Cost effective

19 March 2008

ALH spoke to insurance professionals that specialize in providing insurance services to the aerial and telehandler community. We asked each participant to share their knowledge on how to help the industry with insurance costs.

Our experts are: Ellen Conner (senior account executive at Neace Lukens Insurance); Phil Kelling (president and CEO of ARA Insurance Services); Randy Proos, (director of construction services at USI Inc.); and R. Jeffrey McGeary (executive vice president, sales of Allied Insurance Brokers Inc.).

How much have insurance rates climbed in the construction industry, in particular those for the lift and handler companies, over the last five years?

Ellen Conner: Actually, this particular class of business should have started to see rates decline last year and should see a further reduction upon their respective renewals depending upon their state. The insurance marketplace is currently experiencing a down cycle and carriers are hungry to write new business and also maintain their renewals. For insureds with a good loss history, there should be some options being offered by their brokers.

Randy Proos: In Florida, I would tell you that we've seen the General Liability rates remain stable and/or decrease to some degree. The rental companies in Florida have enjoyed stark increases in rentals over the past five years due to the construction boom. Premiums have increased as a function of that, however those increases were proportionally lower due to decreases in rates based on much larger rental revenue. The economic boom has ended, however we believe the lower rate structures will hold based on a softening insurance market. Equipment rates also appear to be trending down.

What are important loss prevention control measures that an aerial work platform or rough terrain forklift owning company can take to lessen risk, prevent accidents and ultimately lower their insurance premiums? Conner:

Understanding of the safety rules that govern the safe operation of this type of equipment would by far be the single most important loss control measure. Proper initial training along with frequent continuing education goes a long way in reducing accidents, promoting confidence in the work place and ultimately reducing the overall insurance costs.

Phil Kelling: Most importantly it comes down to age and maintenance of the equipment along with good operator training. Operator error is usually a major component of any accident, but older equipment without the newest safety devices is less forgiving.

Proos: Runn i ng MVRs (motor vehicle reports) more frequently on company drivers is a good idea. From a liability standpoint, training the lessee operator is an important function. Some of my clients require a list of operators that the lessee intends to use on the lift equipment. Each operator is required to be trained and sign off that he has been instructed on all safety measures. Photos of the operators are taken and sales personnel are required to inspect job sites for adherence to safety procedures and proper use of the equipment. Warnings are given for improper use and repeat violations will terminate the rental.

Kelling: Insurance costs are relative. You really don't know the cost of your insurance until all the claims are paid or not paid. So, attention needs to be paid to the insurance coverage. An underwriter tries to select the best risk in the business. How do you convince the underwriter that you are that best risk and deserve the lowest rates? To the underwriter, the proof is not having any losses, but also what steps you are taking to prevent losses. Take the time to explain how you run your business better than anyone else. I had an insurance agent tell me that he has a tougher time selling the underwriter on the merits of a risk than he had in selling the client. Find a company that understands the business and an agent that understands you. Proos: Not so obvious might include periodic meetings with your agent or broker to review claims reserves. Losses and claims are valued on the total incurred loss amounts which include the portions of a claim that have been paid as well as the reserve amounts (what the insurance company anticipates it will pay at a later date). Claims that are over reserved could have an adverse effect on the renewal premiums.

R. Jeffrey McGeary: Maybe not so obvious is that the safety details be updated on their aerial reach equipment. A lot of times, decals are rubbed off and not put back on. And we also recommend those decals be in Spanish or a universal language people can understand.

What are the most important elements in claims reporting? Should a company establish set procedures in the case of claims reporting? Why is speed in the reporting process important?

Kelling: In any incident speed is critical. First and foremost treating the injuries and preventing further damage. Employees need to be trained on what to do in an emergency situation: how to get help; how to prevent further injuries or damage; what information to gather; what not to say; what evidence needs to be preserved and how. It has been shown that the faster the insurance adjusters can get to a claimant the lower the settlement. No matter who is at fault.

McGeary: Paper trail. I would have in everyone's truck a disposable camera, updated on an annual basis. Pictures should be taken in the event of a claim. Have your employees only interviewed by you, not someone else. Statements should be controlled by one person within the organization to avoid miscommunication.

How often should a company complete some sort of risk assessment program? Should risk assessment be done by a third–party?

Conner: In this type of high risk industry, a risk assessment program should be reviewed at least annually. Risk assessment is an on–going process that changes as the business changes, the laws governing business changes and the marketplace changes. Hazards that are both insurable and uninsurable (at least at a reasonable cost) should be identified and reasonable methods for controlling/containing or financing those hazards should be formulated. A third–party who is knowledgeable in this industry and in the insurance industry could be employed, however engaging your own employees to become involved in the risk identification and risk management processes can be very beneficial to both the employees and the business.

Kelling: Risk assessment should be built into the job description of every employee. It should be part of their nature. Without the employees' buy in, a manager or owner cannot make the progress he needs to make. I suggest daily, weekly, monthly and annual inspections covering different areas. Again employees should be part of the process, helping to design the inspection process and any forms to document it. A third party audit can often point out the blind spots or a least highlight the importance.

What types of initiatives can you recommend to aerial platform and telehandler operating companies to lower their insurance premiums, or at least stabilize them?

Conner: Safety training, driver training, certification, fleet safety program, drug testing and incentive programs all could serve to reduce costs and an overall program should be established on an individual company basis depending on the company and the resources available.

Kelling: Your best run businesses pay the lowest insurance premiums over time and your best run companies have the best employees. It starts with hiring the best and then investing in their training. In the education area, driver education is under appreciated. Your drivers can be the source of your highest liability. It is serious and often fatal if a person falls from a platform, but a whole family can be wiped out with one auto accident.

Proos: Documented risk assessments and safety training are important. Additionally, bare rental contracts should be reviewed periodically to ensure their enforceability. Have you analyzed your certificate procedures recently? Does your broker review your certificate procedures? When was the last time an attorney reviewed your lease agreement? Does it conform to the indemnity statutes in the states that you do business in? In the world of bare rental of equipment, it is imperative that you have a valid and enforceable lease agreement. You must also obtain certificates of insurance naming your firm as an additional insured on your lessees general liability coverage. The insurance companies want to know that you have your two best risk transfer tools tuned up and in place. When your lessee tips the lift over and you get sued, your insurance carrier will seek to tender the claim to the lessee for handling. This can only be achieved via an enforceable lease agreement or via the additional insured status granted to you by your lessee. Insurance companies will charge less when you can demonstrate that you have lessened your exposure to claims.

McGeary: I would always encourage the manufacturers do repairs on your work. All the major manufacturers offer them. That's another paper trail item that can be put in their hat. Another thing from an auto standpoint, aerial reach people, although not considered truckers, are considered truckers in some states. Make sure your drivers are filed in a DOT format. This includes but not limited to physicals, drug testing and motor vehicles reports.

Can establishing and maintaining a formal safety and training program help a company get better insurance rates? How does this work?

Conner: Establishing and maintaining formal safety and training programs are essential for getting the lowest rates from the preferred circle of insurance carriers. A company can be provided with a “shell” program for both safety and training that can be tailored to the needs of the individual company.

Kelling: The underwriter is trying to insure the best of the best. A formal safety and training program tells the underwriter that you are doing everything you can to be the best. Over time the loss history will prove it.

Proos: Yes. The key is formalized safety and training. Telling your insurance carrier that you are safe won't work. Your safety manuals should be organized and in good order. Document your training so this can be conveyed in writing to your insurance carrier. The carriers will credit a well documented safety and training program.

What should you look for when pursuing the right coverage/insurance company? How often should your insurance program be reviewed?

Conner: Specifically, a carrier should be AM Best Rated “A“ or higher and should be licensed to do business in your state. The carrier should also have specialization in the lift and access arena and have claims representatives local to your area. Your agent will play a key role in the selection of carriers and the soundness of the overall insurance program. Your program should be monitored all year and reviewed in depth annually.

Kelling: Find an insurance company that understands your business and develop a relationship. I suggest that the insurance be bid about every three years or if there is a major change in market conditions. The underwriters have a long memory and remember the shoppers. They won't sharpen their pencil for them. In the long run, they end up paying a higher rate. An occasional testing of the market is good too. Every three years is about right. Don't take the job of changing companies lightly. And whatever you do, make the competition between the companies fair. Sharing rates with competing companies to lower premiums will be seen by the underwriter as not playing fair.

McGeary: First thing is what is the financial rating or lack thereof. The most common rating companies are AM Best and Moodys. Make sure this insurance carrier is going to be around five years down the road to pay a claim that may take up to five years to settle.

Ask what other telehandler companies the specialty brokers insure. Ask for referrals. You should review your insurance policy every year. There's a negative impact to marketing your company to several brokers every other year. Many have a large workload. If they see the same submission from multiple insurance agencies, they know their chances of writing the business is less likely.

How can a company ensure that its insurance coverage is comprehensive – that in the event of an accident there are no hidden surprises of incomplete coverage?

Conner: As stated above, your agent plays a key role in helping you understand your insurance program, what is typically covered and not covered, the application of deductibles, the choice of council should that become necessary and specific areas of concern for your industry. Neace Lukens is equipped with a proprietary “checklist” for the aerial and telehandlers industries.

Proos: While you can never be guaranteed that you have zero coverage gaps, you can certainly minimize your exposure to incomplete coverage by utilizing insurance programs and brokers who specialize in your industry. Specialty brokers know the right questions to ask and typically will have supplemental applications that drill down into your scope of operations.

McGeary: By dealing with a broker that has accounts in your industry group. As your representative to the insurance company, offer advice on certificate wording. We're getting more primary and non contributory certificate requests. They are very tough to subrogate against their customer in the event of a claim that may not have anything to do with their equipment.

How important is it to contract with an insurance company that specializes in covering aerial work platforms and rough terrain forklifts, rather than just a general insurer?

Conner: It is essential to be covered with a carrier experienced in this industry. Most importantly at the time of a loss, the carrier's experience in the handling, negotiating and settling claims will serve to reduce the overall cost, time and frustration involved.

Kelling: It is of ultimate importance. A company that understands the business and is prepared to write this relatively high risk business is in it for the long haul and won't cut and run when the market hardens and you need help the most. You may save some money in the short run with a company that doesn't understand the business and underestimates the cost. This will be short lived. The coverages are probably lacking and they will be the first to bale out.

Proos: If the insurance company doesn't understand your industry how can they manage your claims effectively? Preferably the insurance carrier and broker are involved pre–loss with respect to managing the lease agreements and providing industry specific loss control services. Post–loss the insurance carrier should be capable of deploying their claims resources immediately after being informed of the loss. It's critical that the adjuster and defense counsel understand your companies' operations and have ample experience in defending claims in your industry group. Additionally, coverages need to be specifically tailored for your industry exposures. Your equipment floater policy should contain a waiver of subrogation if you are charging for and granting damage waivers to your customers. Your lessee is certainly not expecting your insurance carrier to seek reimbursement for the damaged lift they paid you for if your lessee bought the damage waiver.

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