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Constructive criticism: help construction clients become more successful and competitive by managing their safety programs and workers' comp claims.

As an insurance agent, it's in your best interest to have clients that are successful, profitable and competitive-especially in the construction business, which has struggled for survival during the recession.

In fact, you're in a position to help them succeed by managing their safety programs and workers' compensation claims.

Construction company executives throw rose petals at themselves when their workers' compensation experience modification rate is under 1.0 and bitterly complain when that mod is higher than 1.0. And no wonder: The mod determines whether a construction client is competitive or at a competitive disadvantage.

Let me explain how, using two hypothetical employers: General Construction Inc. and General Manufacturing Inc.

General Construction Inc. started in 2009, specializing in public school construction. The owners worked long hours, taking on more work, including high-risk jobs that they had initially subcontracted. The business grew and added employees. In the early years there were several jobsite accidents (two falls, one amputation and one back injury) and only one of the four injured employees returned to work. General Construction did not have a modified duty program, nor did they stay in touch with injured workers.

Like other new employers, General Construction started with a 1.0 mod. Its first year's workers' compensation premium was $40,000. General Construction's 2011 "manual" premium grew to $200,000.

In early December 2011, General Construction's agent met with the owners to review its 2012 insurance program and deliver bad news. Because of the earlier costly claims, General Construction's 2012 mod was now 1.4 and its all risks adjustment program (ARAP) surcharge for large claims was 1.25. This translated into a $350,000 workers' compensation insurance premium ($200,000 "manual" premium x 1.4 x 1.25). To compound its misfortune, General Construction had been awarded a $125 million project, contingent on a 1.10 or lower experience modification rate. After General Construction told the awarding entity about its high mod rate, the award was withdrawn.

General Manufacturing Inc. started in 2009, making component parts for jet engine manufacturers. The owners had served as senior managers for another jet engine component parts manufacturer, which went out of business. General Manufacturing was able to pick up many of its former employer's contracts.

Right off the bat, management fitted workstations with lifting equipment, required personal protective equipment (safety glasses, gloves, hard-toed work boots, hearing protection) and organized a joint management-employee safety committee that met monthly to perform safety self-inspections, review near-misses, incidents and accidents, and develop action plans to minimize the potential for injury. Management stayed in touch with injured employees after accidents and made accommodations to enable temporarily disabled employees to return to meaningful work.

General Manufacturing experienced six accidents (three cuts, two contusions, and one back strain) from 2009 to 2011. All employees returned to full duty after a day or two of light duty work.

Like General Construction, General Manufacturing started with a mod and its first year workers' compensation insurance premium was $30,000. Like General Construction, General Manufacturing grew and added employees. In 2011 its workers' compensation insurance premium grew to $70,000.

General Manufacturing's agent met with the owners late in 2011 to review its 2012 insurance program and to deliver good news. Its 2012 mod was 0.86, translating into a $60,200 premium ($70,000 x 0.86).


Using the same two hypothetical companies, let's illustrate the financial implications of complying or not complying with generally accepted safe workplace practices.

After the first fall-related accident, OSHA inspected General Construction's jobsite, cited it for both lack of fall protection and lack of fall protection training, and issued a $4,500 fine. One month later, OSHA appeared on another jobsite and found numerous fall protection and other safety violations. This time OSHA cited General Construction for "repeat" violations and issued a $9,000 fine.

Concurrently, General Construction was favored to receive a $57 million construction project at a prestigious local university, which had implemented a comprehensive contractor safety program, including reviewing bidders' experience modification rates and OSHA history. Once again, General Construction was disqualified.

On the other hand, General Manufacturing enrolled in the state's Dept. of Occupational Safety voluntary safety inspection and certification program. Inspectors found some deficiencies, which General Manufacturing quickly corrected, and it was awarded the prestigious certificate of completion. Three days later, an employee became hurt and was taken to the emergency room by ambulance. The investigating OSHA compliance officer, after performing an inspection, conducting an investigation and reviewing General Manufacturing's safety programs and practices and the state's certificate of completion, walked away without issuing a citation or fine.


Due to General Construction's loss history and apparent inattention to safety, its workers' compensation insurer cancelled coverage at the end of 2011, forcing General Construction into the assigned risk pool. It lost its premium discount, rate deviation and potential additional savings for good loss experience, a figure approaching $35,000.

General Manufacturing kept its voluntary insurance coverage, premium discount, rate deviation and received dividends for its exemplary loss experience. This amounted to a $6,000 savings.


General Construction became known in the industry as not valuing safety and generally sloppy in its business practices. It attracted pushy superintendents and foremen who plastered job sites with "Safety First" posters but were more interested in the bottom line. Accidents and disabling injuries continued, OSHA showed up unannounced and General Construction stayed in the assigned risk pool. The experience modification rate grew to 1.73 with a 1.25 surcharge, resulting in an almost 200 percent premium increase. They lost more jobs than they got, their financials began to suffer, and the bonding company became concerned.

The nail in the coffin occurred one winter day when a 20-year-old roofer fell 28 feet, sustaining a spinal cord injury. OSHA responded and found numerous fall protection violations. It issued seven "repeat" and "willful" citations and a $350,000 fine. The accident attracted local TV stations and the attorney general's office launched an investigation, looking for criminal negligence. Facing what they perceived as insurmountable problems, General Construction filed Chapter 7.

In the more than 28 years I worked with clients like General Construction and General Manufacturing, the clients that thrived were those committed to safety and accident prevention, claim and loss management, and making whatever accommodations and actions were necessary, including transporting injured workers to and from work, to enable injured employees to get back to meaningful employment.

Agent's Role

How can agents help their construction clients manage safety programs and workers' compensation claims?

(1) Help them recognize the interdependence of their actions with variables that can and will affect success and viability.

(2) Help them assess liability exposure before they take on high-risk work.

(3) Tap into the vast resources of workers' compensation insurers to help clients start or enhance their safety and loss management programs and practices. Help them understand the financial benefits of working closely with their injured employees, medical providers and adjusters to get employees back to modified or full-duty work. Modified duty doesn't have to be full time. One client brought injured employees back for half days until they were physically able to do a full day's work.

(4) Help them understand the financial benefits of starting and maintaining a safety and accident prevention program. Help them establish a line where deviations from generally accepted safe work practices will not be tolerated. And help them to thank employees who consistently work safely.

(5) Jointly perform an annual review of clients' safety program and practices to see what is working and what isn't. Include clients' safety consultants and insurers' loss control representatives.

(6) Jointly review workers' compensation loss runs and experience modification worksheets, reconciling the worksheet with loss runs. If in doubt, ask adjusters how the numbers were derived, especially the reserves, which should be based on worst case/ anticipated case/ best case estimates of what a claim will cost. Ask adjusters to itemize anticipated costs: surgery, hospitalization, physical therapy, weekly benefits, etc., and add them up. If the reserves are substantially more than anticipated costs, don't be afraid to ask the adjuster in writing to reduce reserves.

(7) If a claim is languishing, speak to adjusters to initiate actions (surveillance, independent medical examinations, nurse case management, peer review) to bring the claim to a discontinuance or modification of benefits hearing.

(8) Help your clients implement a meaningful (not "make work") modified duty program. If a claim goes to litigation, the insurer's attorney will introduce modified duty job offers into evidence, demonstrating your clients' good faith efforts to get employees back to meaningful work.

(9) If it becomes clear that your clients' injured employee is never returning to work with your client, set up in-person or telephone claim reviews with adjusters as often as the insurer will allow. Be vigilant about having these meetings/telephonic conferences, and establish joint action plans with completion dates. Follow up with adjusters in writing and telephonically to ensure that they took the actions you agreed upon.

More on the Web:

* The Year's Top Cases Impacting Subrogation Actions

* Workers' Comp All-Stars Share Best Practices in Orlando

* WC Insurers Cautiously Bullish About Economic Growth

Robert K. Tuman has been an independent construction and general industry safety and workers' compensation consultant for the last 30 years. He lives in San Luis Obispo, Calif. Contact him at
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Author:Tuman, Robert K.
Publication:American Agent & Broker
Date:Jan 1, 2013
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