Weaving a safety net
Insurance rates depend
on strong safety programs
Tightening market forces
contractor changes
By Jeremy Harrell
Daily Reporter Staff
The
insurance market was one of the many casualties of the Sept. 11 terrorist
attacks, and the resulting tougher climate will force contractors
to shore up their safety programs.
For the last 10
years, insurance companies, like the rest of the industry, rode a
wave of prosperity, making the insurance market "soft,"
said Brad Stehno, an account executive and safety consultant with
R&R Insurance Services Inc., Waukesha. In a soft market filled
with capital, insurance companies typically give out large dividends
- or returns on annual premiums - as a way to lure business, no matter
how spotty a company's safety record, he said.
"A few years
ago, 30 to 40 percent was paid by insurance companies, regardless
of the losses," Stehno said.
But in the last
year, the economy dipped, the insurance market "hardened"
and insurers can't afford to be as generous as they once were, he
said. The dividends that companies once got with ease are drying up,
and returns from insurance companies are increasingly tied to effective
safety programs and a good loss history.
"In this
firming market, you can't get 30 to 40 percent back without earning
it," Stehno said.
"Those flat
dividends have dropped from 40 to 30 to 20 to 10 percent. If I'm a
contractor that had a crummy year, I don't get anything back. Contractors
need to earn their dividends."
Chuck Schiltz,
chairman of Security Insurance & Financial Services Inc., New
Berlin, said another big change occurred in January. The state, which
controls workers' compensation rates, raised premiums for the first
time in years, and early indications point to another increase in
July, he said.
Now, more than
ever, the consequences of failing to carry out a comprehensive safety
program are hitting home, Schiltz said.
"In a soft
market, there's less incentive to be as safe as you possibly can be
because it could be made up somewhat by dividends," Schiltz said.
"All of a sudden, we're getting rate increases -- along with
dividends being pulled off the table -- and it's getting everyone's
attention."
In control?
A company can
earn more of the insurance pie by adhering to an age-old industry
rule: Lower the experience-modification rate, said Ed Hayden, executive
director of the Allied Construction Employers Association. The experience
mod rewards or punishes construction companies that exceed or fall
below the workers' comp claims of other builders in the same market,
and having a low mod rate ties directly to the size of the annual
dividend, he said.
"A hard or
soft market doesn't affect the mod rate," Hayden said. "You'll
do even better in a soft market with a low mod rate, and in a hard
market, a low mod rate pays off. The dividend will be an added incentive
to insulate you from the swings."
As Hayden implied,
companies have little control over the economic swings that dictate
market conditions, but they do control their own safety performance.
Though the idea of lowering one's mod rate sounds easy, it's a long
process because it encompasses safety performance from the last three
years, Schiltz said.
The hardening
market should provide the stick needed to whip some companies into
shape, he said. Otherwise, a complacent attitude toward safety will
come back to haunt construction companies.
"Obviously,
it takes a while for the experience mod to come down," Schiltz
said. "It's a long-term process. It always pays to focus on it,
but that's even more important now. Some people come out with safety
programs because they've been told they should have them. But sometimes
there's not the follow up and implementation that's needed."
Instituting a
solid safety program requires commitment from the workers on the job
site, but more important, it requires constant attention and upkeep
from employers and their representatives in the field, Stehno said.
Contractors that
used to fire project managers for lack of productivity, for example,
should think about safety performance as another gauge of job performance,
he said. After all, high mod rates can take hundreds of thousands
of dollars off a company's bottom line and influence everything from
profit margins to bidding.
"An employer
needs to decide whether they want to put safety near the top,"
Stehno said. "It's a challenge to implement a healthy safety
culture. You can have all the safety meetings, all the toolbox talks,
all the training in the field, and it means nothing if it's not implemented
in the field. Otherwise, (the employer) has to take a cut on profits,
get a deal on materials or pay his people less."
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“Everyone
says, ‘Safety is a goal we try to attain.’ But it’s a
law we’re required to follow.”
Hap Pigsley
Safety
Director
Platt Safety Services
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Hap Pigsley, safety
director for Platt Safety Services, a division of Platt Construction
Inc., Milwaukee, summed up the situation.
"The best
way to drive the construction industry is with the dollar," he
said. "If you want to go left, you put the money to the left.
If you want to go right, you put the money to the right."
Out of control?
But even keeping
tight control over safety policies and working to bring down experience-modification
rates might not lower insurance costs, Pigsley said. Safety-conscious
contractors can't control the actions of other contractors in the
same market, and inattention to safety can raise insurance premiums
for everyone.
"If anybody
in the same SIC (standard industrial classification) code isn't operating
safely, then the base rate for everyone has to go up," he said.
"We try to work together as an industry to keep the base rate
down. Unfortunately, there's no good way to police these things."
Consequently,
Pigsley said he doesn't "feel any heartache" about entering
other companies' job sites to point out hazards. The feeling comes
not only from a moral obligation to protect workers, but also from
a financial standpoint - the kind of communal effort required to bring
workers' comp rates down, he said.
"If I see
somebody doing something wrong, I'm a safety professional and I have
a responsibility to do something about it," Pigsley said.
With OSHA's multi-employer
standard penalizing general contractors for their subcontractors'
safety misdeeds, contracts will more frequently include language that
allows generals to cut subs out from jobs if they don't follow proper
safety guidelines, he said. It's one more way of getting the entire
industry onto the same safety page.
"They're
going into the 21st century screaming and hollering, but they'll get
there," Pigsley said. "Everyone says, 'Safety is a goal
we try to attain.' But it's a law we're required to follow."
