Category Archives: General Liability Insurance

Claims Management, Construction Practice Group Content, General Liability Insurance, Workers Compensation Insurance

Why NY Construction Insurance May Be Toxic To Your Profits

Why NY Construction Insurance May Be Toxic To Your Profits

I was having a beer with a friend of mine at a golf outing recently. He’s an accountant in the construction practice group at a major accounting firm. I told him the story about a construction company I met with recently that was underpricing their jobs pretty significantly. For every $1 in contract value they were awarded they are losing over 14 cents. He smiled and told me he sees that all the time.  Major companies over expand into markets or trades they don’t fully understand losing their bonding capacity, or worse plain going under. Often it’s a result of not being tight in knowing their true cost of goods and services; construction liability insurance and construction workers compensation insurance being prime culprits.

I will highlight one significant area we see errors;  job costing errors due to improper insurance cost allocations.  Most construction companies fold insurance costs under their “general conditions” within their construction budgets. If your working in NY it’s a major budgetary component. The challenge is pricing the job at your current insurance cost structure. Contingent on when the job starts that cost structure can change pretty dramatically at renewal, especially in a rising rate environment. If your working on margins of 10 % or less you can easily see how your profits evaporate or worse losses materialize. If the insurance cost increase is high enough you can lose a whole year’s profit in one email. Unfortunately, we see this all too often.

What This Means

“Yeah we get that genius but how can you prevent that?! “ To be clear you can’t prevent it entirely however you can manage the fluctuation to an acceptable level so you can adjust your future pricing to accurately reflect your true costs; here’s how.

Much of what we espouse in terms of risk management has to do with simple protocol and the timing of that protocol. Simply put it’s not just doing “the thing”, but when you do “the thing”. Sort of like closing the barn door BEFORE the horse leaves rather than after….. It’s not simply closing the door, it’s when.

Step 1: Know Your Loss Pic By Line of Insurance:

It’s helpful to understand how the insurance marketplace sees you. Loss Pic is an industry acronym for Loss Picture or Loss Ratio. In simple parlance “how profitable is your account to the insurance company/marketplace ?” The Loss Pic or Loss ratio is a ratio of premiums you have paid in by line of insurance each year to the claims paid out each year. Each insurance product you purchase has a profitability component baked in by the carriers who provide the insurance to you; usually 50%. This means for every $ 1 in premiums the companies will make a profit if they pay 50 cents or less in claims.

Knowing this number for each policy will help you forecast where your insurance rates will be upon renewal. Too few construction companies take advantage of this information early enough as they believe they won’t know their renewal pricing until the line  of insurance renews. That’s flawed thinking. We can tell you within 10% standard margin of error where your renewals will be 6 months before you renew simply by knowing your loss ratio or loss pic for each line of insurance. By knowing your 5 year historical loss picture you can tell if the account is profitable to the insurance marketplace or if you’re running a temperature.

Step 2 : When you know the Loss Picture dictates a lot.

At Metropolitan Risk our clients can know their loss picture daily, at any time during the year because of our O.O.D.A. Risk system. Let’s assume you don’t have a Risk Management System. We coach folks to run the loss pic quarterly to see how well your accounts are performing, especially at the 6-month mark (mid renewal).  After running the loss pic if you see you’re running a temperature forecast how much of an upward adjustment you might see on your insurance renewal and bake that in to your job costing. Once you sign your contracts you’re locked in on the income side and lack the ability to increase your prices simply because your insurance cost increased. Your G.C. or owner does not want to hear your tale of woe, and woe it is if it’s cheaper for you to stay home and watch Dr. Phil than it is to build.

But, if you have losses running off and expect a decrease, lower your prices and grab market share. The point is you need to start adjusting your RFPs so when you win these future construction contracts you have tighter numbers relative to the actual cost of your construction liability insurance and construction workers compensation costs. If you’re off significantly you’re going to have profitability challenges in your future months as the insurance increase we are seeing are very substantial especially for poor loss histories.

Bottom Line

Bottom line is your insurance policies are NOT something that are managed 1 month before renewal. Best Practice construction firms understand how their construction general liability and construction workers comp claims are developing is a critical function to understand when your organization’s risk-based costs are starting to raise in temperature. Especially in large firms that have lots of activity.

Still have questions? Still want more info? To learn more or speak with a Risk Advisor Click Here to see how you can access your claims and loss pic calcs every day 365 24/7. 

Claims Management, Construction Practice Group Content, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance

Why The Commercial Insurance Marketplace Fails Your Business

Simply put, the insurance claims goals between most commercial insurance buyers and the carrier / brokers heretofore named the insurance marketplace are misaligned.

Which Way ?

The goal of a savvy insurance buyer is to transfer as much risk to the carriers for the least amount of insurance premium. Most forget the first part, but that’s a whole other blog article. The goal of the insurance carriers is to charge as much over par as they can get from each insured ultimately driving their profits up. The brokers who place most of the policies are on the same food chain as the insurance carriers as their commission increases with the insurance premium. This classic tug of war is centuries old and describes most functioning marketplaces irrespective of the product or service.

Here’s the difference; you can gain much more control over the system that has been tilted for years against you. What drives your insurance premiums are your claims . Understand that when your premiums go up you are in effect rewarding your insurance broker for mishandling your account as they get a raise and you lose valuable profits. This happens because no one is focusing on the root causes and frankly why should they when the stakeholders on the other side are richly rewarded . Understand that when you have insurance claims you drive up  your cost by allowing the insurance carriers to surcharge you , which in turn drives up your insurance brokers  compensation. Hence the misaligned goals ; yours versus the insurance marketplace.

When we meet potential new clients many  make the same statements in our initial meeting. Our insurance costs have risen dramatically from last year to this year which took us completely by surprise. Further our previous carrier has cancelled us, our broker gave us 2 quotes that were substantially higher and said “there is nothing they can do, you have too many claims”! You are forced to make a six figure purchasing decision usually within 48 hours of losing your coverage.

Whose fault is that? We would argue it’s the buyer that continues to purchase their insurance from the same brokers instead of demanding more. More data , quicker so you can proactively manage the risk components inside your business that are driving your costs. Having this information faster , more timely then allows you to deploy resources up front fixing the pain points in your business before your cost escalate dramatically , impairing your competitive position.

Understand insurance premiums are a very poor lagging indicator. They reset only once a year and are underwritten based on your companies 5 year historical claims data which moves up throughout the year ; silently. Generally over time reserves and payouts increase which is called loss development. What we see sadly time and time again is the folks who purchase the insurance look at this data only once a year, at renewal time which is way too late. That’s like applying for a mortgage on a home only to find out once your in contract that your credit score is a mess. Too late as your stuck with the mess and all the increased cost.

Unfortunately most businesses only look to their brokers to process a transaction rather than helping them build systems , metrics and accountability that drive results and not simply poor outcomes. The good news is really well run organizations have figured this out and have put these systems in place which is giving them a huge advantage in their risk based costs making them more competitive than the also rans.

The vast majority of the insurance broker community has failed their clients simply because it’s not in their best interest to help them prevent and manage claims. The commercial insurance buyers have failed themselves because they haven’t realized how their goals and the insurance brokers goals are misaligned , and have not held either their insurance brokers or carriers accountable for helping them manage risk , not buy insurance.

This November as you head to the polls we urge you to hold your lawmakers and politicians accountable instead of complaining about how incompetent and dysfunctional Congress is. While your at it don’t simply complain about how high your insurance rates are, vote for yourself and chose a broker that has a strategic plan and resources to help you prevent and manage claims rather than simply let you purchase overpriced insurance policies. It’s your future, just sayin…..

Construction Practice Group Content, General Liability Insurance

Follow-Up: NY State OKs Naming Entities as Additional Insureds Where Status is Blanket

On December 18th, The New York State Department of Financial Services told the IIABNY that, where a liability insurance policy contains an automatic or blanket additional insured endorsement, certificates of insurance can name specific additional insureds, but only if the certificate refers to the specific endorsement that is conferring additional insured status.

We stated in our previous blog post, found here, that the IIABNY received an email confirmation from a department attorney regarding New York’s new certificates of insurance law. The email said:

“An insurance agent may not issue a certificate of insurance that lists the names of specific additional insureds when the policy referenced provides automatic coverage for additional insureds through a blanket or automatic additional insured endorsement.  In addition, an entity may not require the insurance agent to list the names of specific additional insureds on the certificate of insurance in such a situation.”

There has been many queries to both the Big I and the Department of Financial Services as to the correct way to issue these Certificates of Insurance without jeopardizing coverage. What certificate requestors were asking for was a violation of NY State Insurance  law.

Insurance Agents and Brokers argued that certificate requestors would reject certificates that did not specifically list them as additional insureds, which became problematic for the clients and brokers simply trying to comply with a very basic request. IIABNY sent a follow-up to the attorney who sent the original email, suggesting an alternative approach for handling additional insureds on certificates. On the 18th of December, the attorney responded with the following message:

“In a situation in which the policy referenced in a certificate of insurance provides automatic coverage for additional insureds through a blanket or automatic additional insured endorsement, it would not violate Insurance Law section 502 if an insurance producer includes on a certificate of insurance language such as:

  • ‘Named Entity is an additional insured to the extent covered by the CG 20 33 ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – AUTOMATIC STATUS WHEN REQUIRED IN CONSTRUCTION AGREEMENT WITH YOU endorsement’;
  • ‘ABC Company is an additional insured if required by written contract, per endorsement number XX XX XX; or
  • ‘ABC Company would be covered as an additional insured per endorsement X , to the extent provided therein.'”

Additionally, the attorney noted that DFS had received many similar questions from other Agents and Brokers in which they  provided these answers in response:

  • “Can we check the Additional Insured box on an Acord 25 Certificate of Insurance (2014/01) with a ‘Y’ if there is a blanket additional insured endorsement?  Yes.
  • Does this apply only to New York Domiciled clients/customers?   So, for our PA and CT offices or if we have clients domiciled in other states this does not apply.  It applies when the person or governmental entity requesting the certificate is in New York State.
  • Can we list/reference the blanket endorsement  in the description of operations / locations / vehicles?  Yes.”

Both the Big I and Metropolitan Risk Advisory strongly recommends that all agents and brokers follow these DFS guidelines when they issue certificates of insurance. DFS has acknowledged the real world  realities and interpreted the ruling in a way that should satisfy the needs of certificate requestors, Agents & Brokers , and their clients. That siad  it remains the law that certificate requestors may not require certificates to contain provisions pertaining to coverage if those policies referenced  themselves do not confer  those coverage  provisions. Nor may they request Certificate forms that have not been approved by the DFS.  Lastly it has been department policy for many years, and it is now the law, that insurance agents and brokers may not use certificates of insurance to change insurance coverage or grant any rights that the policies do not provide. That is to be doen by formal endorsement from the issuing carrier only. 

In the April 2015 issue of IIABNY’s The E&O Report, attorney Stephen Cunningham wrote:

“Although the new law provides additional protections when certificates are being issued, prudent insurance agents and brokers should not only follow the new law but also continue to follow the best practices that we have recommended over the years regarding how to handle certificates of insurance.

First, be sure to use the most up-to-date ACORD Certificate of Liability Insurance form (ACORD 25 (2014/01).) Second, if you deliver a certificate of liability insurance to additional insureds via e-mail or other electronic means, if at all possible, include a copy of the policy with the certificate of insurance. The additional insured will then be on notice of the full terms and conditions of the policy, preventing a ‘misunderstanding’ as to the coverages provided by the policy.”

Finally, we urge to check out our first blog article (that you can access by clicking here) on this subject. It details the specifics of the DFS guidelines and New York State’s new law.

We also want to thank the Independant Agents Association of NY for their  diligent work on this issue, and the DFS’ willingness to provide additional information and answer questions. They have provided a solution which still follows through with the law, but also takes some weight off of agents and brokers.

Please do not hesitate to visit www.metropolitanrisk.com/contact or call a Risk Advisor at (914)-357-8444 if you have any questions regarding this matter.

Claims Management, Construction Practice Group Content, General Liability Insurance, Workers Compensation Insurance

Working on a Wrap Project: You’re Not As Protected As You Think

I work with high risk businesses every day, and sometimes, when I think I’ve seen it all, something new comes around to surprise me.

Many large construction projects will use a “Wrap” or an “OCIP/CCIP” (For more info on what this is, click here) for coverage. When many contractors get enrolled in these Wrap Programs, they often feel that they’re using someone else’s insurance and what happens on the site can never affect them. That couldn’t be farther from the truth.

Workers’ Compensation

First, let’s discuss the easy one, Workers’ Compensation. Even though it is true that any claims for that project will not show up on your policy Loss Runs, it actually does get reported to your Workers’ Compensation bureau (either state [NY, NJ] or national [NCCI]). The project payroll does this as well in order to calculate your business’s Experience Modification Factor (sometimes referred to as EMR). What this means is that all of your claims are being calculated for your personal experience rating, which will factor in surcharges or credits on any Workers’ Compensation policy you have inside or outside of your private policy.  

What to do?

You need to manage your wrap claims and payrolls the same way you should manage them on your private policy. You need to pull loss runs frequently and you need to manage your claims daily. You also need to manage the adjusters at these carriers regularly, so that the dollars being spent are being monitored – just as you would the checks from your checkbook. Because, as most companies have come to realize, Workers’ Compensation is similar to a high interest credit line. Whatever the carrier pays out on your behalf, you pay back with interest.  For more info on how to manage your claims inside your business, click here.

General Liability & Excess

So, generally speaking, if something happens on the jobsite (physical damage, accident, fire, lawsuits, etc.) the Wrap’s General Liability and Excess policies will cover you and your company, and defend you in the process by paying any settlements or claims. However, that factor comes into question under a number of circumstances, where the General Contractor’s or Property Owner’s Insurance company looks to implead against you, the trade contractor that enrolled in the Wrap to perform your work.

Why would they do that?

Well a wise person told me a long time ago, “Insurance is not about what it does cover, but what it doesn’t.” Insurance companies are in the business to make money, not pay claims. If they see an opportunity to push a claim to you, they invariably will!  

How can they do that?

There are a number of circumstances that could allow these insurance carriers to implead claims over to you, and get them outside of their policy and onto yours. Oh, and by the way, if you didn’t set up your policies properly, your insurance company may not cover you either, and you’ll have to pay these claims out of pocket. Isn’t that crazy?

Here’s an example:

You are working on a project that includes moving equipment or material around the site (as most do), then you have to unload your materials/equipment so that you can use them. Sometimes, it’s clearly not your responsibility to move them. But what about when you have to take them off of a truck and load them into the elevator and get them where you’re going to use them?  Or what about if they were going to be used on the ground?  Well, here lies an issue that most people don’t know.

Auto coverage is almost always excluded from the Wrap, so when the vehicle is moving around the site, it’s covered by the insurer of the vehicle or the operator of the vehicle.  However, what about someone who gets injured during the loading and unloading of the materials? Well, the injury/medical coverage/lost wages would be covered under Workers’ Comp (in NY especially), but what if the injured employee sues for negligence? Or seeks protection under Labor Law 240/241 in New York? The Wrap can implead this claim back to your company and you have to find coverage inside your own policy: General Liability, Auto, Excess, etc. Additionally, you have to hope that you set up your policies properly when you bound them and/or when you started this project, which most companies DO NOT.

Takeaways & Conclusions

First, you need to consult a Risk Manager to be sure that you’ve aligned your coverages and risk strategies properly before you start a Wrap Project.  Next, you need to enact a risk management strategy to both avoid and manage your claims, so they don’t spiral out of control. Lastly, be sure that your Risk Management strategy includes consulting a Construction Litigation Specialist, to be sure that you’re not missing important details that could put you out of business. For more info on how to enact a Risk Management Strategy and manage these challenges inside your business, click here.

 

**As it relates to this type of incident, after researching this issue a bit, the real question is whether this type of loss is a Commercial General Liability Loss (in which case it would stay in the wrap), or a Business Auto Loss (in which case it doesn’t).

These kinds of policies are generally supposed to be mirror images of each other so that no claim is covered on both. There are a lot of different cases discussing various situations, but the general rule seems to be that any accident involving loading or unloading of an auto will be covered on the automobile policy. See, e.g. Paul M. Maintenance, Inc. v. Transcontinental Insurance Company, 300 AD2d 209 [1st Dept. 2002].

Some cases impose an additional requirement that an unloading accident was connected to the “negligent use” of a motor vehicle for that accident to be covered under an auto policy, ABC, Inc., v. Countrywide Ins. Co., 308 AD 2d 309 [1st Dept. 2003].

Construction Practice Group Content, General Liability Insurance, Risk Management

The “Perfect Storm” Liability Exposure for Owners/Developers & Contractors

There is a contractual issue and an insurance issue which, together, combine to create a “perfect storm” liability exposure for Owners/Developers and Contractors.

The exposure begins with the contracts you sign.  Most state the contractor’s liability under the contract is not limited by the insurance coverage limits specified.

This exposure is then magnified by the fact that in many insurance policies the additional insured endorsements now contain wording to the effect that the additional insureds are covered for the lesser of the policy limit or the limit specified in the contract.

This “perfect storm” creates a potential uninsured risk to each of you.

For example, as a contractor:

  1. You are required by contract to add the Owner/Developer or GC as an additional insured to your Liability policies.  You do so.
  2. That contract requires you to maintain a limit of $1,000,000.  Since your insurance policies provide you with a total of $5,000,000 you feel you are fully protected.
  3. Then there is a loss, due to your negligence, totaling $1,500,000.  This is when you find out that things may not be so fine.
  4. Your policy contained one of those additional insured limiting endorsements.  The additional insureds would therefore only be covered by your policy for the first $1,000,000 as required by the contract.  However, under that contract you are still required to defend and indemnify the additional insureds for the full loss.  Where are you covering them for the next $500,000?  Take a guess.  That’s right – it would be out of your own pocket! 

As the Owner/Developer or GC under the above example:

  1. Are you ready to place your fate in the hands of the contractor’s ability to self-fund any losses beyond the insurance limits required in the contract? 
  2. Sure, you have your own insurance as the ultimate protection.  However, any claims paid will negatively impact your premiums for the next 5 years.  The increased cost could hurt your ability to compete for jobs.

The solution is simple and would add no additional cost to his bid.  First, make sure you are requiring a limit which is sufficient for the exposure.  Next, check the limit the contractor is showing on his certificate of insurance.  If his available limit is higher, change the contract to match that limit.  Example: You feel the exposure requires a limit of $1,000,000.  The contractor’s certificate of insurance shows he has a limit of $5,000,000.  You then change the contract to require a limit of $5,000,000.

Also make sure to ask about Risk Rocket! Risk Rocket is our insurance verification and analysis system designed for General Contractors, Developers and Real Estate Owners that do not want to rely solely on the Certificates of Insurance their Sub Contractors or Contractors provide.

Construction Practice Group Content, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Loss Control, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance

How These Companies Experience 48% Less Safety Incidents

Source: blogs.salesforce.com

I had the opportunity to listen to Tony Robbins speak for the first time this past month. He spoke for nearly 3 hours about the power of “engagement” and how it can help you gain a competitive edge in both your business and personal life. Being in risk management, he certainly got my attention when he rattled off a few statistics:

“Work units in the top quartile in employee engagement experience:

  • 48% fewer safety incidents

  • 41% fewer patient safety incidents

  • 41% fewer quality defects”

These companies also saw:

  • 25% to 65% less turnover (depending on industry)
  • 28% less shrinkage
  • 37% less absenteeism
  • 10% improvement in customer satisfaction
  • 22% in profitability
  • 21% in productivity

Source: State of the American Workplace – Gallup

It certainly makes sense, right? To put it simply happier employees are more likely to be focused and want to perform better. They’re also less likely to take advantage of their employer. But like me, you might have some questions such as, what exactly is “engagement”? How is it measured? How can I get it? When I got home I took a deep dive in to Gallup’s 70 page study on the subject. Like me, you might be shocked at some of the statistics within it.

Continue reading How These Companies Experience 48% Less Safety Incidents →

Construction Practice Group Content, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance

The Two Biggest Mistakes Businesses Make When Purchasing Insurance – Part I

Whether you are a business owner, CFO, or the lead operational muckety-muck, you get a pit in your stomach when it’s time to renew your company’s insurance program—a common theme we have heard in 20-plus years consulting with businesses of all shapes and sizes. This occurs primarily because of the failure to invest the required upfront time to have a solid system in place that addresses and manages the two most important variables: the true total cost of risk of company’s financing and the program design.

True Total Cost of Risk:

I have yet to walk into a middle-market business (under $250 million a year in sales) where they truly understand their “cost of risk financing.” Invariably, the conversation starts with “This is how much we pay in insurance premiums, and this is our current coverage. What can you do?” They may have it nicely compiled in a spreadsheet, but they sit back and wait for me to tell them whether we can save them money on their insurance premiums. The only way these folks evaluate how well the organization is doing year to year on this one cost component is how much they are paying for their insurance premiums. Some even break it down as a percentage of gross sales, which is better than evaluating the purchase on a pure premium-cost basis. Sound familiar? Keep reading.

Continue reading The Two Biggest Mistakes Businesses Make When Purchasing Insurance – Part I →

Construction Practice Group Content, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance

6 Commercial Insurance Myths It’s Time to Debunk

We hear misconceptions every day regarding commercial insurance. It’s no one’s fault really as commercial insurance can be extremely complex, and organizations with complex insurance are truly underserved by the insurance community. We’ve been taking note of the most common myths we’ve heard this month and included them below. We will continue to add to this list every month.

1. “The proposal with the lowest premium is best.” (Price vs. Cost)

I don’t know if this one really needs much explanation. Premiums are determined by a combination of risk profile, exposures, coverage, contract terms, and your company’s individual loss history. It’s quite common that your upfront “price” for the insurance may be quite low, however (1) uncovered claim can and will drive your ultimate cost significantly higher than perhaps other insurance proposals you may have evaluated but did not choose because the price / premium was too high. Value buyers evaluate insurance by how much risk is transferred for what premium. Price buyers simply jump at the lower premium selectively listening to the broker who presents them that option instead of evaluating the coverage terms first.

2. “I should shop my insurance every year.”

Not true because carriers will flag this. It makes you less attractive to the marketplace because they know they are likely to lose you as an account the following year. They hate price shoppers and look for value buyers. It takes the carrier time to underwrite and price your account. Often the first thing they evaluate is, “Do we want to work on this quote?” If they see you were with your prior carriers for a year or two before you jumped ship they know they are renting your account and they will pass.  Think of a job applicant who has had ten different jobs in the last ten years. I’m sure you would have some hesitations about his/her loyalty to your company.

Continue reading 6 Commercial Insurance Myths It’s Time to Debunk →

Construction Practice Group Content, General Liability Insurance, Loss Control, OSHA, Other, Workers Compensation Insurance

Supervisors And Personal Protective Equipment

Supervisors are one of the most important components to a tight workers compensation program. If a hazard is reported in the workplace, it is the supervisor’s job to rectify it and do everything possible to protect his/her workers.

Hazards exist in every workplace in many different forms. For example, sharp edges, falling objects, flying sparks, chemicals, noise and a myriad of other potentially dangerous situations. The Occupational Safety and Health Administration (OSHA) requires that employers protect their employees from workplace hazards that can cause injury.

Controlling a hazard at its source is the best way to protect employees. Depending on the hazard, supervisors should use engineering or work practice controls first to manage or eliminate hazards to the greatest extent possible. For example, building a barrier between the hazard and the employees is an engineering control; changing the way in which employees perform their work is a work practice control.

Continue reading Supervisors And Personal Protective Equipment →