Construction Risk Blog

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

If you liked this article, please retweet or post to facebook.

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.

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.

 

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!