Making the Puzzle Pieces Fit
Begin a conversation with any roofing contractor with the words workers’ comp insurance and profits in the same sentence and you’ll probably be met with a confused look. By all accounts those two topics do not go together. For many contractors the expense of workers’ compensation coverage is directly in the path of the profit.
Can an insurance agent help the contractor obtain greater profit? If so, how?
What are the drivers behind the workers’ comp expense? Who is ultimately responsible for managing the expense of workers’ compensation? The answers to these questions will help bring about a change in the thought process that will lead to more profits for the roofing contractor.
The problem with workers’ comp is a misunderstanding of what workers’ comp is. If workers’ comp insurance is to serve as a no-fault protection for employee injuries and keep employers from unnecessary litigation, a good area to look at is–why are the employees getting hurt in the first place?
Many times employers have an ineffective safety program, one that allows employees to be placed in a position that increases the opportunity for injury. It’s not necessary for the employer to say, “Go up on that roof without the proper safety protection in place and don’t take the time to tie off the ladder,” for the employer to be at fault. In fact, the mere silence of knowing unsafe behavior is occurring and NOT doing anything about it creates a culture where supervisors start encouraging unsafe behavior more frequently, subsequently putting employees in harm’s way more frequently. This increased frequency of unsafe behavior leads to injuries.
However, even as more employers emphasize safety, injuries are still occurring. The last 10 years has seen a greater awareness of safety and its impact on workers’ comp. While improvements have been made, U.S. Department of Labor Occupational Safety and Health Adminis-tration statistics seem to indicate there remains vast room for improvement. First, OSHA has deemed the roofing industry as the fifth most dangerous due to fatality statistics. Second, 69 percent of all citations given to roofers by OSHA occur within the top six categories, out of a total of 76. Third, three of these categories all relate to one specific hazard–fall protection. Scaffolding, ladders and head protection make the other top six citations. In Texas alone there were over 6,300 citations resulting in $4.8 million in fines.
In addition, while there is still a need to improve worker safety, costs are rising despite a slowdown in claims. According to Susan Edwards, president of HEC Roofing Company in Dallas, Texas, her company’s claims experience has gone down yet the costs keep increasing.
Managing claims, reducing costs
What happens after an employee is injured is just as critical as preventive measures in controlling the workers’ comp expense. Employees will go one of two directions after suffering an injury: A quick return to work or a prolonged voyage through the maze of the workers’ comp system, sometimes never to return at all.
Claims management is usually described as a function of the insurance carrier adjuster, the medical provider, etc. In fact, for the employer it starts even closer to home.
Claims management begins with the hiring process. It continues with the culture that permeates the company from top management down. It is communicated to the employee with the activity (or lack thereof) surrounding safety. Then, when the inevitable does occur, what steps does the employer take? What is the perception of the employer’s response to the injury? Will the injured employee feel as if the company could care less? Will the injured employee be left to swim the confusing and murky waters of the workers’ comp medical system without any assistance? The response from the company and its attitude towards injuries at this stage is critical to claims management.
Just as claims management begins with the hiring process, so does controlling the expense of workers’ comp insurance. In fact, contractors concerned with fraud can combat it with the implementation of two small changes to their hiring process. A conditional offer of employment and the implementation of a post-offer, pre-employment physical in combination with a comprehensive medical questionnaire completed by a physician can virtually eliminate the hiring of workers’ comp claims.
In addition to the hiring process, which is the employer’s responsibility, there are insurance agent breakdowns. These include failure to control the annual premium audit, failure to control the Experience Modifier Worksheet, and failure to monitor claims, which includes the status, the reserves and the subrogation, when possible. When agents sell the policy to contractors there seems to be great discussion regarding safety and its impact but little follow-through with how to implement strategic action plans to create the savings. It is important to examine each of these areas separately; there is a direct relationship to the contractors’ performance in these areas to the money they take home–the profits.
Sandra McGlothlin, secretary/treasurer of Empire Roofing Inc., based in Fort Worth, Texas, believes the agent is an important part of the process. The agent, according to McGlothlin, must know the business of the contractor and be able to relate that knowledge effectively to the underwriter. Steve Webster, owner of Sun Commercial Roofs in Dallas commented that insurance companies seem to write the coverage “blind,” in that they really don’t know his business. The agent and the carrier seldom visit. He believes costs could improve if mutual respect existed between the parties.
An employer has one insurance number that combines all of their experience in claims, claims management, safety, the annual premium audit and classification codes, which either rewards the employer for good behavior or penalizes them for poor performance–the Experience Modi-fier, or Ex-Mod. Profits for the roofing contractor can be directly tied to the Ex-Mod.
When the Ex-Mod is high, the contractor will pay more for their insurance premiums. When the Ex-Mod is low, the contractor will have the opportunity to win bid jobs against their competitors who do not have a low Ex-Mod. In fact, Gary Boyd, owner of Boyd Inc. in Fort Worth, believes the ability to have a low experience modifier is a must, as more risk managers are requiring it to qualify to bid on jobs.
One thing all roofing contractors agree on is that the cost of workers’ compensation insurance is high. They consider it to be a cost of labor and look to reduce it in any way possible. The contractors contacted for this article also agreed that their agents historically have provided little in the way of written, strategic processes to assist them with lowering the cost of the insurance. Contractors want underwriters to know more about their company and want more than cursory safety reviews.
Insurance agents can help roofing contractors increase their profits by being partners with them. Effective strategies include:
The goal of the workers’ comp program is to keep the costs as low as possible, enabling the roofing contractor to be more profitable. One thing contractors can do to achieve lower workers’ comp costs is to hire an expert who has the specialized knowledge, experience and resources to make a long-term impact on the expense of workers’ compensation insurance. The end result is happier employees who do not want to file claims and roofing contractors with more profits.