Firming Rates Warrant Fresh Look at Loss Sensitive Insurance Programs for Construction Contractors
While nearly every industry sector in the U.S. suffered from the recession of 2008, the construction industry lost more than 25 percent of its workforce -- about two million family-wage jobs between 2007 and 2010, according to the U.S. Bureau of Labor Statistics.
While conditions are slowly improving, contractors face another challenge: firming rates in the P&C insurance market -- primarily in workers' compensation, but also in general liability and commercial auto.
"Contractors are being hit on two fronts. In an expense-conscious environment fueled by economic factors, they also have to manage rising insurance costs," said Ross Fisher, vice president, Construction Group & Bond, at The Hartford.
Circumstances are tough, but there are ways for contractors to better manage costs as they pursue opportunities for new work.
One strategy for contractors to consider is implementing a loss sensitive insurance program to better control costs where they can.
"With a loss sensitive program structure, a contractor can reduce its insurance premium costs in exchange for taking on a greater share of risk," said Fisher.
From an operational standpoint, a contractor must be willing to invest sufficient resources in risk management and loss prevention. "Contractors who make these investments can significantly reduce their final insurance costs by controlling their loss experience during a policy period," said Matthew Giuffre, assistant vice president, Specialty Construction at The Hartford.
Carriers, agents, brokers bring specialist capabilities
For contractors considering a loss sensitive program, it is important to seek specialist capabilities from both their carrier and agent or broker. Leading construction insurers have industry-specific underwriting, claims and loss control expertise.
"With the right carrier, one that has deep experience within the construction segment, a loss sensitive program can bring that experience directly to bear via a team approach," said Giuffre.
For example, The Hartford's team approach, referred to as Risk Management Solutions, encompasses specialized underwriting, loss control, claim services and tools to help construction clients prevent losses, control costs and improve outcomes. The Hartford ClaimPlus Team® provides organizations with a team of designated claim handlers that are trained in loss sensitive insurance programs and have experience with clients in the construction industry. The company's state-of-the-art risk management information system, @venture®, gives contractors and brokers access to claim information, adjustor notes, policy forms and other resources to help identify and combat loss drivers.
"With the dashboard capabilities of our @venture tool, clients have access to the same information and data as our underwriters and loss control consultants," said Giuffre.
Also, The Hartford's industrial hygiene lab, which is accredited by the American Industrial Hygiene Association, helps contractors identify potentially hazardous conditions at the job site, such as airborne contaminants or other environmental stressors that contribute to worker injuries or illness.
Rating Plan Options
Rating plans vary in terms of risk transfer vs. risk retention, so it is important to work with carriers that offer a portfolio of rating plan options.
"Contractors don't all have the same appetite for retaining risk, so they need to connect with a carrier that offers flexibility on that front," said Fisher. The Hartford's financing options include standard deductibles, step deductibles, pre-funded programs and retrospective rating plans.
"We consider all aspects of the program to provide the services that will achieve the best possible outcome for the insured," Giuffre said, noting that The Hartford has worked with repeat contractor clients for decades.
Bundled or Unbundled Services
Flexibility in terms of bundling or unbundling services is another factor to consider. In a bundled program, a carrier is responsible for managing the claim process. In an unbundled scenario, a contractor might use a third party administrator (TPA) to manage claims.
For example, a large contractor that has a solid relationship with a TPA for its workers' compensation claims and wants to maintain that relationship would typically look for a carrier to work with the TPA in a way that makes it seamless for the client.
"We have a great deal of experience working with many of the largest TPAs, so we're able to offer that flexibility for clients depending on their needs and preferences," said Fisher.
For its clients with bundled programs, The Hartford provides significant loss control resources and claims management services. Clients receive tailored claim and loss control service plans that detail safety strategies and claim processes along the entire coverage continuum.
Detailed claim metrics give clients a clear window into overall claims performance. For example, metrics can show the impact of reporting a claim on the first day as opposed to two weeks in. They can also illustrate the importance of managing the safety aspect of a specific job, and how it might impact claim activity.
Contract Terms & Conditions
One aspect of a loss sensitive program that warrants close attention is the terms & conditions for closing out the contract (when the coverage ceases). Unclear language can often be a "pain point" for contractors.
"To avoid potential problems, agreement details, including the collateral requirements and close-out provisions should be clear and unambiguous," said Fisher. "It's important for contractors to know the conditions for their collateral to be returned."
According to Fisher, now is a great time for contractors and their brokers to take a closer look at a loss sensitive program as a way to weather the ongoing economic storm. Agents and brokers play a critical role in guiding their clients to an appropriate program.
"For contractors with a strong commitment to safety and loss prevention, a loss sensitive insurance program can help them realize significant returns on their risk management investment," Fisher concluded.
"The Hartford" is the insurance companies of Hartford Financial Services Group, Inc.
(The above piece is part of our continuing Perspectives series designed to highlight key products and services to our readers. This paid-for Perspective was written and edited by Risk & Insurance®
on behalf of our marketing partner. Additional Perspectives can be found on our Web site at www.riskandinsurance.com/.)
July 24, 2012
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