SAFETY FORUM How to reduce your insurance premiums Doug Smith - - PowerPoint PPT Presentation

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SAFETY FORUM How to reduce your insurance premiums Doug Smith - - PowerPoint PPT Presentation

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5 November 2008 SCOTTISH HOUSE BUILDERS HEALTH & SAFETY FORUM How to reduce your insurance premiums Doug Smith Edinburgh Office douglas.s.smith@marsh.com Tel DDI 0131 311 4214 www.marsh.com Overview Market Conditions UK CONSTRUCTION

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www.marsh.com

SCOTTISH HOUSE BUILDERS HEALTH & SAFETY FORUM How to reduce your insurance premiums Doug Smith Edinburgh Office

douglas.s.smith@marsh.com Tel DDI 0131 311 4214

5 November 2008

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1 Marsh

Overview – Market Conditions

UK CONSTRUCTION

  • Reluctance to underwrite fully adjustable policies – most Insurers require Min/Deposit.
  • Premium reductions on risks that have not been broked in last 2 years. On other risks rates are

levelling.

  • RSA increasing renewal rates across the board - but still aggressive on New Business
  • EL rates are still falling - greater market choice for placing on mono line basis with low claims

discounts leaving CAR/PL to be place with different Insurer at competitive rates.

  • Term deals and Standstill agreements still available.
  • Motor fleet rates driven by claims. Many Insured’s reducing to TP, TPF&T or increasing

deductibles.

  • AIG – not really a Construction Market, unable to write CAR and have Asbestos exclusion on PL.
  • D & O, PI and other financial lines have been falling but now levelling out – Insurers expecting to

seek increases in 2009

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2 Marsh

Overview – Key Construction Insurers

Market Adjustment Basis PL - Asbestos Cover DE3,4,5 wordings

Allianz Fully Silent Yes Zurich construction Fully Silent Yes RSA Not Adjustable Excludes „Fear of Asbestos‟ Yes ACE 85% min/deposit Exclusion Yes Other Markets – around 8 to 10 alternatives Various Various Various

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How to reduce premiums – Key Steps

Insurance Options Claims Defensibility Risk Profile

  • Self Insure

(Captives)

  • LTA
  • Increased

Deductibles

  • Manage Insurer

“Reserves”

  • Transfer risk to

another entity

  • Premium Rebates
  • Improve Your Risk

Profile

  • Proactive

Brokering

  • Keeping claims

below the claims threshold

  • Health and Safety

Systems

  • Event management
  • Post event

management

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4 Marsh

Captives – Why Become Your Own Insurance Company? Insurance Options

Control

Guaranteed Cost Retrospective Programs Rent-A- Captive Deductible Program Self- Insurance Captive

Cash Flow Reward

For illustrative purposes only.

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5 Marsh

Captives – Why Become Your Own Insurance Company? Growth in Captives

500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

1261 1599 1796 1998 2458 2603 2760 2794 3006 3150 3175 3397 3600 3795 3966 4135 4242 4458 4723 4874 5085 1143 1089

Source: A.M. Best

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6 Marsh

Why Are Captives Created?

  • Philosophically: Why pay for insurance that you hardly ever use?
  • More control over loss control and claims
  • Difficulty in finding insurance
  • Volatile insurance market pricing
  • Your losses determine your costs
  • Greater opportunity to manage the total cost of risk
  • Insurance company accounting and taxation
  • Construction clients will pay for insurance
  • How can I make a profit using a Captive?
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7 Marsh

Benefits of a Captive

  • Your loss experience determines what you pay
  • Premiums are paid to insurance entity you own
  • Share in the underwriting and investment profit
  • Superior loss control and claims services
  • Insulation from cyclical marketplace
  • Potential wealth transfer mechanism
  • High quality membership selection
  • Reduced fixed costs
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8 Marsh

Captives

Captive Types/Benefits

  • Single Parent/Group/Rent-a-Captive

– Single Parent – Loss projections $2.0M or greater – Group Captive – Loss projections $250k - $4.0M

  • Savings/Profit through:

– “Validation” of insurance costs included in bids to Owner – Insurance premiums paid to captive are generally tax

deductible and cover your expected losses insured by the captive

– Captive tax benefits

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Captives

(Continued)

Captive Types/Potential Benefits

– Minimize earnings volatility – captives are priced based

  • n contractor‟s own loss experience/take out the

volatility of insurance market

– Wealth Transfer Vehicle – Builds equity

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www.marsh.com

Improving Your Risk Profile

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Understanding the business context

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Risk Radar

Financial Risk Sources Hazard Risk Sources Operational Risk Sources Strategic Risk Sources

  • Communications
  • Construction/Remodeling
  • Economic Volatility
  • Access Issues
  • Competition
  • Cost of Equity
  • Warranty issues
  • Product

development

  • E-risk
  • Tenant/Resident

Bankruptcy

  • Business

continuity issues

  • Product failure
  • Product quality
  • Contractual issues
  • Employees
  • Neighbourhood Complaints
  • Technology Risks
  • Business Continuity/

Disaster Recovery

  • IT issues
  • Poor management

processes

  • Project management

& forecasting

  • HR/Training
  • Delay in

Start Up

  • Leasing Delays
  • Pensions
  • Liquidity & cash flow
  • Cost of Debt
  • Allocation

Issues

  • Joint Venture
  • Research &

development

  • Failure to Meet

Earnings/Yield

  • Contracts/Risk

Transfer

  • Business

Interruption

  • Errors and

Omissions

  • Raw Material Price

Fluctuations

  • Brand

integrity

  • Adverse

Publicity

  • Cost of Growth/

Expansion Capital Telecommunications

  • Employment Practices

Liabilities

  • Force Majeure
  • Environmental
  • PL to Third Parties
  • Contractual
  • Compliance
  • Board

composition

  • Cost of risk
  • Risk retention capacity
  • Insurance

premium financing

  • Own strikes
  • D&O/General Partners

Liability

  • Design Issues
  • Failure to satisfy

potential investors

  • Fiduciary

Liabilities

  • Geographic

Concentration

  • Inflation
  • Interest Rate

Fluctuations

  • Investment

Strategy

  • Key

Personnel

  • Legal/Regulatory

Compliance

  • Litigation

Management

  • Loss of

Rents

  • Mergers and

Acquisition

  • Owner Liability
  • Ownership Structure
  • Partnership relationship

issues

  • Political

Risk

  • Project

Overrun

  • Seasonality of

Earnings

  • Security
  • Shareholder Value

Growth

  • Succession

strategy

  • Supply Chain Issues
  • Terrorism
  • Third

Party/Vendors exposures

  • Unforeseen Ground

Conditions

  • Weather
  • Wind/Fire etc

Workforce Risks

  • Consortium Allocation
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Proactive Brokering

  • Are they marketing your risk on a regular basis?
  • Are they getting insurer contributions for risk

management work?

  • Do they have the appropriate corporate

leverage?

  • How do they use your claims data?
  • If you have above average safety records do

your insurers know?

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Staying below the optimal loss ratio

  • Do you know what the claims to premium ratio

is for EL / PL in your business?

  • Keeping below the optimum can have a positive

impact on your premiums

  • Watch out for insurer reserves – what should

you be reporting?

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Claims Defensibility

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Introduction

  • Why have a Health & Safety

management system

  • Benefits arising from a good Health &

Safety management system

  • What is a Health & Safety

management system

  • Benchmarks
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A Good Health and Safety System

Le Legal gal Mor Moral al Business Business

Prosecutions Enforcement notices Civil liabilities Look after employees and others Premiums Uninsured losses Reputation Morale Productivity

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Benefits arising from an effective Health & Safety management system

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What is a Health & Safety management system

PLAN

DO CHECK ACT

  • 4. Proactive & Reactive Monitoring
  • Housekeeping checks
  • Monthly Inspections
  • Incident Investigation
  • 5. Management System Review
  • Independent audits
  • H&S review meetings
  • 2. Risk Assessment

1. Management Commitment

  • Company Health & Safety Policy
  • Resource commitment
  • Roles & Responsibilities
  • 3. H&S Risk Control

Programmes

  • H&S training
  • Control of contractors
  • Slips & trips
  • Fire Safety
  • Manual handling
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Claims Defensibility – Most Common Issues

  • The need for more robust accident and incident investigations including the taking of

photographs and statements

  • Training on accident investigations to understand and implement appropriate cause

analysis particularly at line manager/supervisor level

  • Ensuring risk assessments are completed, suitable, sufficient and specific to all of the

risks of the business

  • Incomplete health and safety policies or not updated and communicated to employees
  • Not able to evidence good or safe working practices
  • Providing evidence of routine workplace inspections and housekeeping operations
  • Need to evidence involvement of safety considerations in procurement procedures
  • Improved systems for reporting and acting upon near misses
  • Lack of evidence of firm action for breaches of health and safety (e.g. multiple oral

warnings given to employee who does not wear PPE but no formal record made)

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www.marsh.com