In today’s litigious environment, claims against construction companies are inevitable, and off-the-shelf solutions used to manage liability risks are too often inadequate. Construction defect claims are compounded by the fact that not all are covered by insurance, depending on the carrier and the applicable state statutes. Additionally, when it is not clear whether the damage was due to work product or consequential damage, a disagreement can occur that often results in a protracted and costly nightmare.
Get Under the Hood
The key to effective claims management begins with having a complete understanding of an organization’s claims history. This means getting under the hood to analyze claim trends that adversely affect loss experience and total cost of risk, developing a risk-control plan based on this review and clearly spelling out the financial improvement to be expected by implementing the recommended plan. When done correctly, targeted risk control based on a claim review can help construction companies with low loss activity reduce their premiums by up to five percent, and those with high loss activity by up to 15 percent.
This strategy was incredibly successful in a recent case involving a large mechanical contractor that performs work on both public and private projects. A targeted safety program was designed that addressed the specific causes of those claims, including fall protection procedures and minimizing slip and fall exposures. This effort reduced the company’s claims by over $350,000 in the first year. The improved claims experience resulted in the company’s experience modification rating (EMR) being reduced below 1.0 over 3 years.
Close Those Claims Quickly
The best way to keep claims costs low is to get them closed quickly. In many cases, the inability to close general liability or workers’ compensation claims promptly is linked to an overreliance on the insurance carrier to lead the claims process. However, it is the insured that should be taking a more proactive approach to managing claims.
For example, one construction company conducts its claim reviews with insurance company claim adjustors in person to determine if claim reserves are too high and need to be adjusted downward, or if open claims should be closed based on the circumstances of the claim.
Adopting a hands-on approach for managing claims has proven to be particularly effective at reducing outstanding open claim amounts that, in turn, improves premium pricing. In fact, this process can help companies with loss-sensitive plans reduce their premiums by up to 12 percent, or 7 percent for companies with guaranteed cost plans.
Screen before Hiring
Preventing workers’ compensation claims from occurring is highly correlated to the quality and scope of a company’s hiring practices. Leveraging loss-control representatives and claims advocates can provide the framework for a pre-employment screening procedure, whereby
medical providers evaluate candidates’ physical abilities based on detailed job descriptions.
With pre-employment screening, employers are able to avoid candidates more likely to be injured on the job. An HVAC contractor was hiring a large amount of unskilled laborers to meet increased contract demands. Unfortunately, the firm also was experiencing a spike in workers’ compensation injuries, which were driving its workers’ compensation premium up. An analysis of employee injuries revealed several claims that could have been avoided had the company appropriately screened the employees prior to hiring. To further reduce post-hire claims, a more
extensive pre-employment screening, including background checks and drug testing, was recommended. The HVAC contractor was able to realize a 20-percent reduction in employee injuries. This resulted in a reduction in its EMR to .96, as well as its OSHA Frequency and Severity Rates. The company also realized premium savings of $120,000 over the first 2 years.
Keep Compensation in Check
Workers’ compensation premiums are driven by an experience modifier that is derived from past loss experience. If losses are not controlled, this modifier increases and premium costs go up. An incorrect EMR can drive premium costs higher and affect additional contracts. To help manage workers’ compensation claims more efficiently, construction companies should routinely perform the same evaluation of the experience modifier as regulators to determine accuracy and forecast future financial impact on premium. Inaccurate EMR calculations are typically the result of errors in payroll amounts, inaccurate job classifications, improper claim reserves and open claims that should be closed.
These are only a few examples of how employing smart risk management strategies can help to mitigate the financial effect of adverse loss trends, lead to better managed claims and increase your overall competitive edge in the industry.