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.

Independent Contractor or Employee?

Today's Post comes from another one of the Risk Advisor Allstars at CRA, Debbi Kuhne, our Director of Client Services

 Many companies hire what they deem to be Independent Contractors and not employees. This is now being scrutinized more and more by both the Department Of Labor and the Connecticut Workers Comp commission and more lawsuits are being filed every day in both areas. So, how do you make the decision? It isn't necessarily an easy one as you can see from the information below.

Connecticut Workers Compensation Statutes do not give a definition of an Independent Contractor. They offer guidelines to follow and each case is reviewed individually. The Commission suggest you review Behavioral Control (where the individual works, who provides the tools and supplies) Financial Control (is the workers given a check based on an hourly rate or a per job basis) and finally, Type of Relationship (is there a written contract, is there an assumed permanency of the position).

The DOL is much more definitive of those individuals to be considered an independent contract. The following tests must all be met in order for the individual to qualify. 

1. Must be free from control and direction

2. His/her service must be performed outside of any place of business of the     employer

3. Must be customarily engaged in an independently established trade, occupation, profession or business.

So, what does it matter if you misclassify a worker? Here are some of the laws under which you could be fined and/or sued:
• Wage and hour laws
• Minimum wage law
• State overtime law
• Law on keeping payroll records
• Withholding taxes and payment of social security benefits
• Willful understatement of payrolls for workers compensation insurance
• Violation of laws on discrimination.
• Whether you're a Connecticut construction company, distributor, or restaurant owner, seek legal advice before determining an individual is an Independent Contractor and not an employee!

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Please join me in congratulating Debbi as the newly elected Regional Vice President for Region I of the National Association of Insurance Women. She was elected on April 10th at The Regional Conference and will be installed at the National Conference in Washington, DC this June. Her official term will run from July 1, 2010 - 2011.

The Regional Vice President is the ranking officer in the region and is the direct representative to the National Board of Directors of NAIW, International for the Region. Region I consist of - NJ, CT, RI, PA, MA, VT, NH, ME & NY. Debbi will be responsible for communicating with members in the region on news from the National level, presiding over the Regional Conference, formulating plans for the region (growing the membership, establishing new associations), building a team relationship with all members in the region, providing leadership direction, answering questions and concerns of the Council Directors from each State.

Finding a Chief Risk Officer for Your Connecticut Construction Firm

In my last post, I talked about finding the Hulk Hogan of insurance agents. To be more formal, you want a CRO or Chief Risk Officer. Since you probably don't have one on staff, you've got to find one and make him or her one of your Trusted Advisors.

Construction risk management has become a field unto itself. There is probably no more complicated area of insurance than insurance for contractors. The best practitioners are all specialists. It has become impossible to dabble in construction insurance. It's a full time job and you need the best.

It's a down economy, bid lists are long and all that "stimulus" money must have ended up in someone else's checkbook. So I'm not suggesting that you create a new position in your company just for insurance. I am suggesting that you outsource the risk management function to someone who has the skills and training to be your CRO. That is definitely not your typical insurance agent, mainly trained to sell you insurance policies.

Why is this so important? Think about the way you manage risk now. If you're like most of your peers, you've given "insurance buying" responsibilities to either someone on your finance staff or someone in the HR function. Even though their responsibility is limited to managing your insurance, they haven't even been trained to do that much less be your internal CRO. Do you really think that having a part time, overworked insurance buyer with no formal training is the best way to protect your business from catastrophic loss? I didn't think so.

You're probably thinking that you are paying your insurance agent to protect your business. Think again. First of all, most of them lack any level of training beyond what they learned to get a license. That's not very much when you consider half the curriculum was dedicated to homeowners and auto insurance and you can take the training in a week. If you want to see a deer in the headlights, ask your insurance agent if he is your CRO?

Insurance protects the most valuable asset you own, your business. And you need more than just insurance in today's world. You need a full complement of risk management services and a talented team of people who can execute a plan to mitigate and manage the risks faced by your business. Cheap insurance managed part time or a crack risk management team looking out for you like a bodyguard.

You decide.

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.

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.