Costs to consider when bidding for jobs

These days everyone wants to know the upfront cost of a project.


When you bid jobs, the General Contractors (GC) look at cost along with what you will do and what material you will use. Let’s look at some costs to consider when bidding for jobs.


Auto Coverage

For ease, let’s assume all your drivers have clean motor vehicle records (MVR). For a one-ton truck, you are roughly looking at a $1,000 annual premium with $1,000,000 liability and a $500 deductible for comp and collision. A variable would be if you have a fleet of ½-ton trucks. 

Now, are you having the employees who drive your trucks provide their MVR’s? Many factors play into you having their records. One example would be the cost of having a driver who has 2 DUI’s vs. a driver with a traffic ticket for rolling a stop sign. But hey, that’s what insurance is for……right? The easy answer is “yes” but you could end up spending your valuable time away from a job site with dealing with these issues. 


Workers Comp Coverage

Again for ease, let’s assume you keep perfect books and split all of your payroll between landscape maintenance and landscaping. As you know, landscape maintenance has a much less expensive rate than landscaping. There is a lot that goes into calculating the workers comp premium, but let’s say your maintenance rate is $4.50 per $100 in payroll and the landscaping rate is $9.00 per $100 or $4,500 per $100,000 and $9,000 per $100,000 in payroll. These figures are based on no workers comp claims within the past 5 years.

What is your protocol when an employee is injured? Do you have a doctor you trust or are you relying on an unknown doctor who keeps your employee in the workers comp system for an unknown length of time, ballooning your claim? Also, do you stay in touch with the injured employee? Do you keep an open line of communication to prevent them from getting bad advice?


Equipment Coverage

Let’s say you have $140,000 worth of equipment and it’s insured for a premium of $1,000 and a $500 deductible. Damage? Destruction? If you have provided the equipment year, make model and serial numbers, we can get you replacement cost as opposed to actual cash value. What is actual cash value? In essence, it’s depreciation. Kind of like a used car value. We have the only company our there that will give replacement cost on equipment. They don’t just write you a check, they’ll find you the equipment just like the one you lost.


General Liability

What types of contracts are you getting yourself into? Are you doing large jobs for larger contractors or sticking with smaller residential companies? Do you hire sub-contractors? If so, is there a written contract? There are certain coverages in an insurance policy that kick in as long as there is an actual contract in place. NO HAND SHAKE DEALS. Friendship goes out the window when large sums of money are involved. Make sure you are protected. Have contacts in place with sub-contractors and let us look at the contracts you are signing.


Did these topics bring more questions to mind? If so, let’s talk. This is what we do. These are the questions we ask. 
 

How A Wellness Plan can save you on Workers Comp premiums

wellness workers compensation plan

Many companies are now considering wellness plans and how they can help reduce health insurance costs. With health insurance costs on the rise every year, I can see how this becomes a topic for health insurance brokers and TPA’s (Third Party Administrators) to explore. What is seldom talked about, however, is how a wellness plan can reduce your Workers’ Compensation costs.

When we are looking at ways to cut costs, the addition of a wellness plan is an expense that just might pay for itself. Consider that a Duke University Medical Center analysis found that obese workers filed twice the number of Workers’ Compensation claims, had seven times higher medical costs from those claims, and lost 13 times more days of work from work injury or work illness than non-obese workers did. Further, smokers were absent from work 50% more and took longer to recover from injuries. With Workers’ Compensation costs continuing to rise, a wellness plan can promote the balance between treating injured workers and returning them to work with cost containment strategies.


By implementing a wellness plan and incorporating it into your workplace accident procedures, the ROI (Return on Investment) for Workers’ Compensation alone is estimated at 4:1. Knowing this, some companies are starting to involve the risk management department in the development and implementation of wellness plans and then offering it to injured workers as a way to get them back to work quicker.

Because the best, and easiest way to educate employees and get them engaged in wellness is through their health insurance, many companies are now offering incentives to encourage participation in wellness programs such as lower deductibles, additional employer contributions to HSA accounts, lower coinsurance, etc. On the flip side, others are introducing the “stick” approach whereby deductibles and co-payments are higher, etc. for not participating in wellness initiatives such as smoking cessation plans or health risks assessments.

The real savings derived from a wellness plan that is often overlooked is the cumulative savings when it is incorporated into a company’s benefit package. For example, add all the savings that the health insurance community describes with the Workers’ Compensation facts I just explained and the savings from both sides are exponential. If you are under a fully insured (standard) group health plan and a Workers’ Compensation fully insured plan, this could be a good savings. If you are self insured or insured in a captive or large deductible, the savings could be even more and would start immediately in this case as the cash flow is more rewarding early on with this type of plan.

Would all industries benefit from this approach? Since Construction, Oil and Gas, Service, and Manufacturing pay much higher Workers’ Compensation rates than industries primarily with office workers, they stand to benefit the most from implementing a wellness plan. If I were a CFO at one of these companies I would consider this immediately.

Chris Moxley, CIC

What You Don't Know About Work Comp

Oklahoma workers compensation insurance found at Professional Insurors Business Insurance in OKC.

Work Comp is a very complex policy.  Most people think they have no control over the costs of work comp costs.  However, work comp is very controllable if you are proactive and get involved.  Most importantly, hire an agent that specializes in work comp.  I want to cover just a few topics of work comp that most don't think about.

The Claims process.  When your employee got injured what did you do?  Did you send them to the Doctor who prescribed pain medication for a strained back and recommended they stay off work for a week?  Did you know that if your employee can be back at work, even light duty work, within 72 hours of his claim, you save 70% of the cost of that claim.  It's important to know the doctor you are using.  In case of a strained back, the employee could have probably been ok going home for the day, taking ibuprofen and coming back the next day for light duty. 

Did you know that when a claim occurs the insurance carrier sets a reserve amount for how much they think the claim will be?  That reserve amount counts the same as actual claim dollars spent.  It's important to always request your loss runs 5 months after the anniversary of your work comp.  After the 6th month the claims or reserve dollars shown will then effect your experience mod for the next year.  However if you get the loss runs and notice a claim should be closed, or you dispute the reserve amount, you could save money.

The longer your injured employee is out of work the worse your experience mod will be affected.  It's important that you or your agent are in constant contact with the:  Employee, Doctor, and Case Manager.  Believe it or not, sometimes work comp claims go unnoticed and you have an employee with a sprained ankle supposed to be out for a week, and he is still in the Work Comp system 4 weeks later. 

Transferring Risk.  If you use subcontractors you will always want to make sure they have their own work comp policies.  If they do not, you will be hit for their costs come audit time.   Not only do you want to collect certificates from them, you want to have them sign a contract which makes certain their insurance pays first.  In most policies, waiver of subrogation, primary non-contributory and indemnity clause are only enforced if there is a contract in place between you and your subcontractor. We have a method of protecting our clients in this area.

Hiring Practices.  You are probably thinking, how could my hiring practices affect my work comp?  First of all, are you hiring a criminal?  Are you hiring somebody that has figured out the work comp system?  You want to make sure you are at least doing background checks and drug tests.  These employees you hire are the face of your company, you want to make sure they are keeping the reputation you worked so hard for.

With regards to the recommendations I made above, we can help with all of these items.  We are setup to give access to our clients to run their own background checks for their employees.  We brought in an attorney to develop a contract for us to give to our clients who use subcontractors.  We would still advise our clients to have their attorney look over.  And relating to your claims process, we make sure we cover every angle when a claim occurs. 

If you have any Work Comp questions or would like us to take a look at your policy, please give us a call.  Sean Leigh

Who is NCCI and What do they do?

NCCI Data distributed by Professional Insurors Business Insurance in Oklahoma City.

NCCI does lots of things.  What they do can affect your Total Cost of Risk.  According to their website:

“National Council on Compensation Insurance, Inc., based in Boca Raton, FL, manages the nation’s largest database of workers compensation insurance information. NCCI analyzes industry trends, prepares workers compensation insurance rate recommendations, determines the cost of proposed legislation, and provides a variety of services and tools to maintain a healthy workers compensation system.”

What they do affects the workers compensation rates for all employers in your class as well as your specific experience modifier (determined by your company’s claims), and impact of any legislative changes on rates in your state.

Rates for your business

To determine the rates for your business NCCI uses class codes based on what your employees duties are.  More hazardous duties usually equal higher rates.  For example, steel workers have a much higher rate than salespeople.  Each business can have multiple class codes depending on the variety of duties their different employees perform.  A Manufacturer may have a different class code for clerical, sales, drivers, and 2 more for each of two products they make.  They look at the claims for all employees in that class in the entire state and compare to payroll in the class to determine a rate.  They use actuaries for this.

Your Experience Modifier

If your premium is over $5000 for the past few years or over $10,000 in a single year, you are subject to being “experience rated” by NCCI.  Every year you will receive a sheet from NCCI that has a bunch of numbers on it and looks similar to a spreadsheet.  There is a complicated formula involved but basically the more claims you have the higher your modifier is.  The modifier, often called “EMR” or “Mod”, is a multiplier applied to your premium.  So if your modifier is 1.25, you get surcharged 25% and if it’s .75 you get a 25% discount.  All insurance companies will apply your experience modifier to your rates.  If you are really into math here is a link that explains how they are calculated: “ABC’s of Experience Rating”, by NCCI.

Impact of Legislative Changes or Case Law

NCCI will also determine how any legislation that affects workers compensation will ultimately affect the rates.  These changes could result in immediate or future changes in the rates for your state.  Changes that are perceived to change rates (such as a new law extending disability time) will be calculated by an actuary based on detailed information of past claims and a rate increase or decrease will often be applied immediately or in the future.  Court cases that overturn this legislation or other court cases that are appealed above the workers comp court can also have an effect on the rates.  In Oklahoma, key legislation was passed that had an immediate rate reduction.  Over the next few months, many of these changes were challenged and defeated in appeals courts and therefore much of the rate decrease was reversed and rates were raised back up to almost where they were before.

You can see the effect NCCI has on your rates.  It is funded by the member insurance companies that are members and through fees they charge for their data.  Understanding this helps you better control your Total Cost of Risk.

Using Loss Data to Reduce your Workers Comp Cost

This is claims data on Workers Compensation in Oklahoma provided by Professional Insurors Business Insurance in Oklahoma City.

Using claims and loss data can be a helpful tool in reducing your future workers compensation losses.  Two types of forms that are readily available are your OSHA logs and your Loss Runs or Claims Reports from your Insurance Carrier.  
If you maintain your OSHA log year round, as required, it’s a great tool to provide you with information on where your claims are coming from.  It will give you dates, job titles, types of injuries, and days away from work.   The OSHA 301 will contain even more detailed information.  You can combine this with the Insurance company loss runs to obtain a good amount of information to track and trend.  I recommend an accident investigation form be used that contains all the needed information to complete all of your forms after an injury.   There are also several online OSHA tracking programs such as OSHATrac.com  and OSHA300Online.com  that will track your injuries and give various reports. 
If you have more than a few small claims, Insurance Carrier loss runs should be provided to you either quarterly or monthly.  The loss runs can be very basic so I would recommend asking the broker or carrier what reports are available.  Some will have very detailed reports available if you ask.  They will show many types of graphs and trends.  If your broker makes it hard for you to obtain this information, you could have the wrong broker.   In addition to trending, the loss runs will give you good information on what’s going on with the claim since the last loss run.  Look for changes in numbers such as paid (amounts already paid on a claim) and reserved (estimates of amounts expected to be paid on the claim) on all open claims.  We will discuss this in detail in another article.  
This information should be reviewed regularly by the CEO, HR Department, Safety Department, and Safety Committee.  They should all be looking at ways to improve your safety and prevent losses in the future by noticing trends.  An example might be that all claims in the certain department were from employees there under 1 year.  This would mean that they lack proper training and supervision and the training program could be altered to improve this situation.    
In addition to looking at past claims to identify a possible future claim, the claims information can be used for actuarial analysis to predict future losses.  This is very important if you are under a partially self funded plan or in a captive because it will allow you to predict your claims numbers in the future.  The more data that is available, the better the analysis will be.  Some auditors may request or require this information when performing your annual audit. 

 

Should my Company Consider a Captive Insurance Option?

Captive Insurance Option programs by Professional Insurors OKC.

There are several types of Captive insurance products available today.  If you are a Middle Market Customer (premiums over $150,000) it is something you should consider.  Other factors that make you a candidate:

  • Good Loss Ratio's over the last 5 years
  • Quality Safety programs in place
  • Profitable for most of the last few years
  • Entrepreneurial - you must risk "some" money to make some money

Typically these coverages can generally be placed in a captive or group captive:

  • General Liability
  • Workers Compensation
  • Commercial Auto
  • Commercial Property

You can also consider a Captive for a single line of coverage.  A good example of this is professional liability.  If you pay a high premium for this or have unfavorable terms (deductibles, and payment terms) you may want to consider a captive to insure some or all of this line of coverage or even to insure deductibles.

Work Comp Audits- Which State does Payroll fall Under?

State Workers Comp Payroll

I recently had a contractor (OKLA client) hire a TN subcontractor to do some painting work in MO. They let them start the job without WC insurance and the sub never obtained the insurance. The question was what rate will apply at audit for our client since each state has different rates. After emailing the underwriter we received this answer from their audit department:

The WC Rules (as found in the Scopes under 5403) are:
1. the payroll of employees who are hired for a specific job project are assigned to the state in which the job is located.
2. payroll of employees who travel constantly across state lines but return home each night are assigned to their headquarters state
3. if employees are assigned to a job that is located in a state other than their headquarters' state, their payroll shall be assigned to the highest rated of either the state in which the job is located or the headquarters' state.

For General Liability, they are assigned based on the location of the job

Since these multi-state issues do come up from time to time it is good to have a good insurance company that deals in multi-state exposures to help out on these situations.

Chris Moxley

NCCI Recommends a 7% Work Comp Rate increase for 2010 in Oklahoma

Professional Insurors Business Insurance OKC

NCCI just did it’s Annual Advisory Forum in Oklahoma City.  They are recommending a 7% increase in WC rates in Oklahoma for 1/1/2010.  We continue to have one of the most costly systems in the nation that delivers the least to the injured.  Our court system is outdated and must be changed to an administrative system. 

Click Here to download Oklahoma Data & Presentation from NCCI.com

Does the new Medicare Workers Compensation Reporting Fine Effect you?

You may have read about a $1,000 per day fine for not reporting Workers Comp Injuries to Medicare.  Many are reporting that Employers are responsible for reporting this.  You are only responsible for reporting if you are a “RRE” (responsible reporting entity). If you purchase Workers Compensation from a Insurance Carrier you are not the “RRE”, the insurance company is.  If you are self-insured, however, you are the RRE.  Click here for a full article on the info.