What is a good insurance renewal? When we challenged our clients and prospects to explain what a good renewal is they consistently said something relating to a premium decrease. Great renewals should not necessarily be based on the premium. Do you agree that the deceiving part of purchasing insurance is the only visible cost is the premium? Would you purchase the lowest premium if you knew in advance that the Workers’ Compensation claims handling would be in disarray? Of course not! Even though this is the case, the vast majority of insurance deals are based on premium price only with very little consideration given to the insurances carrier’s history of claims procedures, industry expertise, innovation, and the agent/carrier relationship. Have you ever purchased insurance based on the insurance carrier’s statistical data supporting their expertise in the construction industry or asked for statistical data that supports the carriers’ ability to efficiently settle claims? Managing risk and insurance is always in the top three expenses for a contractor and deserves a solid process.
When you stop and think about all of the internal costs associated in managing a contractor’s risk it is easy to see that it is far more than purchasing insurance. A contractor's biggest risk and financial exposure lies within the hidden expenses that are tucked away from the visible cost, your premium. Insurance as a whole is made up of underwriting, insurance companies, agents, adjusters, lawyers, claimants, governing agencies like the NCCI and OSHA, and auditors. If the system is not operating like a well oiled machine it causes friction and disruption which in turn increases the costs to the contractor. We’ve listened to all of the common difficulties contractors’ experience. Without a doubt the frustrations are consistent: payment of fraudulent claims, mishandling and over payment of claims, fluctuating premium costs, coverage exclusions, contracts, uncovered claims, experience mod, certificates and audits, just to name a few. To pile onto the frustrations the only item that you feel you have control over is the premium.
For this reason 23 Concrete Foundation Association (CFA) members set out on a mission to create a CFA member “risk management” insurance program. The determined group was adamant their program had to be different than the insurance a contractor could buy elsewhere and pursued a partnership with Arthur J. Gallagher (Gallagher). Last month at the Concrete Foundation Association (CFA) Annual convention in Williamsburg, Va., the Board of Directors approved Arthur J. Gallagher as their endorsed insurance broker to implement the CFA member insurance program. Being the fourth largest broker in the world with a construction niche placing in excess of a billion dollars in construction premiums, and local offices in the CFA footprint, made Gallagher a natural fit for the CFA. The CFA will rely on Gallagher’s market leverage and outstanding insurance relationships to partner with the suitable insurance companies and kick the program off in October 2015.
Total Cost of Risk
Rolling out the CFA insurance program was part of a strategy that will help CFA member companies manage all of their costs associated with risk. “Total Cost of Risk” or TCOR is made up of premiums and soft costs. Soft costs are typically not being tracked but have a huge overall impact on your total cost of risk. The soft costs we refer to include: production loss/worker distractions, replacing and training new workers, loss of skill, paperwork (certificates, insurance management, etc.), loss of morale, legal issues, medical expenses, wages, equipment, and workers compensation (experience modifier, claim reporting and lag time, etc.). By focusing on these items and not just the premium the CFA program will be different.
Understanding that on a typical $100,000 contracted job, your expense breakdown would be roughly $90,000 leaving your profits to be about $10,000. All soft costs associated with risk management are not included within your expense breakdown and immediately eat away at profits. We understand these types of soft cost losses could detrimentally impact a whole year’s worth of hard work.
How is exactly is CFA insurance program going to be different than your current insurance program?
- Insurance agents attempt to provide customers with an advantage but how many actually track the results and show them to you? This is one specific difference that will be the most impactful for the CFA Insurance Program. We live in a digital age where data makes or breaks everyday decisions. The CFA and Gallagher partnership will allow for the distribution of powerful data pertaining to the concrete foundation industry. Program members will have access to benchmarking and CFA trend analysis, coverage comparisons, minimum mod analyses, CFA specific claims management, and risk control designed for CFA members to aid them in managing their TCOR and in making business decisions.
- Purchasing power. Yes, purchasing insurance as a group rather than an individual should save companies 10 percent. In addition by using Key Performance Indicators we aim to measure the success of the program on many levels beyond just claims totals.
- Creating best practices. Let’s team up and create safety, claims handling, return to work and contract review processes that are proven in the field of foundations for CFA members.
- Coverage specifically designed for concrete foundation contractors. The CFA will have its own coverage forms with state departments of insurance. Gallagher will also be performing policy analyses for each line of coverage. We’ve seen, on average, about 97 percent of policies we have reviewed have insufficient limits or gaps in coverage.
Who is eligible?
The companies eligible to join this program are those who have a current CFA membership status. The Concrete Foundations Association is a long standing association that strongly believes in giving back to its membership and this program is only the beginning.
The CFA insurance program will provide a platform to share best practices, discuss employment and recruiting practices, discuss current industry trends happening across the country, and much more. In today’s world of instant…everything, being able to share ideas, thoughts on bidding jobs, on site safety protocols, etc. through a real time blog is an unparalleled resource to have as a decision maker.