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Director
Affiliated Construction Trades

Ed Smith
President and CEO
Ullico Inc.

Win Win Win

A group captive blazes a trail by proposing a model to put union contractors on an equal footing with nonunion competitors.

Forming a group captive, even if it's to insure a niche like higher-paid union laborers, is nothing new. When such a purchasing group turns in loss ratios of less than 35 percent, and a combined ratio of between 70 and 80 percent, though, it's time to take a closer look.

Such is the story of the West Virginia Workers' Compensation Consortium Inc. and Ullico Casualty Co., a specialty underwriter of risks faced by skilled craftsmen employed by trade unions.

The partnership could serve as a model for containing workers' comp costs for union contractors around the country, according to consortium and Ullico officials, because it allows higher-wage union contractors to compete with nonunion contractors.

"This program puts us on an even keel and rewards good behavior and safety," said Steve White, director of the Charleston, W.V.-based Affiliated Construction Trades and a member of the W.V. Workers' Compensation Consortium, which represents more than 30 building trade contractors in the state.

Because members of the group captive consortium put up the capital, they watch their losses far more closely than contractors who send premium payments to an insurance underwriter.

"If you have money in the game, you watch things more closely," said Ed Smith, president and CEO of Ullico Inc., which handles all the underwriting for the captive. "You can control the destiny on the premium."

The consortium is managed by Roundstone Mgmt. Ltd. in Westlake Village, Ohio, and claims are managed by Wells Fargo. More than 30 members belong to the captive, up from the original 13.

Chris Kramer, director of marketing for captive programs with Ullico Casualty Group Inc., said that creating a group captive made up of contractors that have signed off on collective bargaining agreements was "unique to the captive world."

Tom Reese, consortium chairman and president of RC General Contractors, an employer of 80 union-trained carpenters, laborers and masons, said his company's workers' comp premiums dropped from $170,000 in 2008 to about $78,000 last year.

Much of the drop has to do with lower volume, changes in experience modification factors and competition in the West Virginia workers' comp marketplace, he said. Still, he also credits joining the consortium, which vets the contractors seeking to join the pool and maintains tighter control of its loss experience.

Union contractors are typically faced with higher workers' comp costs due to their higher payroll volume, safety standards and benefits, and as a result often lose construction bids to nonunion contractors who bid lower for the job. The lower bids are possible because nonunion tradesmen are often not as well paid. Nor do nonunion contractors operate with the same safety margins, and therefore suffer higher rates of injury.

The benefits of the model are starting to show up in the numbers. "We're paying half of what we used to be paying," Reese said. And the consortium has paid out a dividend -- "unbelievable," he said.

In April 2012, following the first full year of operation, the captive reported a surplus of $151,501 which includes an underwriting profit and the allowances for losses. Of the $151,501, $66,301 is being distributed to captive members as a dividend.

A review of historical premiums for the more than 30 contractors who belong to the consortium found that on average, the contractors could realize a premium reduction of between 20 and 30 percent by participating in the consortium.

Plenty of other union contractors in West Virginia who don't belong to the consortium are happy with their coverage in the wake of the privatization of the state's workers' comp system, so it's not like the consortium is the only game in town.

But Reese said he's seen another advantage to joining this particular captive: a drop in the legal disputes surrounding injured workers.

"I can remember a time a few years ago when there was an injury on the job, you were almost guaranteed a lawsuit." Yet, the consortium has been free of major lawsuits over the past three years, consortium officials said.

Managers reach out to injured workers to explain the process of filing a claim.

"It's important for employers to reach out to the worker because that's where the employee starts to get nervous," said Lesly Messina, research director with the research and legislative arm of the West Virginia Building and Construction Trades. "They feel like the company doesn't want them back and they feel like they are costing the company money."

Smith said that in the past, when an employee was injured, they would go see a lawyer and the lawyer would advise injured employees not to talk. Contractors likewise are advised not to talk as the worker has already engaged a lawyer. "That's lose-lose-lose," Smith said.

-- By Cyril Tuohy