance'.

"Preventing Losses" article published in Building & Construction Northeast

Preventing Losses
Written by Robert Phelan

Can pro football offer lessons about how to run your construction business? Well, some of the challenges you face are much like those that face Coach Bill Belichick of the Patriots or Coach Tom Coughlin of the Giants.

Like them, you have to protect your "blind side." Failing to do so can bring big losses on a football field and in your business.

In his book "The Blind Side," author Michael Lewis reveals how football strategy has changed over the past 25 years.

One player in particular spurred change. Lawrence Taylor - the legendary "LT" - was right linebacker and a feared defenseman who typically made quarterbacks shake in their cleats.

Taylor always said his mission was to "destroy" the quarterback - which he nearly did when he once broke two bones in Joe Theismann's leg in a famous Redskins game.

Most quarterbacks are right-handed, so their blind side is their left. When they turn their heads to follow their right arm, they can't see what's coming at them from the other side. If it happens to be Lawrence Taylor fast approaching, they need the best protection they can possibly have in the left tackle position.

Because of Taylor, the left tackle position on the offensive line suddenly be­came one of the most important positions on the team.

Meanwhile, Bill Walsh, coach of the San Francisco 49ers, built an offensive strategy based on short passes. Joe Montana and his successor, Steve Young, moved the ball down the field and won three Super Bowl championships with this new strategy. The key element was the ability of the left tackle - the best player on the offensive line - to protect the quarterback's blind side.

What's the lesson for your business? It's one that affects you every day when you bid on jobs and try to fulfill contracts you already have. You have to know that you have a blind side that contains all those risks that can potentially destroy your business. These risks that exist in our world today are bigger and more complex than ever before.

As a business owner, do you ever go to sleep at night staring up at the ceiling, wondering what's going to get through your "offensive line?" There's a world out there full of Lawrence Taylors ready to destroy your business. As you look out at your construction operations, you may see heavy equipment, workers exposed to extreme and stressful work environments, and fleets of automobiles and trucks on the highway every day, which are vulnerable to weather conditions and other drivers who are not paying attention. All of those things look like accidents waiting to happen.

In 2001, a salesperson working for a building supply wholesaler was talking on his cell phone while driving a pickup truck. He ran a stop sign and plowed into a vehicle, injuring a 78-year-old passenger. She sued the wholesaler, a large multistate company, and the jury ultimately awarded her $21 million. The company was insured, but it had much less than $21 million worth of liability insurance.

This is a frightening number for any company to see because probably all of
us have gotten distracted while driving. It just takes one moment and a catastrophe could wipe out a company built and sustained for generations.

Last year, a job site crew for one of my clients had just finished a safety meeting when the foreman, who was sitting in a loader and wasn't paying attention, dropped a bucket on another worker's leg. If it weren't for the quick response and medical attention he received, this worker probably would have lost his leg. It would have been a multimillion-dollar loss instead of a relatively quick recovery.

Another sobering example occurred when a bridge contractor had an employee working in an elevator shaft. He was their most experienced and safest em­ployee. It was the end of his shift, and he thought to himself, "I just need to do one more task, take one more minute." He stretched himself beyond the safe zone and fell 30 or 40 feet down the elevator shaft, landing on his back and his legs, breaking the femurs in both legs. He would have been killed if there hadn't been loose pieces of plywood stacked in the bottom.

Everything you've worked for can vanish in a moment. It would only take one multimillion-dollar catastrophe to either leave your business with an uninsured loss or stuck with such exorbitant insurance premiums that you can't really compete anymore.

Force yourself to ask this question, "If one of our workers was involved in an automobile accident where someone was seriously hurt because the worker was texting on a cell phone, could I afford a $21 million jury verdict?"

When you have a serious accident, your workers' comp experience mod rate will soar. This is a number that compares your claims experience to other contractors of your type. If your mod rate is say, 2.0, your premiums will be twice as ex­pensive as average. A high mod rate can put your construction company on the edge of viability.

So, who - or what - is your "left tackle?" Here are a couple real-life ideas:

First, it's an unremitting, 24/7 effort on safety. Hazards never sleep. Safety can't ever take a break, either. You have to create a safe culture. Some of the biggest companies, notably Turner Construction, have done an exemplary job with safety, striving to get as close as possible to zero losses. Small- and middle-market construction companies can do the same thing - and they must.
Second, it's having enough of the right kind of insurance, which becomes more affordable over time as you rack up an outstanding safety record year after year.

These two ideas alone could provide you with a measure of safety equal to a left tackle holding back Lawrence Taylor. It's a blind side you simply must patch up.

Robert Phelan is CEO of Construction Risk Advisors in Torrington, Conn.

Link to the article on Building & Construction Northeast's site

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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.