The concept of insurance is unique. A contractor can pay hundreds of thousands of dollars for a product it hopes to never use. If the contractor does use it, it is likely the cost will go up and, if the contractor uses it a lot, the insurance may not be available in the future.

An often-overlooked fact about insurance is that the premiums and deductibles comprise only a portion of the total cost of risk (TCOR). TCOR will not show up on the income statement, but it can be one of the largest costs for a company.

OSHA estimates that, on average, insurance is less than half of the TCOR. In other words, the indirect costs of dealing with risk exceed the direct costs. For example, if a company spends 4% of its total revenue on insurance premiums, its TCOR is likely 8% or higher. This underscores the importance of an effective risk control program.

The only way to lower the cost of risk is to reduce the frequency and severity of the claims that drive those costs. Risk control is designed to do just that. The majority of successful companies invest heavily in risk control programs.

Risk control can be broken down into three areas: safety, human resources and claims management. An effective risk control program will focus on all three areas. How can a contractor know if its risk control program stacks up?

Safety

If employees were asked about the company safety culture, what would they say? “Safety is a major priority. Management goes out of their way to run a safe company.” Or, might their response be, “Safety culture? What safety culture? It’s all about getting the job done as quickly and as cheaply as possible.”

Safety starts at the top. If senior management is not driving the safety culture, the culture will suffer. Questions to ask include:

• Who is the safety coordinator? If there is not an answer to this, there is work to be done. Someone in a company needs to have overall responsibility for safety, and depending on the size of the company, there may be several people sharing this responsibility.
• Who conducts the annual review of the injury and illness prevention program (IIPP) for OSHA compliance? For example, every employer in California is required to have an IIPP. If not, or no one remembers when it was last updated, the company is out of compliance. An injury and illness prevention program is the cornerstone of an effective safety program.
• Is there an effective safety committee that meets monthly?
• Are safety trainings for all employees tracked and monitored on a regular basis?
• Who conducts safety orientation programs for new hires?
• Are inspections performed as-needed and are their written policies and documentation procedures for:
• jobsite safety;
• field equipment;
• automobiles; and
• tools and machinery?
• Is there a safety incentive and safety consequence program?

Claims Management

Even the best managed companies will have claims. How those claims are handled, however, will greatly affect the outcome and cost. How are claims managed? Do the appropriate people know what to do in the event of a claim or a circumstance that might give rise to a claim? Or, is every claim situation a fire drill that is handled by whomever happens to be in the vicinity when an accident happens?

Human Resources

The single most important asset most companies have is their human capital. Protecting that investment and effectively managing the people is critical to the staff’s physical well-being, but also to the company’s financial health. How well is the HR department performing? Is there a qualified HR professional in place who is up to speed on current employment and labor laws and who proactively interacts with staff to avoid issues before they become problems? Or is HR handled by someone with other responsibilities who does not really understand HR at all, and missed the meeting when they were assigned the task? Additional questions that must be answered are:

• Who is responsible for the HR function? Companies with more than 50 people should have a dedicated HR professional on staff. At the very least, the person responsible for HR should have an appropriate amount of HR training. This person has to know what they don’t know, so they know when to ask questions.
• Has an HR process survey been conducted within the last five years? This is the first step in evaluating the status of the HR program.
• Does the company have an employee handbook? Has it been updated recently and is it relevant and effective? Do all employees have a copy of the handbook?
• Are there written job descriptions for all positions within the company? Written job descriptions are a basic requirement for effective HR and are integral to a return to work program.
• Is there a formal performance evaluation process for employees and are employees evaluated on a regular and consistent basis?
• Is someone in the company aware of federal and state laws that directly affect construction and similarly-sized companies? These laws are complex and change frequently. While all details of the laws affecting the company may not be known, a working understanding of the major laws is critical.

Investing in risk control can provide huge returns to a company’s bottom line. How is the company’s risk control program performing? Is it at the level it needs to be or are there areas that need improvement? Progress involves three basic steps:

• determining what the company wants to accomplish;
• figuring out what needs to be done to get there; and
• committing to pay the price to get it done.

So, where can the company improve and what are the next steps to take? Or, in the words of insurance coach and trainer Roger Sitkins, “What are you going to do differently today to make tomorrow better than yesterday?”