Reducing risk

The tragic tower crane accident last month in New York City served as a distressing reminder of the dangers of construction work. One minute the jobsite is safe and a few moments later everything has changed. A crane crashed to the ground, buildings reduced to rubble, and most unfortunate, workers and residents in nearby buildings are injured and dead.

“The reality is that every day on every jobsite you are one incident away from a fatality or a million dollar loss,” says Bill Smith, president, claims and risk management, NBIS. “It's critically important to constantly look at exposure and try to keep your losses to a minimum by having in place policies, procedures and protocols to mitigate your risk including the right contract terms and conditions. You need to assure that your company has qualified people and trained operators that are dispatched to the jobsite with the right crane and the right equipment to prevent failure. It's all a part of building a good company and keeping it profitable. The toughest part is doing all this the right way while making a profit. The easiest part is to only think about the profit. I have always been taught in life that in almost all cases the tough decision is usually the right decision and the easy way out is usually the wrong decision. Remember, to protect the bottom line it requires spending money up front and it's very hard to quantify what you've prevented.”

At what point in a company's evolution should risk management formally be addressed? Tim Hillegonds, vice president of NBIS, says “early.”

“We operate in an industry that expands and progresses just as quickly as America itself,” says Hillegonds. “True risk management – that being the continual assessment and reassessment of each area of your company to mitigate a variety of exposures or weaknesses – needs to be a critical piece of your company's business plan throughout its evolution. I don't believe that risk management comes into play at any certain point; rather I believe it's essential to building a strong, robust, and effcient company.”

Safety first

Jeff McGeary, executive vice president, sales, Allied Insurance Brokers, says that every single company out there, no matter what the size, should have a designated safety offcer, whether it's the owner of a small company or a designated offcer for a large company.

“Any company with more than two employees should still have a monthly safety meeting, a tool box meeting,” says McGeary. “I think that is the most important part of an insurance plan is customer involvement. Everyone should have some sort of formalized written safety procedure and hopefully the insurance partner can help the company with that. We assist with this routinely.”

All companies should have in place a general employee safety manual and a fleet safety manual for their vehicles and cranes. And these documents should not be dusty on the shelf but working documents that everyone in the company understands and routinely assesses.

Smith says that while it's important to have these documents, a company's safety program has to be more than just something on paper – it has to be supported from top down and become a company's culture.

“You need more than a paper program,” he says. “If that's all you have it can actually get you in trouble when you have a claim. You not only give the plaintiff a gun, you load it for them too if you have a program on paper but then have to admit you don't follow the polices and procedures you established you just shot yourself.”

Mitigating risk

More and more large companies are establishing formal risk management departments with designated safety offcers, risk managers and other personnel solely dedicated to lowering risk in every area of the company. While establishing such a high level program can be expensive, it can also save money when an accident does happen.

“I am seeing more of formal risk management with in the crane companies we insure,” says McGeary. “These companies can see the benefit of coordinating risk management programs. Eventually, a decrease in claims turns into a decrease in insurance cost. More and more larger jobs are requiring that these programs are in place.”

Due to the softening economy, it could be that insurance rates will go down a bit in the coming months for some companies in certain regions. For this reason, McGeary suggests that the time to invest in risk management is now. “Plowing those savings back into risk management can save you money later on.”

Simple measures can be taken to reduce insurance costs.

“Perhaps the easiest way to reduce your insurance cost is to reduce your incidents, or losses, by establishing an effective safety program,” says Hillegonds. “Endorsing and implementing a true 'safety culture' not only looks good to underwriters, but has been proven time and time again to reduce the amount of accidents a company has. Coupling a good safety program with employee incentives to promote company-wide buy-in will eventually amount to benefits that can make a difference when it comes time to renew insurance policies.”

McGeary points to having good, solid contracts. “All companies need some sort of a crane contract, some call it a rental contract,” he says. “A contract with the recommended wording approved by the SC&RA is very good. These contracts help prevent the hold harmless clause. This is important because it can get you out of claims.”

McGeary uses the example of the crane company that sets a crane up on a jobsite. The contractor designates where the crane should be set up, unaware that there's a pipe underneath the crane. There is no time to test the soil or the ground bearing pressure. While working the pipe collapses and the crane tips over. The crane owner is not responsible for the accident. With a proper contract, the contractor is responsible in this scenario.

Contract language

Also in the contract, McGeary says there should be language regarding the weight of an item being lifted.

“The crane owner may be told the item weighs 15,000 pounds but it actually may weigh 30,000 pounds,” he says. “The contractor will typically choose the crane that is the least expensive but it could be the wrong crane is chosen if the weight is not accurate.”

McGeary also says claims can be reduced if the insured can produce paperwork, paperwork, paperwork. “Having all the proper documentation is very important – your checklists, your safety meetings, your inspection reports,” he says. “Extremely important. The SC&RA can help with many of these forms. In a court of law, having good documentation is the first thing you will need to provide. They ask: so you say you routinely service your crane, what proof do you have? Paperwork, paperwork, paperwork.”

Ellen Connor, senior account executive, Neace Lukens Insurance, insures crane and transport companies throughout the nation. She says the most important loss prevention control measures that a transportation or crane owning company can take to lessen risk, prevent accidents and ultimately lower their insurance premiums have to do with personnel understanding the rules and the operation of the equipment.

“Operator and driver understanding of the safety rules that govern the safe operation of equipment and vehicles would by far be the single most important loss control measure,” she says. “Proper initial training along with frequent continuing education above CDL and CCO goes a long way in reducing accidents, promoting confidence in the work place and ultimately reducing the overall insurance costs.”

Connor says a fleet that is maintained properly will not only serve to reduce needless accidents, but will also serve to reduce overall maintenance costs in the long run. Additionally, she points to jobsite assessment as a critical element of reducing risk. “Knowing what needs to be done and what it will take to safely engage valuable resources such as personnel and property prior to the start of a job,” she says.

While there are obvious measures to take to reduce insurance costs, there are other not-so-obvious measures a company can take to lower costs.

Connor says an important measure is to assure you have engaged a knowledgeable insurance agent with a good fit of insurance companies that specialize in the crane and transportation industries. “The monitoring of claims and claims costs with your agent on a quarterly basis would serve not only to keep you informed of any negative trends but could also identify areas in need of special attention or specific loss control measures,” she says. “Taking advantage of loss control services provided by your carrier and agent would be advantageous in the quest for lower insurance premiums.”

Experience counts

Smith concurs and advises that the insured look closely at the financial viability of the carrier. He says to look for the AMBest rating and the Moody's rating. Answer such questions as: What experience do they have in the crane industry? How many years have they been insuring crane companies?

“In the softening marketplace, we are seeing quite a few new carriers entertaining bids for crane companies,” says Smith. “The problem is these companies have no prior experience in this industry.”

Smith says a company should be concerned with more than rates and coverage, but also with how the carrier would deal with a claim.

“Will the company be able to negotiate a settlement for less or will the company settle quickly for much more out of fear?” he says. “The biggest complaint we hear is that some insurance companies are quick to settle because they are fearful of going to court. Do you call their bluff or fight it? More experienced companies may be more willing to take a claim to court because the company knows the business and can prove liability. Some insurance companies are afraid of a jury. A company with experience knows the business and where to take their shots.”

Connor also points to contract wording as important, with regular review of contracts to assure they are up-to-date and pertinent. “Not giving away your rights by contract and not agreeing to take on additional liability by contract is another very important step in reducing overall claims settlements and ultimately lowering insurance costs,” she says.

Having your agent verify your Workers Compensation Experience Modification Factor is also a good idea, Connor says. “In many cases, workers compensation individual claims amounts and aggregate claims amounts are not reported properly by the carriers and could negatively impact your experience mod,” she says.

Smith with NBIS says that the insured should stay in close contact with the carrier, with a formal annual review.

Additionally, Smith says that companies that believe in and embrace operator certification and are committed to a safety culture will get a break on their insurance. “Before we insure you, we are going to determine if you have all the right elements in place. If so, it will assist our underwriters in determining risk.” he says. “There may be a company that has been lucky and hasn't had many or any claims but still roll the dice when it comes to doing the things that need to be done. We can work with that company to do a better job in controlling their risk. If you have invested in safety and in reducing risk and exposure, we should be able to help you. However if you don't do these things, your rates will be based on what the market will bear.”

McGeary puts it simply: “If you are doing everything in your power to reduce accidents, your insurance costs will be lower.”

The reality is that every day on every jobsite you are one incident away from a fatality or a million dollar loss.

“ True risk management – that being the continual assessment and reassessment of each area of your company to mitigate a variety of exposures or weaknesses – needs to be a critical piece of your company's business plan throughout its evolution. I don't believe that risk management comes into play at any certain point; rather I believe it's essential to building a strong, robust, and effi cient company.

“ Having all the proper documentation is very important – your checklists, your safety meetings, your inspection reports. The SC&RA can help with many of these forms. In a court of law, having good documentation is the fi rst thing you will need to provide. They ask: so you say you routinely service your crane, what proof do you have? It's all about paperwork, paperwork, paperwork.

“ Operator and driver understanding of the safety rules that govern the safe operation of equipment and vehicles would by far be the single most important loss control measure. Proper initial training along with frequent continuing education above CDL and CCO goes a long way in reducing accidents, promoting confi dence in the work place and ultimately reducing the overall insurance costs.