BY ROBERT P. MADER of CONTRACTOR’s staff
ONTARIO, CALIF. — Imagine a workers’ compensation program from an insurance plan that has 12 employees servicing just 30 contractors. Imagine that the insurance plan can do constant jobsite inspections, safety training and aggressively handle injury claims. And imagine that it’s still cheaper than any other workers’ comp insurance.
The California Contractors Network Self Insured Group is proving that unsafe contractors are using up most of insurance companies’ resources and keeping workers’ comp rates high.
California workers’ compensation premiums are so high that it has become a political issue. With workers’ comp reform a hot button issue and Sacramento sending mixed signals that a successful compromise can be reached this year, a small but dedicated group of California contractors has successfully racked up impressive results for 2003.
The group of plumbing, electrical, framing, plastering and other residential construction contractors have, in effect, “reformed” the workers’ comp system so that it costs less, care is provided quickly and medical claims are paid in a timely manner.
The group is open only to contractors in SIC Code 1700, which are subcontractors. And it’s only open to contractors with a good safety culture and record.
Insurers in California spent nearly 80% of collected premiums on medical costs in 2003, according to data released by the California Department of Insurance.
“Our loss ratio for 2003 was 21%. That’s what we spent on actual medical claims all last year,” said Tom Wheeler, president of Self Insured Solutions, the group administrator for CCN. “This shows that our brand of safety training and claims-handling works well in California. Our group is strong, our members are saving money and workers are getting the best medical care available.”
The group provides safety programs, post-accident drug testing, return-to-work programs and aggressive claims management.
Residential contractors who had participated in a similar program in Nevada formed the group last June, Wheeler said.
“Most of the members, the core members, are in a program in Nevada, a self-insured group that was formed nine years ago,” Wheeler said. “It became the largest in the state and became a captive insurance company that now covers up to 900 employers. Some of the people in Nevada were doing a lot of work in California and getting crushed by workers’ comp rates, and they asked if we could do the same thing in California.”
The group took 12 months to put together the program. Creating a self-insured group is a lengthy process that involves assembling the right mix of contractors with the right risk profiles to appeal to the excess lines insurance market. It takes about three months to deal with the state regulatory requirements and then submit the application to the state.
Regulatory requirements include a mandate that the businesses be similar, which is why the plan chose 1700 SIC codes. It requires the contractors to have certain levels of profitability. The plan must post a deposit with the state that might equal three years of accumulated losses.
Getting into the plan is like gaining admission to Harvard. The plan reviewed 300 contractors to come up with its current 30.
The plan looked at the best risks, criteria of losses, mod factor and existing safety programs. The group did a “full underwrite,” which includes safety professionals walking jobsites.
“Unfortunately, we had to say ‘no’ this year to quite a few folks for one reason or another,” Wheeler said.
The plan generates a report with a list of recommendations. Some are simple: a better safety program; stop using frayed electrical cords; get the workers to stop wearing their hardhats backwards, because they won’t absorb shock properly; and enforce proper footwear.
“Send a guy home if he has on tennis shoes,” Wheeler said. “After a while you build up a safety culture. Companies with a 40% loss ratio get down to 10%.”
That low loss ratio is how the California Contractors Network Self Insured Group can provide all those services. The staff of 12 people includes full-time administration, which covers day-to-day operations such as certificates of insurance, the safety and loss control staff and the third-party administrator who handles the claims.
The high level of service reduces both the number of injury claims and their severity, Wheeler said.
More information is available from Wheeler at 800/592-0047.