Insurance: How To Control Rising Costs

Mike Marley's clients badger him with the same question: What's the secret to lowering insurance costs? But the senior account executive at Clarksburg, Md.-based Moody Insurance insists that there is no secret.

"I tell customers to do the best you can, keep people safe, and have an agent that knows the industry," he says.

Building service contractors would do well to heed Marley's advice. A good safety program can reduce injuries, resulting in lower claims and lower premiums, while an agent that understands the janitorial business and its service requirements can help BSCs negotiate the best deal. But once BSCs find a match, they shouldn't get too comfortable, say brokers. Business owners should shop insurance companies every one to three years.

"Talk to other agents and get quotes from them, because insurance companies file new rates every year," says Marley.

BSCs should also reconsider companies whose rates weren't competitive the first time around.

"Maybe they've had success with this particular type of business, and they've lowered their rates because they want to do more of it," says Marley. "Checking with a variety of companies is always a good move."

Choosing the right type and amount of coverage can be daunting. An array of optional contractor-specific plans exists, but general liability insurance, along with property and workers' compensation insurance, is required for most businesses.

Regardless of what type of insurance BSCs need, insurance agents and brokers agree that the surest way to reduce costs is to reduce claims.

General Liability

Two of the biggest concerns in the janitorial industry are property damage and slip-and-fall incidents. Employee training and a focus on safety measures can help to control these types of claims.

"The best way to reduce exposure is to train your employees in how to clean correctly and what chemicals to use on certain surfaces," says Gary Beggs, certified insurance counselor and program director, Valenti Trobec Chandler Inc., Troy, Mich. Training should be ongoing, he adds, rather than a one-time occurrence. To prevent slip-and-fall injuries, BSCs should equip their staff with safety cones and signs, and clean hard floors during off-hours when feasible.

Screening potential employees is another preventative measure that can help control losses.

"In the janitorial business, there are so many areas claims can come from," says Marley. "Employees can slip and fall, cleaning teams are driving from one place to another, and there are opportunities for theft. Most insurance companies that deal with residential or commercial cleaning require a criminal background check on any employee you hire."

The types of facilities BSCs service may also increase the risk of someone filing a claim. For example, high-traffic, public facilities such as supermarkets or malls will attract more claims than a private office building, says Jeff Ruben, senior vice president, Hub International Limited, Chicago. So, before taking on new clients, BSCs should assess how much risk is involved.

"You want as much new business as possible," says Ruben, "but you want to look at the business you're bidding on and make sure that it's not going to kill you on your insurance down the line because you're going to have multiple claims."

Conversely, BSCs might even consider subcontracting work that could potentially increase the risk of injury or property damage.

"Certain things, like snowplowing or exterior window cleaning, can cause contractors to pay more in premiums," says Beggs, "so if they can subcontract those things out, it will reduce their premiums, as long as they get certificates of insurance from the subcontractor and keep them on file."

Workers' Compensation

As with general liability, the number and size of claims affect premiums — and the key to reducing claims is to focus on employee training and safety.

"Have a safety committee, documented safety procedures, an OSHA log, and a blood-borne pathogen procedure," says Rubin. "Also encourage teamwork, train for lifting correctly, and have early return-to-work programs."

Companies should keep track of their Experience Modification Rate (experience mod), which is used to adjust premiums up or down. The National Council on Compensation Insurance (NCCI) promulgates experience mods by gathering the last three years' worth of loss information on businesses of similar size and type. The NCCI then develops an industry average on which the experience mod is based.

"The fewer losses you have, the better your experience mod becomes," says Beggs. "In the industry, 1.00 is considered average. If you are below that, you're considered better than average, and you get a discount off the top of your premium."

How well BSCs educate their employees and train them to lift correctly will directly affect losses and — down the road — the experience mod, adds Beggs.

Sometimes, despite all precautions, claims happen. And post-claim management is as important as risk management.

"Once a claim is filed, what you do with that claim has a direct correlation to how large that claim is going to be," says Beggs.

By reporting the claim as soon as possible, the claims adjustor can follow up with the claimant immediately and try to help that person. The longer BSCs wait to report those claims, the more likely the claimant is to hire an attorney — and when attorneys get involved in a claim, says Beggs, "costs skyrocket across the board." When accidents happen, BSCs should be in constant contact with injured workers.

"Make them understand that you care about them, and you want them to get better and come back to work," says Beggs. "As soon as an employee feels you don't want them anymore because they're injured, they're more likely to seek the services of an attorney."

Return-to-work or light-duty programs allow employees to return to work as soon as possible, thereby reducing the amount of the claim. Even though BSCs will have to pay wages again, the claim won't be going into the experience mod, helping to lower its number.

Whether contractors are seeking cost-cutting measures for workers' compensation, general liability, or some other type of insurance, they often overlook the most obvious resource: the insurance companies themselves. Agents have information on specialty programs that can qualify BSCs for discounts as well as resources on employee training to prevent losses.

"BSCs don't always understand the correlation between the types of losses they're having vs. the premium they're paying and how important that safety factor is," says Beggs. "The loss control department can help insureds reduce their losses by providing training information at no additional cost."

Kassandra Kania is a freelance writer based in Charlotte, N.C.