Controlling Insurance Costs O

ne of our nation’s founding

fathers, Benjamin Franklin, famously said, “In this world nothing can be certain except death and taxes.” Te same can be

said of the insurance marketplace. While nothing is certain in this arena, however, a contractor can control their costs by paying attention to a few key concepts. So how is the insurance marketplace

shaping up for 2017? All indicators show it is a good market for purchasing liability insurance. An important factor controlling the economics of insurance is surplus, which includes resources set aside to pay future claims and additional capital held by the carrier. Surplus is now at an all-time high, allowing contractors to compare and negotiate premiums. Work comp insurance costs are

likely to be flat or slightly better than the previous year. However, there are a number of variables that allow a contractor to control costs. During the past 10 years, the average work comp rates per $100 of payroll have dropped from $6.29 to $2.84. Again, these rates are “averages.”

Work comp still remains high for construction, topped only by transpor- tation and utilities.

Cost Drivers in Work Comp A significant cost driver in work

comp that cannot be controlled is the economy. When the economy is doing well there are far fewer claims filed. Te good news: our economy, at least for now, is doing much better as seen by contractors now enjoying contract backlogs and improved profit margins. Geography also plays a role in claims

filed. In Southern California, so-called “cumulative trauma” claims are nearly double what they are in Northern California. Tese claims are problematic since they generally don’t involve a

specific injury and instead are brought on by a series of “micro-traumas” resulting in injuries. Tese cases also always involve litigation, which also drives up the cost. Te other good news is that reforms,

which AGC and others supported in 2012 under SB 863, have reduced the state’s overall work comp costs by $1.3 billion. Tese savings were a result of changes made to medical treatment costs.

Changes Impacting Costs What was supposed to have been an

Assembly Insurance Committee clean-up bill last year to correct an alleged abuse of insureds misclassifying employees as officers and directors to avoid paying work comp premiums has turned into a bit of a debacle. Te new law, AB 2883, which took

effect January 1, 2017, increased the threshold from 5 percent ownership to 15 percent ownership before an employee can be determined to be exempt from coverage. Carriers are required to identify and provide notice to employers that may be affected. No contractor wants to be caught being non-compliant with the mandatory work comp coverage requirement for all “qualified” employees. Another area for close attention is

a change made by the WCIRB in its Experience Modifications (ExMods). Te change was designed to prevent a triggering of a significant increase in rates due to one large claim. However, if not properly managed, a contrac- tor’s “ExMods” could increase and thus increase overall costs.

General Outlook Going into 2017, it is looking as good

as can be expected. California’s work comp rates are still among the highest in the nation; however, they generally do not appear to be getting worse. Last year, the Legislature passed

several meaningful bills in work comp, which likely means we will not see major changes increasing costs this year.

Tom Holsman CEO, AGC of California

Published bi-monthly for members of the Associated General Contractors of California

3095 Beacon Boulevard West Sacramento, CA 95691 (916) 371-2422


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