Premium advice - insurance made easy4 August 2004
Spiralling insurance costs is one of the biggest issues facing construction companies in the water power industry today but, according to broker UK & Ireland Insurance Services, many businesses could be making life a lot easier for themselves. Here Martin Nugent gives his three-pronged attack on how to lower premiums, using the UK as an example
IT’S NOW the norm for most people, whether they’re an employee or member of the public, to look for blame following an accident either at work or in the street. Compensation culture is an established yet rather distasteful part of society. If there’s any industry that is at risk from it, it’s construction.
Over the last five years, these escalating personal injury claims have pushed insurance premiums for construction companies through the roof. But it’s not the only factor. Poor site security, apathy and fraud have also contributed significantly to high insurance bills. There is light at the end of the tunnel though, and if companies pull together and exercise a little bit of planning, a solution can be found.
Home Office figures show that more than 4000 HGVs, trucks, vans and mobile plant vehicles are stolen every year in the UK and that only 12% are ever recovered. More than half of thefts are committed on the operator’s own premises, and despite constant warnings, many operators fail to put sufficient risk reduction measures in place to prevent theft.
Measures to secure premises, such as gates, lighting and CCTV, are therefore essentials, and so too are rigorous recruitment training policies for drivers and plant operators. Getting the person who leaves the site last to realise his or her duty to the whole company, for example, is crucial.
From the author’s experience, operators that have invested in security have cut crime and had a pay back in terms of insurance. They’ve also significantly reduced inconvenience.
Health and Safety
It’s not just theft that needs reducing. If claims made by employees and members of the public against construction companies are to be curtailed, a huge boost in improving health and safety is required.
The construction industry's current health and safety record is, in the words of the UK’s Deputy Prime Minister, John Prescott, ‘unacceptable’. When you see that workers in the construction industry represent just over 6% of the working population, but account for more than 30% of the fatal accidents and over 14% of the major accidents, you can see why.
Workers in the construction industry are almost five times more likely to be killed than the average for all industries and they are more than twice as likely to sustain a major injury than the average for all industries. As a general rule, the larger the contractor, the more important health and safety issues become, regardless of whether the industry involved is water, rail, mining or quarrying, for example.
The ‘Working Well Together’ initiative, aimed at improving construction health and safety is certainly a step in the right direction, but construction companies must pull together to make it work.
Accidents on construction sites are not inevitable. Higher health and safety standards in Europe's construction industry could save up to 1300 lives each year and avoid 850,000 serious injuries, according to the European Agency for Safety and Health at Work. It seems superficial to talk in terms of insurance when discussing saving lives, but the two do go hand in hand.
There are other signs that the industry is pulling together and though significant strides have been made since the 1974 Safety at Work Act, there has been a performance plateau and things really need to step up a gear, meaning businesses must begin to work differently and overcome challenges, not least those posed by occupational health.
These are fundamental issues, but one relatively straightforward reason for many companies paying high insurance premiums is their reluctance to shop around for the best deal.
Some 47% of UK companies renew insurance cover with their current provider without speaking to anyone else. Apathy is certainly common, but many claim that they’re simply too busy to commit adequate time for searching out a more competitive quote. In other words, people prefer to get on with what they do best – running their construction business.
You could argue that these people deserve what they get and have no right to complain. This is far too simplistic though because many insurance brokers send the next year’s premiums through so that it arrives in the postbag just a few days before the critical renewal date. The subsequent panic that this creates usually results in the business signing away for another twelve months. Next year it happens again, and again, and so on.
For the half of construction companies that don’t shop around, the author’s advice is to put a note in your diary four weeks before renewal. If your broker isn’t going to give you time, create it for yourself. This gives you the all-important opportunity to accurately assess how competitive your incumbent actually is. It’s not a case of speaking to a lot of brokers, it’s more important to make sure you speak to one that is an industry specialist – not a general broker. Unfortunately, if the same risk is seen by the same underwriter from a number of different sources, it can actually make obtaining quotes harder as some underwriters will give ‘exclusive’ quotes.
This isn’t really enough though for larger, more established firms. They should be building up a closer relationship with their insurer. One reason for doing so is to reduce costs. Regular contact involving quarterly or monthly claims review meetings to discuss the way the claims experience is developing should be commonplace. These meetings should also be used to discuss and identify trends in order to take corrective action by risk assessment techniques. Ongoing development of outstanding claims reserves, inflated reserves, and whether insurers and loss adjusters are pursuing recoveries should also be up for discussion.
Client contact should be throughout the year – not the last day before renewal.
Shopping around for cheaper quotes, reducing theft from their own sites, and working together with the industry as a whole to improve Health and Safety, are the three key ways to start reducing premiums, but it’s worth pointing out that though cost is important, companies should not rush in to choosing just the cheapest.
In the same way that a low car insurance quote isn’t always the best because it might not include a courtesy car or it may have a higher excess than a policy slightly more expensive, remember that no two construction insurance policies are the same. Saving a few hundred pounds could mean losing thousands when making a claim.
There’s also no point choosing a cheap quote if the insurance broker has poor credentials or is very inexperienced in the sector. Ask them what other construction firms the broker has in their portfolio, and if available, ask for testimonials or references. If they claim to be experts but they only have one construction client, then alarm bells should be ringing. They will simply not appreciate many of the complex issues affecting the industry. Saying that, if an insurance broker has expertise in the sector, they should be more competitive anyway. They will have closer ties with insurance providers and will be reviewing their existing insurance portfolio on a regular basis. This should ensure they are offering the best deal.
The author is aware that this three-pronged attack on insurance premiums excludes how to combat fraud and the number of businesses that are illegally uninsured. These are of course factors that need close inspection too, but if companies tighten up the security on their sites and pull together in health and safety, the root cause will be attacked. The third issue of speaking to a specialist insurance broker to get a competitive quote and suitable policy will always be there and will perhaps make the biggest difference in the short term. Your current provider may provide the best policy and the most competitive price, but don’t just take their word for it.