Risk Scenario

A Paramount Parable

Talent shortages and bidding wars undermine a construction company’s ability to stay competitive.
By: | March 25, 2014 • 8 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Home for the Holidays

Neal Chambers surveyed the holiday turkeys on display at his local grocer on Nov. 23 and mused. Fresh or frozen? Tom or hen? Free range or kosher? Locally produced or from the foothills of the Smoky or the Sierra Mountains?

Scenario_ParamountParable

Chambers threw thrift to the wind and plunked down $52 for a 16-pound organic bird from Upstate New York.

What the heck? After four brutally slow years, the construction company he managed risk for was showing signs of reemergence.

True, the company’s estimators were not happy. Where once they needed to bid 10 jobs to land one, each job now took 30 or 40 bids to land.

Neal’s company, Paramount Construction Co., based in Des Moines, Iowa, worked with larger companies historically.

But in order to land projects, it was now moving down to the middle market and competing against smaller regional operators with local expertise. This was not an easy road to hoe.

But Paramount was doing what it felt it needed to do to compete successfully.

At the office holiday party on Dec. 19, held at the River Bluff Country Club, Neal could see signs that the C-suites were feeling a little better about things. Nice carving station, good wine in the glasses and some generous door prizes. He took in a deep breath and let it out.

Things had been tough for a while. He’d been working hard. He’d been worried.

“Go ahead, have a drink,” he told himself. “It’s free and now is as good a time as any.”

Scenario Partner

Scenario Partner

Neal had one glass of wine in him and was waiting his turn to fill his plate at the sushi appetizer table when he saw one of the vice presidents, Tom Murphy, lift his phone to his ear.

As he listened to the caller, Murphy turned and looked at Neal. With his other hand, he gestured to Neal to join him. Murphy’s hand was free because he did not drink at company functions … ever.

“It’s Constantine,” Murphy said in a whisper when Neal got closer. “Something’s up. He tried to reach you but…”

Murphy shrugged non-judgmentally.

Constantine, head of operations. Good guy. No nonsense.

“This is Neal Chambers,” Neal said into Murphy’s phone.

“Neal, it’s Jonny Constantine. We’ve got a bit of a situation.”

“Shoot,” Neal said.

Constantine exhaled audibly into the phone. Neal could tell that Constantine was a little upset.

Neal shot a look of worry at Murphy.

“Look, we just had an accident with an excavator operator on the site here in Mille Lacs. We’ve got one seriously injured employee and some structural damage to a neighboring building.”

“How bad is the injury?” Neal said.

“It’s not pretty. I think this poor kid is going to lose his left leg below the knee,” Constantine said.

“And the building?”

“Well. The wall on the demo wasn’t supported right and the operator knocked it into this neighboring wall. It was a pretty big bump.”

Neal hung up with Constantine and gave Murphy his phone back.

As he turned his own phone on to check messages, Neal Chambers felt any holiday warmth drain out of him. The wine that had been so enjoyable 20 minutes ago now struck him like a cheap depressant.

2014 was supposed to be Paramount’s breakout year. But now Chambers had a significant workers’ compensation and general liability claim to worry about.

Looking around the brightly lit room at his fellow employees, Neal Chambers had an uneasy feeling that 2014 wasn’t going to be that great after all.

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How significantly did your company reduce staffing during the Great Recession?

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No Bench Strength

What worried Neal Chambers were the personnel cuts Paramount undertook to survive during the brutal commercial construction downturn that seized the country during the Great Recession.

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The most worrisome cuts came in the area of safety, where some highly paid talent had been laid off. But there were also cuts in estimating, where other senior personnel with beefier paychecks left the company.

You couldn’t put the cart before the horse. Although things were turning around, Paramount was not yet at a place where it could hire big ticket talent to fill the gaps. Not yet.

Yet the company was trying to grow again and take on more projects. The combination worried Neal Chambers.

The accident with the excavator in Mille Lacs wasn’t catastrophic. But it was the beginning of a series of workplace accidents that plagued the company through the first six months of 2014.

Neal’s conversations with finance added to his anxiety.

“We’re just not making the money on these projects I thought we were going to be,” said Tom Murphy’s elder brother Pat Murphy, the company CFO.

Bidding for projects in unfamiliar territories and on unfamiliar scales, Paramount’s overworked estimators were missing the mark time and again.

The combination of an increased injury frequency rate and thinner margins was not making a good impression on Paramount’s surety and insurance underwriters.

Both Pat and Neal feared that year-end premium increases could be in the works.

Paramount’s revenue shortfalls created friction with subcontractors.

Jonny Constantine got into several heated arguments with subcontractors, alleging that they were botching projects by not moving more efficiently.

There were now a handful of legal proceedings underway. In those cases, Paramount was alleging that subcontractors violated the terms of their contracts by not completing the work in time, or completing it in substandard fashion.

Win or lose, those lawsuits meant one thing to Neal Chambers and Pat Murphy. They meant more costs, more margin erosion.

“We’re in a tight spot,” Neal Chambers said.

“I know we are,” Pat said, somewhat impatiently.

“The thing is, I don’t know what we can do between now and 2015 renewals to make a better impression,” Neal said.

“It’s almost like a roll of the dice,” he added. “I don’t know what else we can get out of the safety department in terms of management.”

“We need better talent and more of it,” Pat said.

The question was where.

Poll Question

How serious is the talent access issue for your company right now?

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A Horse With No Name

The answer to Neal’s question, as it turned out, was “nowhere.”

Scenario_ParamountParable

The talent crunch that Paramount was experiencing, and which was causing it so much pain, was not isolated to Paramount. But some of its competitors moved more quickly than Paramount in acquiring and retaining the talent to help them take full advantage of the upturn.

Others moved even less effectively than Paramount. But in a competitive economy, being in the middle was no place to be.

As 2014 moved from the second quarter to the third and fourth, adding to Paramount’s workers’ compensation woes and its sinking profit margins came yet another issue.

That issue was increasing commodities prices. Paramount’s overworked estimators, working in the unfamiliar middle market, failed to take into account a gradual increase in the cost of steel, copper wiring and other key construction materials.

There simply was no place to turn to hire the sort of experience in safety or in estimating that could put Paramount back on track.

As Paramount’s executives looked forward to their year-end renewals for their insurance programs, the company was looking at unpalatable premium increases.

“You’re looking at a 30 percent mark-up with your workers’ compensation premiums and at least a 25 percent increase in the amount of collateral you’re going to have to put up in workers’ compensation and in surety,” said the company’s broker, Ed Scarborough. “You’re also looking at an increase in your general liability.”

The construction market continued to recover. But Paramount now needed to play defense.

Faced with insurance and surety increases and declining margins, Paramount had no choice but to do what it didn’t want to do. Already bereft and hamstrung due to a lack of talent, Paramount undertook more layoffs.

One of the first to go was Neal Chambers.

In November of 2014, Neal Chambers and his daughter Annabelle went shopping for a turkey. Annabelle was fourteen and well versed in sustainable agriculture practices at school.

“We’re getting an organic turkey, right?” she asked her father.

“No, Annabelle, I’m afraid not,” Neal said.

Neal reached into the meat freezer and pulled out a frozen Honeybreast turkey and threw it into his shopping cart with a disheartening “clang.”

Poll Question

How challenging were collateral requirements at your last renewal?

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Risk & Insurance partnered with Liberty Mutual Insurance to produce this scenario. Below are Liberty Mutual Insurance’s recommendations on how to prevent the losses presented in the scenario. These lessons learned are not the editorial opinion of Risk & Insurance.

1. Value is replacing price: It’s no longer enough to be the lowest bidder. Contractors must now prove to clients that they have the capacity to deliver a project that is the most cost-effective in the long term. That means not only delivering a quality product, but having the risk management program and coverage in place to mitigate potential finger pointing and costly litigation down the road.

2. Keep an eye on commodities: Nowhere are the realities of the global economy more evident than in the area of commodities. Demand cycles for copper, steel, coal and other materials in developing or maturing economies are going to have an impact on prices here at home. Models that take into account commodities fluctuations will be increasingly important. In addition, any new rating programs based on Construction Value should be carefully evaluated compared to a payroll based program.

3. Talent rules: Qualified estimators and safety officers left the construction industry in droves during the downturn. Making sure the talent is in place to take advantage of the upturn in the rebounding commercial construction business is an important consideration. Don’t overlook the added value of a well-documented quality assurance program.

4. Understand new geographies: Competing in this new market may mean having to enter new geographic areas to find business. Trying to compete in New York state without understanding its Byzantine labor laws would be a mistake. So would entering into any new geography without an understanding of local regulations and how they could impact costs. Conversely, demonstrating local experience to a client would be a key selling point here.

5. Delivery methods matter: New markets mean new delivery methods. Whether it is design-build, identifying a construction manager at risk, or the complexities of public-private or international partnerships, insurance and risk mitigation are going to have to be adequate to cover these trending delivery methods. Effective communication amongst all parties including contractual relationships continues to be a vital aspect of any project.



Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at dreynolds@lrp.com.
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2014 NWC&DC

When a Claim Runs Off the Tracks

Risk Scenarios Live! explored the lessons learned from the handling of a construction worker’s injury.
By: | November 20, 2014 • 3 min read
RiskScenarios

Mike is a 54-year-old construction worker. One day, he strains himself picking up a piece of lumber and goes home with shoulder pain. He reports his injury and five weeks later is taking Vicodin, an opioid, and Naproxen, an anti-inflammatory, and given an occupational therapy regimen.

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That was the scene set for a crowded roomful of attendees at “Risk Scenarios Live! Navigating the Challenging Claim” session, presented at the 2014 National Workers’ Compensation and Disability Management Conference & Expo in Las Vegas.

Mike begins taking more Vicodin per day than he’s prescribed, and performing duties at work that do not allow his injury to heal.

Eventually, he sees an orthopedic surgeon. She suggests Mike may have a rotator cuff tear, which would require surgery and an extensive recovery period that would keep Mike out of work for six months, at least. She orders an MRI to determine if there is a tear.

Even at this early stage of treatment, there are several red flags on Mike’s case, said experts on the panel that included Dr. Kurt Hegmann, associate professor at the Rocky Mountain Center for Occupational & Environmental Health; Dr. Robert Goldberg, chief medical officer at Healthesystems; and Tracey Davanport, director-national managed care, Argonaut Insurance Co.

Using an anti-inflammatory medication alone, without an opioid, often yields better outcomes and avoids the risk of addiction that comes with opioids, said Hegmann.

In Mike’s case, Vicodin was not medically necessary. His condition was not improving, and he was commuting to and from work and performing his job under the influence of an opioid, said Goldberg.

What should have been done to get this claim back on track? Every party involved – worker, employer, claims organization and prescribing physician – should have been communicating directly. That would have helped catch early abuse of painkillers and ensured that the physician is adhering to evidence-based guidelines.

Assignment of a nurse case manager may have also been necessary.

MRIs should be administered with caution, experts said. Such tests often turn up problems unrelated to the original injury, opening up a can of worms in terms of appropriate treatment and compensability.

“You have to treat the entire patient, not just the injury that brought him in,” Goldberg said, such as taking pre-existing conditions into account. Mike’s age, for example, significantly increased his risk for a slow recovery.

The MRI scan revealed a full-thickness tear of the rotator cuff. After surgery, Mike was prescribed Oxycontin to manage post-op pain. He then sat at home, gaining weight and drinking while taking his pain medication and neglecting to perform the at-home exercises his orthopedic surgeon advised.

When he went in for a check-up, the doctor decided to switch him back to Vicodin, although Mike still had a refill left on his Oxycontin. He envisioned doubling up the medications to achieve a new high.

At this point in the case, someone needed to step in to track Mike’s refills and limit his dosage.

“The patient can’t be the one to control the prescription pad,” Goldberg said.

Employers should also try to have workers return to modified-duty positions as soon as possible, which helps to maintain social connections and motivates the employee to get back to their pre-injury capacity.

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“The patient needs to be engaged and motivated to get better,” Hegmann said. “If they choose not to do the work, then there’s nothing else a doctor can do for them.”

Mike was not motivated. He did not adhere to the restrictions placed on him in a light-duty position; he failed to dedicate himself to physical therapy and stay active; and he abused the opioids prescribed to him.

A year after his injury, he was 20 pounds heavier, had not progressed in strengthening his shoulder, and his employer’s workers’ comp claims organization was looking at a six-figure settlement for permanent disability.

Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at ksiegel@lrp.com.
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Sponsored: Healthcare Solutions

Diversifying Top Management in Workers’ Comp

Inaugural Women in Workers’ Compensation (WiWC) Forum focuses on advancing more women into top leadership roles.
By: | January 7, 2015 • 5 min read

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The panel at the inaugural Women in Workers’ Compensation (WiWC) Forum. From left to right: Eileen Ramallo, Elaine Vega, Nina Smith-Garmon, Nancy Hamlet, Michelle Weatherson, Nanette de la Torre, Danielle Lisenbey.

Across the country, the business community is engaged in a robust conversation about women being under-represented among c-level positions.

Why aren’t more women breaking into upper management roles? Does gender bias still exist? And, perhaps more importantly, what can women and men do to add more diversity to top leadership ranks?

Elaine Vega and Nancy Hamlet, of Healthcare Solutions, the Duluth, Ga.-based health services provider to the workers’ compensation and auto liability/PIP markets, have discussed the issue between themselves many times over the years.

The duo agreed that starting an industry-wide conversation would be an effective start to addressing the challenge. After three years of internal discussions, the inaugural Women in Workers’ Compensation (WiWC) Forum became reality. Judging by the attendance, content and feedback, it was an auspicious, very successful, debut.

Nancy Hamlet, Senior Vice President of Marketing, Healthcare Solutions

Nancy Hamlet, Senior Vice President of Marketing, Healthcare Solutions

Specifically, Healthcare Solutions and LRP Publications teamed up at the National Workers’ compensation and Disability Conference (NWCDC), held Nov. 18-21, 2014 in Las Vegas, to present the first WiWC event focused on the development of women as leaders within the industry. The WiWC debut featured a keynote speaker, a panel discussion and a networking cocktail hour.

“We believe this is just the beginning for the WiWC organization,” said Hamlet, senior vice president of marketing, adding that the event’s main theme was the conversation regarding challenges that still exist for women in the workplace is “current, real … and relevant.”

Originally the forum was allocated a room to hold 150 people. Vega and Hamlet worried about the room being too large, so they asked LRP what the contingency would be to make the room smaller if they couldn’t fill it. They needn’t have worried, as more than 400 women, and some men as well, registered and attended, requiring an even larger room.

“Clearly, the topic is relevant and there was plenty to discuss,” said Vega, senior vice president of account management.

Hamlet explained that WiWC was formed to create an open forum to promote a strong sense of community and support for current and future female leaders in the workers’ compensation industry. Going forward, the WiWC forum will provide insight and ideas with opportunities for members to:

  • Engage … with accomplished industry professionals and build lasting relationships.
  • Enrich … their knowledge base with tactical insights from speakers and panelists.
  • Explore … opportunities and challenges facing women leaders today.
  • Encounter … senior executives’ perspectives on leadership.
  • Examine … leadership strategies and how to effectively apply the strategies.
  • Empower … themselves and others to achieve success and groundbreaking results.

At the inaugural event, keynote speaker Peggy Holtman, co-author of “Leading at the Edge: Leadership Lessons from the Extraordinary Saga of Shackleton’s Antarctic Expedition,” discussed how a seemingly unconnected historical event can offer critical lessons on leadership in the workplace, especially for women looking to move into top executive spots.

Elaine Vega, Senior Vice President of Account Management, Healthcare Solutions

Elaine Vega, Senior Vice President of Account Management, Healthcare Solutions

After Holtman’s talk, a panel discussion, moderated by Vega, offered the perspectives of five workers’ compensation industry executives on ways in which women can navigate past the glass ceiling. Panelists included Eileen Ramallo , EVP Healthcare Solutions; Danielle Lisenbey, CEO Broadspire; Nanette de la Torre, VP Zenith; Nina Smith-Garmon, EVP Mitchell International; and Michelle Weatherson, Director, Claims Medical and Regulatory Division, State Fund of Calif.

The panelists discussed a wide range of topics related to women in workers’ compensation. For example, one topic focused on the need to take the big risks when it comes to moving past workplace barriers. Other topics included the importance of women in higher positions serving as sponsors and advocates for younger, less experienced women; and the impact of industry consolidation on women’s careers and how to best manage that change. Another topic was how women could best master conflict and emotions in the workplace.

“What’s clear is conflict has to be managed; it will not go away. It will only get worse,” said Healthcare Solutions’ Ramallo. “It then can create other rifts that won’t necessarily be visible immediately, but can have a very large impact. You have to be able to understand what it is early on from another’s perspective, why the situation exists, and then encourage and try to resolve a conflict situation, whatever may be driving it.”

In the wake of the first WiWC Forum, Hamlet noted that while there are countless general reports showing that women have not yet achieved equal representation in top leadership positions in the workplace, studies deal with averages rather than individual stories. And while women must continue to look at the data and work toward closing the gap, hearing from accomplished women in the workers’ compensation industry at NWCDC drove home critical messages on a person level.

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Today, Vega and Hamlet are looking to expand WiWC to make it “truly owned” by the industry. For example, they expect to recruit companies interested in becoming sponsors, forming an advisory council, creating a charter and discussing future possibilities for the organization on both the national and regional levels.

“Much remains to be done, but I have confidence that we will come together and make the organization stronger so that it prospers for years to come,” Hamlet said. “After all, it’s clear that our industry is filled with talented women who can make things happen!”

Vega added that WiWC has already received requests to live stream the event in the future, so it will examine the feasibility of that option in an effort to be even more inclusive.

“We have a shared vision for improving opportunities for current and future women leaders in workers’ compensation,” Vega said. “It doesn’t matter our gender or our title, it’s all about supporting the greater vision. As was said several times at the event, this is just the beginning. We hope more women and men will join us in this continued dialogue.”

For more information about the WiWC, send email to wiwcleadership@healthcaresolutions.com or join our WiWC group on LinkedIn.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthcare Solutions. The editorial staff of Risk & Insurance had no role in its preparation.




Healthcare Solutions serves as a health services company delivering integrated solutions to the property and casualty markets, specializing in workers’ compensation and auto liability/PIP.
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