Case Study  – Manufacturer

Client Profile

This manufacturing company with multi-state as well as international operations has been in business for 29 years. Gross revenue hovered around $23,000,000 as of 2005. 70 employees worked in four states with a relaxed work atmosphere. The client had relatively stable relationships with distributors. They had $5,000,000 in inventory and machinery plus owned their buildings. Their loss runs reflected few claims with the majority around liability claims. “It is a fun place to work” was a common refrain heard from employees.

Risk Management Activity

Before this company was our client, we had initial conversations as to their expectations from a brokerage. They had no reason to change a relationship that was 13 years old. As we discussed with them the process we utilize to determine the risk profile of a company and how we can work with them to improve it, they were slightly skeptical. Once they realized the assessment was at no cost to them, they consented to let us work with them to see if there were any issues. As a side note, they had not seen their broker in three years except at renewal when he delivered their new insurance policies.

Assessment

We came back after our initial meeting with the following findings:

  • No long range risk management plan.
  • No safety committee, manual, or plan.
  • Claims management for workers compensation injuries was non-existent with claims escalating.
  • No return to work program.
  • Insurance carrier over-reserving on work comp losses.
  • Inadequate fire suppression system for the exposures at the main facility in Colorado.
  • 410K plan not in compliance with ERISA requirements.
  • No FMLA policy in place though they were subject to the regulations.
  • No sexual harassment training for employees or supervisors occurring.
  • Business interruption coverage existing but only enough to cover 2 weeks.
  • No product recall policy in place.
  • Inventory and equipment underinsured by approximately 50%
  • Loose contract language causing them to assume liability exposures of their vendors.
  • Product labeling creating holes in their affirmative defense in the event of a product claim.
  • Company vehicles being loaned to employees including one with a suspended license.
  • Averaging 12 claims a year for product issues that were not being reported to the carrier but being paid out of a vague miscellaneous line item in the budget.

Current Result 

A risk management action plan was drafted and agreed to between Morton Insurance & Risk Management and the client. The action plan was a 3-5 year commitment to address deficiencies and improve the risk profile of the client thus garnering negotiating leverage with insurance carriers in addition to lowering their total cost of risk. We became their broker of record. The following was implemented as part of the Risk Management Service Plan:

  • Risk management plan established with benchmarks for measuring results.
  • Safety plan instituted including manual, safety task for creation, and regular meetings. Morton Risk Management personnel sit on the committee mentoring the leadership at the main office location.
  • Life safety exit plans updated and posted.
  • Disaster recovery plan in 2nd draft.
  • Product recall policy established.
  • 401K plan brought into ERISA compliance.
  • Sexual harassment training begun for employees and supervisors.
  • Contract language strengthened from a risk management perspective.
  • FMLA policy developed and implemented.
  • Commercial auto fleet safety plan put in place and enforced.
  • Business interruption coverage raised to adequate levels based on the exposures including cost of relocation in the event of displacement.
  • Inventory and equipment insured to value
  • Packaging / labeling modified and other labeling under loss control review.
  • Deductible plan instituted by insured based on loss stratification models which allow for insured to manage with Morton the claims process while protecting the risk to reputation in the marketplace.
  • Proactive work comp claims management system implemented lowering reserves and improving experience modification factor.

Since this process began, revenue has increased from $27,000,000 in 2006 to $58,000,000 in 2009 with 140 employees in four locations. Direct insurance premium costs have risen only 10% though sales have more than doubled. This is a direct result of the negotiating leverage Morton created for the client by implementing a proactive risk management plan. The only costs incurred were an upgrade to the sprinkler system which was also written off as a capital expense. All other items were funded merely by a reallocation of resources to improve their loss control systems.

Quantifying the value of implementing our strategy is not difficult on the insurance side. The increases in productivity and efficiency are harder to measure as it is more qualitative. Conservative estimates show a savings of $425,000 over the past three years.

Case Study – Engineering Firm

Client Profile / Situation

This firm was rapidly expanding and bidding on contracts around the U.S. and internationally. They provide engineering expertise in process facility operation and management, R&D, computational modeling, laboratory testing, engineering design/modifications and field testing for process technologies and related environmental control systems. In addition they are moving away from their traditional business plan of engineering expertise into the actual manufacturing of equipment used in the disposal of hazardous materials. These hazardous materials were to be eliminated as part of multiple governments demilitarizing.

Risk Management Activity

Before they were our client, we reviewed their existing coverage. In so doing, we discovered gaps in coverage for out of state employees due to being misinformed by their broker (a top 5). The employees were in a monopolistic state for workers compensation. This had been going on for 5 years.

In addition, we noted that the insured was soliciting and doing business internationally and their general and professional liability did not contemplate these exposures. There was no coverage for the international work.

The client was also working with a very large multi-national construction firm who employed the services of the 3rd largest brokerage in the world. They were requiring inappropriate language on certificates of liability and were missing obvious language on the certificates that was already in place wasting the time and money of all the parties involved. Incidents were documented for further discussion.

End Result

Immediate premium savings were realized and injuries to out of state employees would now be covered protecting them from potentially thousands of dollars in uncovered work related injuries and employers liability exposures. As well, we negotiated with the insurance carrier return of premium for the prior years that they had been paying premium for employees they thought were covered under the existing workers compensation policy. We worked with them to get them amnesty with the WA state fund for the prior years and in compliance with the WA Department of Labor and Industry.

Also, we secured international coverage carriers for their work outside of the United States. Their professional liability that was in place had no coverage for work internationally.? We negotiated with the carrier to add this coverage at no additional cost.

Subsequently we were able to advise them in negotiating with the contractor they were working with in other countries, specifically Albania, so that the employees traveling abroad would have adequate workers compensation coverage as per the Defense Base Act without having to secure an additional costly policy. This generated an additional $10,000 immediate savings.

Case Study – Staffing Company

Client Profile / Situation 

This prospective client had nearly $2,000,000 in payroll with operations in 12 states. This company was fast growing and had numerous contracts in the private sector but their operations focused heavily on staffing to the Federal government.

Risk Management Activity

A compliance review and coverage audit was done at the request of the client before we were their broker.

End Result

They were found to have no employee handbook which created significant liability exposures from the employment practices side of business. Morton Insurance & Risk Management drafted their handbook and worked hand in hand with their in house counsel to customize the document to their unique business specifications.

In addition, several coverage deficiencies were noted including no coverage for employees while they were driving their vehicles for business purposes, no personal or advertising injury, employment practices liability or professional liability. It was also noted that they did not have coverage in some states they were operating in due to errors made by the existing brokerage. Changes were never made though they were requested and documented in file. Also the broker was forcing the client to secure individual workers compensation policies in EACH state.

Once we were made the broker of record, we addressed the coverage deficiencies and were able to consolidate their workers compensations policies for each state into one convenient policy. It reduced their total costs plus approximately 20 hours of employee time per state per year to get work comp policies set up and serviced annually.