Correlations between Contractor Insurance and BP
Posted by Dan Phelan on Wed, Jun 23, 2010 @ 08:02 AM
One in a Million. A phrase that has been mentioned many, if not hundreds of times since the Deep Water Horizon Oil Rig sank over two months ago in April 2010. It has been mentioned by numerous sources that BP has a reputation for being less than prudent with their risk management efforts. We saw the result of this in 2005 when their Texas City refinery exploded, killing 15 and injuring almost 200 more, and then again this year when the Deep Water Horizon Rig sank, killing 11 and injuring 17. The explosion notwithstanding, I'm still very curious why a company would dig a mile down into the ocean without any plan to stop it if it were to rupture. The reason is that this was a Black Swan event. An event that no one seriously anticipated, and an event that BP CEO Tony Hayward considered one in a million. He acknowledged that it was possible, but the chances were less that slim to none that it would happen during his tenure at BP, and therefore didn't see any reason to spend time or money on a plan to contend with a worst case scenario.
Let's change it around a little. Say you're a Connecticut construction company, shopping your insurance around. You send your agent out to 15 different insurance markets and have them come back with prices. Even if those 15 insurers did offer you pricing, no agency has the time or resources to be able to comprehensively compare 15 different insurance policies to each other. Especially the types of policies that are written for construction insurance. But that doesn't matter, because you got a good price and have never had a major claim and your agent takes you golfing sometimes. It's tough to compare a run of the mill Connecticut construction insurance policy with a fully self-insured entity like BP, but the correlations between haphazard risk management definitely exist.
In my time in this industry, I've spent a solid chunk of time talking to contractors about insurance. It is extremely rare that there is ever a discussion initiated by the contractor that revolves around buying the coverage to fully cover their risk for everything that could happen in their course of work. More often than not, these conversations center around buying just enough coverage to be able to bid on work, rather than buy anything that isn't explicitly required by an upstream contract. But what happens when one of your heavies crashes into a school bus because the operator was texting on their phone? Is a 2 million dollar umbrella going to be enough? What happens when you're working near water and you dump a barrel of hydraulic fluid into the local water table? Did you skimp on a pollution policy because you've never had a pollution claim before? These, and similar types of losses occur to contractors every year, and more often than not will not only exponentially jack up your insurance rates and make it very hard to secure insurance via standard markets, but they have the very realistic potential to put your company out of business. The company with your last name on the trucks. The company your great grandfather started with 2 pickups and a few shovels. Is it worth it to save a thousand dollars a year on your construction insurance?
I wonder if Tony Hayward is wondering if he ‘bought enough insurance'? His company has much deeper pockets than yours, and they've already paid two billion out. By the time business interruption claims start coming up, or a hurricane blows tarballs of oil a mile inland, they'll be reaching further and further into their pockets.
We know that money is extremely tight right now for Connecticut construction firms, and that a low price on insurance can make the difference between making payroll or not, but this buying on price alone mentality existed well before the economy went down the tubes. Instead of saving money, save your company. Protect it from every risk that could befall it. Even the black swan one in a million claim.
If you don't want your company to be the next BP, give Construction Risk Advisors a call. Their staff has over 100 years building and servicing bulletproof Connecticut Construction Insurance policies. We know what can happen, and we know how to help you prevent it through contractual risk transfer, as well as make sure you have the right coverage in place when it does.