If I mention the Scaffold Law, what springs to mind?
One answer is scaffolding — the pipes, boards and ladders that go up around tall buildings to enable the exterior to be worked upon.
The word “scaffold” has another meaning, the one I thought it had when I recently started reading an article on the Scaffold Law. The scaffold I was thinking of was the platform to which you send a man or a woman to be hanged. One would be sent to the scaffold to be executed for one’s crimes or, at less enlightened stages of history, for the amusement of others.
The article, by Don Riggin, principal at The Art of Captives LLC consultancy, suggested that captive insurance companies can be very helpful to those involved with the scaffold. Brilliant, I thought. Hang your opponents, victims, whatever, offshore. It’s statistically nearer the water, in which the hanged man may be deposited, thus lowering the cost of the whole exercise. What profit may remain is fed into a captive insurer, which operates in a tax-neutral environment, maximizing the rate of return.
This was not the direction Mr. Riggin took in his article, however. The Scaffold Law, he wrote, “imposes ‘absolute liability’ for elevation-related injuries to construction employees on any and all parties associated with construction, repair, and demolition projects.”
(Elevation-related injuries are also known as gravity-related injuries, or, in say-what-you-mean language, falls.)
In a way, of course, gravity-related incidents are the workers’ fault.
If people managed their lives better, so that they didn’t need to work, they wouldn’t have applied for the job in the first place, and then they couldn’t have been hurt.
“Absolute liability means that any employee who falls from one level to another and sustains injury is almost guaranteed a settlement,” Mr. Riggin wrote, and who among us would disagree with that? Not paying the costs of a person who is hurt at work doesn’t sound fair at all.
“The Scaffold Law, according to its detractors, provides a strong incentive for the employee to file an action-over liability claim against the property owner, project manager, and general contractor (assuming the injured claimant is employed by a subcontractor),” the article said. I don’t know exactly what that means, but it suggests that some people feel that those hurt at work should fend for themselves from there on out.
In a way, of course, gravity-related incidents are the workers’ fault. If people managed their lives better, so that they didn’t need to work, they wouldn’t have applied for the job in the first place, and then they couldn’t have been hurt. In certain countries, laws using that logic relate to foreigners driving, but in sane places, injured workers are usually helped by employers who make money off the work achieved before the worker is injured doing it.
Here’s the punch. The Scaffold Law is apparently held directly responsible by some for rising insurance costs and the withdrawal of many insurers that used to cover New York contractors’ liability.
Such risks could be more efficiently carried in a captive, Mr. Riggin said, “at rates commensurate with the loss exposure and not driven by market capriciousness.” By golly, he’s right, except that “caprice” is the word he was reaching for.
You can’t help feeling, though, that those pesky construction workers, pants worn too low, bellies too big, would do everyone a favor if they’d just stop working. If they must work for some obscure reason, then surely they could stop hurting themselves doing the work and costing their employers time, money and aggravation.
Is that too much to ask?
Moving the Big Stuff
Big changes in global energy markets and the infrastructure needs of developing nations are driving large-scale construction projects globally. The building blocks for many of those projects must move by sea, a perilous passageway with the potential for massive losses.
Soft insurance rates and plenty of capacity erase any notion of project cargo insurance as a commodity. It’s in the engineering and project management that carriers win the business.
“In many insurance lines, loss control and risk management are reactive but in project cargo, it is very proactive, especially for us,” said Steve Weiss, now senior vice president, marine, for Aspen who spoke to Risk & Insurance® when he was a senior vice president for Liberty International Underwriters.
“Engineering is the life cycle of project cargo, from the time of submission through underwriting, post binding and execution.
“You don’t make money in project cargo on rates or terms and conditions, you make money on project management,” Weiss said.
Not that anyone is making a great deal of money in project cargo at present.
“The project cargo market is still very active globally,” said Kevin Wolfe, global head of project cargo for Allianz Global Corporate & Specialty.
“There is more than ample capacity overall, but there are still a limited number of major players that prefer to lead the largest projects. Rates are more competitive than they were several years ago, but still are at a viable level where profitability can be maintained.
“Terms and conditions are always being tested by the marketplace. Some can be adjusted, but some are very specific to project cargo, such as survey warranties.
Without those in place, coverage becomes so broad that we just won’t entertain the specific risk.”
Weiss concurred: “There is plenty of capacity to build any tower you need, up to $1.5 billion or so. But there are only a handful of lead underwriters.”
Global Infrastructure Needs
By definition, project cargo varies practically with every shipment. Wolfe said that Allianz is seeing activity in all regions. In Asia-Pacific and Africa there are quite a few projects related to quality of living, water filtration, power generation and transmission. In South America and Australia, there has been a lot of bridge and tunnel construction, while the Middle East is seeing more rail building.
“In the last year, we have seen a lot more activity in plant upgrades and expansions,” said Wolfe, “whereas a few years before, we saw more greenfield projects. We continue to see jumbo projects, like the natural-gas liquefaction projects, but have seen much more activity in small to mid-sized ones.”
The project cargo market is notable for the high-profile moves of huge, expensive, heavy, fragile and unusual items.
John Michel, marine underwriting manager for Global Special Risks (GSR) Group, a subsidiary of RSG Underwriting Managers, said those moves tend to go well because there is often just one shipment, and every one is paying close attention.
That was not always the case, he said.
“A few years ago we had a project shipment of a complete factory being moved from North America across the Atlantic. It was thousands of parts in many shipments. We just knew there were going to be some loss(es) because of the numerous shipments.”
Michel added that GSR was able to implement a program, and handle any claims.
The highly variable nature of the project cargo market also means that any given move can be expensive to cover.
“We just bound a contract for a big generating plant,” said Kevan Gielty, president and CEO of Coast Underwriters.
“The overall market is soft, but in many projects such as this one there is heavy exposure in lag time if anything went wrong. So the pricing for that policy was firmer than we have seen recently. In cases where premiums are more competitive, there is an even greater emphasis on loss control.”
Gielty noted a continuing trend in project cargo is manufacturers offering coverage. This is not new, but in a soft market every competitor is a factor. Some very large utilities and energy companies will simply self-insure to a point and only go to the market for excess.
“We typically get involved in the delay-in-start-up [DSU] component,” he said.
“When the U.S. was slow, Latin America was busy, especially expanding power sectors, most notably in Brazil. Now we are anticipating an uptick in Mexico as the energy sector is liberalized.”
— Steven Weiss, senior vice president, marine, Aspen
“That is not written alone because we need to be involved in the whole process.”
Weiss said that “North American rates have declined the last five to six years. The high was in 2007-08, and they are down 15 to 20 percent since then, although relatively flat so far this year. The U.S. and Canada have seen a decent uptick in project cargo because of power generation and natural gas.”
Different regions can often be countercyclical, he said. “When the U.S. was slow, Latin America was busy, especially expanding power sectors, most notably in Brazil. Now we are anticipating an uptick in Mexico as the energy sector is liberalized.”
Even as underwriters track geographic and sector changes, they are also seeking new types of business.
“It is a bit more of a challenge for the underwriter, but it simplifies things for the insured. This is definitely a growth area for us.
“Another extension of the project cargo market is contractor’s equipment. The energy markets in London can be expensive, and they are focused on windstorm.
“Covering that through the cargo market gets away from restrictions of geography and storm. It also moves to a market where there is ample capacity and moderate rates.”
Despite the current conditions where terms and conditions are broad and rates are trending down, Michel is sanguine.
“These trends will catch up with the industry at some point, it cannot go on forever.”
One of the interesting — and challenging — aspects of project cargo is that it can be counterintuitive.
For example, globalization of green energy might seem to be a boon, but Wolfe noted that more and more solar arrays and wind-turbine components are being made in each region, so the coverage of those moves tends to be within the engineering and construction policies, rather than in the deep-sea marine realm as it used to be when only a few places had industry capable of making such components.
“Mining is still active in North and South America, as well as sub-Saharan Africa,” Wolfe said, but again there can be an overlap with construction.
“In many regions, the biggest challenge of a mining or manufacturing project can be the adequacy of roads and bridges necessary to get components and then raw materials in, or production out.”
The variable nature and size of some coverage also makes project cargo unusual in that lead underwriters have to adapt their organizations to a large project.
“We have to consider deployment of our own resources even before we bind,” said Wolfe.
“By the time we have a contract, we have already had multiple conversations with our loss-control team. They are an integral part of the underwriting process. They might identify 40 critical items in the project that could require 100 or more surveys in total.”
Given the size and scope of Allianz, the company naturally prefers to use its own people whenever possible. But that still requires adaptation by the underwriters and marine loss control.
“As a result, we move our people around globally as needed,” said Wolfe.
“That varies with the size and type and number of projects. There can be hundreds of surveys required on different projects in different parts of the world at similar times.”
“Managing a project is a very fluid environment, modes of transit and shipping schedules change, the people change, even the risk managers. We constantly have to match people to risks and risks to people.”
— Kevin Wolfe, global head of project cargo, Allianz Global Corporate & Specialty
Adding a fourth dimension, “nothing ever stays the same over the course of a multiyear project,” said Wolfe.
“Managing a project is a very fluid environment: modes of transit and shipping schedules change, the people change, even the risk managers.
“We constantly have to match people to risks and risks to people. We do have a short list of outside vendors that have been vetted by our head of marine loss control, but even then the internal dialogue stays lively throughout the life of each project.”
Insureds can deploy risk management as well. There are several service providers that aggregate and analyze exposures and losses.
“Data is often spread across many losses, claims, exposures, policies, programs and different companies with different platforms,” said Bob Petrie, CEO of Origami Risk.
“We use analytics to look for patterns and events that cause losses. Insureds can use those to identify sources of exposure. Then, if there is a loss, the software can be used to report a claim, and it will get the loss reports and supporting documents to the underwriters.”
One of the new targets in project cargo risk management is tracking near misses, said Phil Wiedower of Origami.
Near-miss data is often held within an owner’s records, but tends to get overlooked because there is no claim, he said.
“Owners are looking to understand what risks to retain and what to transfer. Knowing the near misses as well as the loss history is important in the transfer cost-benefit analysis,” Wiedower said.
Managing Patient Safety in a New Health Care World
Much like regular screenings, exercise and a healthy diet, patient safety in health care institutions should be thought of as preventive medicine.
“Patient safety aims to relieve the burden of fixing mistakes by taking steps to prevent them from happening in the first place,” said Aileen Killen, head of casualty risk consulting, AIG.
With the right strategies and protocols in place, human error in delivering patient care can, to some degree, be factored out, mitigating the risk of things like falls or medication mistakes. And the outcomes-based reimbursement model enforced by the Affordable Care Act provides extra incentive to improve patients’ overall experience and reduce readmission rates.
Some challenges stand in the way, though, of achieving better safety.
For one thing, increased consolidation in the industry has brought risks associated with integrating disparate safety cultures and ensuring continuity of care if patients are moved to a new doctor. The trend of shifting more care out of main hospitals to ambulatory sites instead also creates concern that those outpatient facilities are not up to the same safety standards as larger organizations.
Finally, advancing technology — while offering great promise to eventually make health care more efficient and error-free — presents significant risks in its implementation while doctors, nurses and other health care professionals learn how to best use it.
Lexington Insurance, a member of AIG, is meeting the demand for more innovative tools to navigate the changing environment with a suite of safety assessment programs that identify problem areas and provide recommendations for improvement.
Assessing Safety Culture
The first step in overcoming any challenge is assessing the situation in order to create the best strategy.
“Every health care organization should aim to become a ‘high reliability organization,’ or HRO,” said Brenda Osborne, division executive, health care, Lexington. “It’s a term borrowed from the airline and nuclear power industries, in which any employee has the right to shut down operations if they spot a safety issue.”
Lexington’s Best Practice Assessment tool allows organizations to compare their own protocols against evidence-based best practices and identify weak spots in their safety culture.
“We survey employees and ask if they feel free to speak up to people in authority,” Killen said. “If they can all say yes, you’re on the road to a safety culture. Then we drill down into specific high-risk areas.”
Clients can conduct specific assessments for error-prone areas like the emergency department, obstetrical department and operating room.
We give organizations recommendations on how they can improve in areas where they are deficient, and we can benchmark their performance against the best practice as well as against other institutions that have done the same assessment,” Killen said.
Those benchmark comparisons are key for securing leadership buy-in. Executives often need to see what other institutions are doing in order to feel confident in their decisions to make changes or invest more heavily in patient safety measures.
If another competitive hospital has better staffing ratios, for example, benchmark stats will show that and support the C-suite’s decision to hire more nurses to achieve a similar ratio.
“What it basically does is give the risk management, patient safety and quality improvement staff a roadmap for which areas to focus their activities for improving patient safety and risk management at their organization,” Killen said.
Acquisitions and Physician Employment
The flurry of merger and acquisition activity in the health care industry creates new risks for large hospital networks that acquire physicians’ practices. The integration of different patient safety and risk management practices can prove difficult.
“You have to take multiple approaches and mindsets and meld them into one fluid organization,” Osborne said. “That has a big impact on physicians’ ability to treat patients and deal with the appropriate hand-offs.”
“Patient hand-off is one of the biggest safety challenges,” Killen said. “Assigning a patient’s care to a different doctor leaves room for gaps in communication, which is so critical to making the correct diagnosis and keeping a medication schedule.”
Lexington’s Office Practice Assessment tool scores acquired practices on 14 different domains, including risk management and patient safety, communication, infection control and prevention, incident reporting and medication safety, among others. Recommendations are provided for any domain that scores less than a perfect 100 percent.
“We’ve been able to go in and help these growing organizations benchmark each of these acquired physician offices to show where they are at in terms of their safety protocols,” Osborne said. “It helps risk managers know where they need to start.”
Another major challenge for patient safety is the movement of care away from main hospitals to ambulatory care settings, an area that previously did not concern hospital-based risk managers very much.
“Historically, there has not been a big focus from a patient safety standpoint on outpatient services,” Osborne said. “The office practice assessment that AIG’s been doing for the last two or three years has actually put us out in front. Few other resources out there can assist hospital-based risk managers in dealing with outpatient-type services.”
“Now more people are thinking about safety in ambulatory areas, and we have more knowledge and experience there,” Killen added.
The same office assessment tools that survey physician practices can also be applied to ancillary services like ambulances, blood banks, and outpatient surgery centers, though benchmarking is not yet available for these sites.
Adapting to new technology is an ongoing challenge for health care risk managers.
“Everyone thought electronic health records were going to solve all our patient safety issues, but they’ve come with some unintended and dangerous consequences,” Killen said. Employees may accidentally order medications for or even discharge the wrong patient, for example, if they have multiple records open at once.
The upside to technology advancements, though, is more streamlined documentation and more opportunities for communication between doctors and patients via telemedicine, which is slowly growing in popularity for remote and elderly patients.
“When we’re underwriting, we look at these areas of growth in technology and the many ways it can be applied,” Osborne said. “We consider all the pros and cons.”
Lexington’s dedication to improving safety in health care shines through in their thorough assessment tools, expert recommendations, and attention to insureds’ changing risk management needs.
“Our unique tools help insureds identify risks and minimize potential claims,” Killen said.
“These services are homegrown and developed by a lot of very knowledgeable people over a period of time,” Osborne said. “They’re not available out in the market, and only Lexington insureds have access to them.”
For more information about Lexington Insurance’s risk management services for the health care industry, please visit www.lexingtoninsurance.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.