How Year End Financial Statement Preparation Influences Bonding Programs

Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

As a contractor looking to qualify for a contract surety bond program, your team should be aware that company financial statements will be required by underwriters in most cases. This is largely due to the fact that a company’s financials, their balance sheet and an income statement, represent the primary source of information that a surety will use when building a bond program. And, the way this information is presented goes a long way in determining the amount of credit that a bond company is willing to extend. There are a few different options for presenting year-end financials, with the two most common being internal financials and CPA-reviewed financials.  

Internal statements are prepared either by the contractor in-house, or by a hired bookkeeper, and are often accepted by surety companies for contractors that do not bond frequently and/or only bond smaller projects under one million dollars. The reason for this limitation is internal statements are not viewed as being overly reliable because they have not been prepared by a third party CPA. If a contractor is looking at a bigger job or looking to grow their bond program, then it is worth the investment to have a CPA complete a review for the fiscal year-end financial statement.    

A review from a CPA provides a deeper dive into a contractor’s financial statements and will usually include notes about the financial statements regarding revenue, accounts receivables, accounts payables, and other financial events that occurred over the course of the year. And, while there is a larger cost associated with a review, between $10,000-$15,000, as opposed to providing an internal year end statement, the surety gains a greater understanding of the company’s financials over internal statements. Additionally, they consider a CPA review more reliable and trustworthy, thereby willing to offer increased bonding capacity to qualified contractors.  

Providing CPA-reviewed financials adds additional overhead to a company’s budget, but it can be vital to ensuring the maximum bonding capacity is provided when it’s need it most. Furthermore, to emphasize the point, it is important that contractors select a competent, proactive bonding agent and construction CPA in order to map out a successful strategy for year-end financial preparation. The right partnership can help your firm build the highest possible level of bond credit as you build toward the future. 

Finding an experienced CPA with a construction financials background can be a challenge. I can help recommend someone who can assist your company.

To answer more questions from this article or discuss if it may be time to make the jump to a CPA review, please email me at aroberts@ranchomesa.com or call my direct line at (619) 937-0166.

SB 606 Broadens Cal/OSHA’s Enforcement Reach

Author, Sam Brown, Vice President, Human Services Group, Rancho Mesa Insurance Services, Inc.

California Governor Gavin Newsom recently signed into law Senate Bill 606 (SB 606), greatly expanding Cal/OSHA’s enforcement powers and monetary penalty amounts. The new law will take effect January 1, 2022, so California employers have only a few months to tighten their safety practices or face steep monetary fines.

The new law could be especially damaging to employers with multiple worksites. SB 606 creates a rebuttable presumption that an employer with multiple worksites has committed an “enterprise-wide” violation, if Cal/OSHA determines either of the following is true:

• The employer has a non-compliant written policy or procedure.

• Cal/OSHA "has evidence of a pattern or practice of the same violation or violations committed by that employer involving more than one of the employer's worksites."

This change creates the possibility that a California employer adhering to a written program applicable to all locations can be cited for each California worksite.

Cal/OSHA will also have the authority to seek a temporary restraining order and an injunction against any employer suspected to have committed an enterprise-wide violation.

The far-reaching second part of the law states that if Cal/OSHA determines an employer has “willfully and egregiously” committed a violation, the employer may receive a citation “for each egregious violation” and “each instance of any employee exposed to that violation shall be considered a separate violation for purposes of the issuance of fines and penalties.”

The law details seven bases for “egregious” conduct. Proof of only one will be sufficient to justify a citation.

California employers must prioritize a full review of safety policies, procedures, and practices to reduce the likelihood of an “enterprise-wide” or “egregious” conduct violation. Cal/OSHA’s Consultation Branch offers free on-site visits to proactively address any potential violations.

 For helpful safety resources and compliance information, please contact me at (619) 937-0175 or sbrown@ranchomesa.com.

How Improving Equity Impacts Your Bond Program

Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

In our current series of articles, we are taking a deeper look into the properties of a balance sheet that will affect a contractor’s bonding capacity. We have previously discussed bonding capacity and summarized working capital in regards to the impact it can have on a contractor’s capacity. However, another very important component on the balance sheet that surety underwriters will consider is net worth, also referred to as equity.

Equity is calculated by subtracting a company’s total liabilities from their total assets on the balance sheet, and is a measurement that is used to determine their long term liquidity. From a bonding standpoint, surety underwriters love to see equity increase year after year. They analyze each item in the equity section of the balance sheet such as common stock, additional paid in capital, and shareholders’ loans. One item that carries a particularly large amount of weight is retained earnings.

Retained earnings represents the net income or profit that a company reinvests in its business after distributions are paid to the shareholders. This is important because as a general guideline we say a contractor can qualify for an aggregate bonding capacity that is ten times their company’s equity. Thus, their retained earnings heavily influence the overall equity of the company. Contractors looking to maintain a strong bond program, or increase their bond program, will want to retain as much profit in the company as they can. This allows their retained earnings and their equity to continue to grow through the years, making it even more important to have a knowledgeable and proactive bonding agent on your side. This should be someone who understands your business and overall goals, can analyze your balance sheet, and will discuss strategies with you to reach optimal capacity.

For many contractors, building a strong bonding capacity can create opportunities for significant revenue growth. Perhaps one of the more critical elements to note as you review your balance sheet is being educated on the importance of having strong retained earnings inside your financials. You can start this process and leapfrog your competitors when you request a quick capacity analysis from our surety team. They’ll provide you with a detailed evaluation.

To answer more questions about your bonding program, contact me at aroberts@ranchomesa.com or call my direct line at (619) 937-0166 and we can get started.

How Increased Material Costs Leave Contractors Underinsured

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Over the last 15 months, COVID-19 has brought numerous challenges to the construction industry. Second to only the labor shortage, the most pressing challenge faced by contractors is the spike in material costs which can leave them underinsured if a proper installation floater is not updated.

Lumber, steel, copper, and other building material costs rose anywhere from 100% to 500% between April 2020 and May 2021, depending on the material. Since most projects are bid 6 to 18 months prior to the start of construction, many suppliers and subcontractors were caught off guard and did not reflect these increases in their initial bids.  

Most contractors will purchase an inland marine policy that provides coverage for their miscellaneous tools, scheduled equipment, rented or leased equipment as well as an installation floater. It is important for contractors to understand the installation floater and how the increase in material costs could leave a contractor underinsured in the event of a loss.

An installation floater policy provides protection for direct physical loss or damage to materials, as well as supplies and labor costs for property being installed at jobsites. Materials are also covered while in transit and stored at temporary locations. The floater also extends coverage to the property until the installation work is accepted by the purchaser or when the insured's interest in the installed property ceases.

So, in the event of a covered loss, which includes fire, theft, explosions, transit-related damage and vandalism, a contractor’s installation floater will respond with coverage.

Proactive contractors should rely on their insurance advisor to discuss and design a program that addresses these unforeseen material and labor increases. In advance, consider the amount of product stored at any jobsite at one time, the amount of product that can be at risk in transit, the value of product stored offsite (i.e., storage units) and the protections in place that secure your product.

To discuss how an installation floater can protect your company, contact me at (619) 937-0167 or sclayton@ranchomesa.com.

ANSI Releases New Mobile Elevating Work Platforms Standards

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

Last year, the American National Standards Institute (ANSI) updated their aerial lift standard, starting with renaming it Mobile Elevating Work Platforms (MEWP). This has been in the works since 2018 and is designed to align training, certifications, and equipment used on a more universal standard. According to the Center for Construction Research and Training (CPWR), roughly 26 people die from MEWP each year. This prompted the Occupational Safety and Health Administration (OSHA) to increase training requirements to keep accidents to a minimum. Obviously, MEWP are essential for completing a wide variety of construction jobs. So, what should you, as a business owner, be doing to ensure your employees are safe and in compliance when OSHA comes by your jobsites?

MEWP are prone to tipping over on uneven ground and in inclement weather conditions, if equipment is extended out. The most common cause of the MEWP tipping over is driving it over uneven surfaces. Understandably, many contractors rush to complete projects but moving extended lifts can be the easiest way to have a serious accident. Alternatively, taking proper time to lower a lift before moving it leads to fewer serious accidents.

Identifying exposures and objects that conflict with a lift’s surroundings is also of great concern for lift operators. A very common occurrence involves employees being pinned between the lift and an object. It is easy to become fixated on either the ground or the direction the lift is moving and ”miss” objects that could be hazardous as you are raising and lowering the lift. Allowing for time to plan ahead and move the machinery safely is immensely important.

Many of these new requirements are focused on teaching proper equipment use and creating an awareness of the changes to new equipment in the marketplace. Inherently, these machines are dangerous but necessary. So, maintaining a respect for them and understanding how to properly use them is vital. Lift use trainings, techniques, and protocol are available through our Risk Management Center and are compliant with the new ANSI/SAIA A92.20, A92.22, and A92.24 standards that were just released, last year.

Please reach out to me at ccraig@ranchomesa.com or call at 619-937-0164 for more information, or for help assigning the trainings.

Cyber Attacks Threaten One-in-Six Firms’ Survival

Author, Sam Brown, Vice President of the Human Services Group, Rancho Mesa Insurance Services, Inc.

The dramatic increase in cyber-attacks since 2020 has resulted in employer pain and made headlines as the economic cost skyrockets. The recent Hiscox Cyber Readiness Report 2021 states that the number of firms attacked rose from 38% to 43%. Not surprisingly, more than 28% of those employers suffered multiple cyber-attacks.

Determining the cost of a breach can be difficult, but the report states that one-in-six firms’ survival was threatened. Over 58% of firms hit with a ransom paid the threat-actors to regain access to the computer system and vital information. In 2020, the standalone cyber loss ratio increased to 73%, its highest level since separate cyber data were included in financial reporting, six years ago.

The increase in cyber-attacks and claim payouts is causing alarm in both insurance companies and businesses. According to the Insurance Journal, insurance companies are quoting significant premium rate increases and tighter coverage terms to improve underwriting performance and profitability. The average cyber renewal premium rate increased 11%. Meanwhile, written premiums for standalone cyber coverage increased 29% in 2020, a sign of growing demand.

The shift to a remote workforce and an increase in phishing email has tested network security systems. Fortunately, many insurance carriers now offer a cyber readiness assessment to help policyholders address vulnerabilities and avoid cyber-attacks.

As cyber-attacks continue, it is important for all employers to learn more about the specific exposures that cyber insurance coverage can cover along with ways to improve cyber security.

We will be offering a Cyber Liability workshop in the coming weeks, so be sure to look for that information on our workshops and webinars webpage.

Please contact me at (619) 937-0175 or sbrown@ranchomesa.com to discuss our process of developing competitive quote options.

SB 93 Impacts Janitorial Companies’ Hiring Practices

Author, Jeremy Hoolihan, Account Executive, Rancho Mesa Insurance Services, Inc.

As businesses continue moving towards fully reopening, certain California employers will be faced with reemployment or recall requirements, due to Senate Bill 93 (SB 93). SB 93 was signed into law by Governor Gavin Newsom on April 16, 2021. The law requires that covered employers offer their employees who were laid-off due to the COVID-19 pandemic, available employment based on a preference system. 

While several industries are impacted by this new legislation, employers that provide “building services” such as janitorial, building maintenance, or security services to office, retail, or other commercial buildings also fall under the requirements of the new law.

As an expert insuring janitorial companies through our exclusive MaintenanceOne™ program, this impacts many of our clients. To understand some of the additional components of the new law, we have summarized some key points below:

Qualifying Employees

Employees that qualify for SB 93 protection must have:

• Been employed by a covered employer for “6 months or more in the 12 months preceding January 1, 2020.

• Been “separated from active service…due to a reason related to the COVID-19 pandemic, including a public health directive, government shutdown order, lack of business, a reduction in force, or other economic, non-disciplinary reason related to the COVID-19 pandemic.”

• Worked two hours or more per week for the employer.

Requirements of the Employer

• Covered employers must offer laid-off employees all job positions that become available for which the employee qualifies. Laid-off employees will be deemed qualified if the employee held the same position at the time of the lay-off.

• The laid-off employee must be given five business days to respond to the offer.

• In the event that more than one employee would be eligible for a position, the employer must offer the position to the employee with the longest tenure based on the date of hire.

• An employer that declines to recall a laid-off employee on the grounds of lack of qualifications must provide the laid-off employee written notice within 30 days.

Record-Keeping

Covered employers must maintain the following records for at least three years starting from the date of layoff:

• Employee’s full legal name

• Employee’s job classification at time of layoff

• Employee’s date of hire

• Employee’s last known home address

• Employee’s last known email

• Employee’s last known telephone number

Records must also include any layoff notices and “all records of communications between the employer and the employee.”

Enforcement and Penalties

SB 93 compliance and enforcement is handled by the California Division of Labor Standards Enforcement (DLSE). The DLSE may order reinstatement, front and back pay, and benefits, as well as impose substantial penalties and liquidated damages. SB 93 takes effect immediately and expires on December 31, 2024.

The law also has a collective bargaining agreement waiver provision – any such waiver must be explicitly set forth in that agreement in clear and unambiguous terms.

No Retaliation

SB 93 prohibits employers from retaliating or taking adverse action against employees seeking to enforce their rights.

What’s Next?

Covered employers should take stock of their current situations and evaluate their options for compliance.  Employers should also take extreme caution when making their employment decisions. It is an especially difficult time for both employers and employees. Employers are expected to follow the law closely and employees are desperate to find employment. If not careful, this could lead to disagreements and potential employment related lawsuits.

If you are a janitorial business trying to navigate through these turbulent times, consider our  MaintenanceOne™ program which provides a full service Risk Management Program that can not only assist your business with its insurance needs such as Employment Practices Liability Insurance, but also assist with HR and compliance that can guide you through this process. 

Please contact me at (619) 937-0714 or jhoolihan@ranchomesa.com for more information on MaintenanceOne™.

Experience Mod KPI Provides Trend Analysis, Opportunity Assessment, and Vital Management Tools

Author, Drew Garcia, Vice President, Landscape Group, Rancho Mesa Insurance Services, Inc.

In January 2021, we launched the Safety Key Performance Indicator (KPI) Dashboard to provide a tool for our customers to use as a bridge between their experience mod and safety performance.

Our primary goals were to:

• Eliminate surprises

• Simplify concepts

• Track performance

• Highlight the positive and negative trends

• Benchmark safety performance against industry competitors

An experience mod above 100 can limit a landscape company’s ability to be awarded jobs or maintain contracts, increase insurance premiums, and have other significant financial implications.

Our dashboard is a tool companies can use to strategically manage the underlying components that directly impact the experience mod and help project future experience mod deviations.  Rancho Mesa can help interpret the results and provide insights to help improve your performance.

Not a Rancho Mesa client but interested in seeing what your dashboard looks like? Complete our new KPI Dashboard quick form, to see how your company measures up.

A Contractor’s Guide to Bonding Capacity

Author, Andy Roberts, Account Executive, Surety Group, Rancho Mesa Insurance Services, Inc.

For contractors that do a lot of bonded work, their bonding capacity is a critical element of their business. Capacity often determines which projects a company can and cannot pursue, so it is managed very closely. However, for contractors that are new to bonding or have not bonded previously but remain interested in performing bonded work, this is likely a foreign concept to them. So, what is bonding capacity, and what items determine the amount of capacity that a surety carrier is willing to offer?

Generally speaking, a contractor’s bonding capacity is comprised of single and aggregate limits, where the surety underwriter will approve performance and payment bonds for a job, up to the single limit. The aggregate limit is the cap that the surety carrier sets for how much total bond liability a contractor can have extended at one time. Having these caps is what makes it important for contractors to have an understanding of what information sureties use when determining how much capacity to offer. Underwriters will look at personal and business credit, industry experience, as well as personal financial wealth. Typically, though the most important item a surety underwriter will focus on is the company’s financials, specifically, their balance sheet and income statement. 

When reviewing the balance sheet and income statement, two important items that an underwriter will be reviewing are the contractor’s working capital and their equity. We took a deeper dive into working capital in a previous article, but simply put, working capital represents a contractor’s current assets minus current liabilities, and this measures how much a company has available to pay its current debts. Equity, or net worth on the balance sheet, is made up of retained earnings, common stock and additional paid in capital, and these numbers provide a measure of the long term liquidity of a company. Surety carriers take a hard look at this number because they want to ensure that there are sufficient reserves to complete the work that they have issued performance and payment bonds on.    

Building an effective bonding program can take time and requires collaboration with competent, trusted advisors. Determining what type of bonding capacity you can establish and/or deserve is a key part of the process. To find out what your bonding capacity looks like, request a quick capacity analysis and I will provide you with the information you need for your company. To answer more questions, you can email be at aroberts@ranchomesa.com or call my direct line at (619) 937-0166. Stay tuned for my next article which will take a deeper dive into strategies for improving equity and how this can increase capacity.

Implementing an Effective Fall Safety Program Can Have Serious Impacts

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

Year after year, falls are among the leading type of workers’ compensation claims and generate the highest claim costs. They account for multiple infractions on the top 10 most frequently cited standards, according to the Occupational Safety and Health Administration. How can you, as a business owner, control your exposure and keep your employees productive and healthy?

Prevention

According to the Centers for Disease Control, “27% of the 900,380 nonfatal work injuries resulting in days away from work in 2018 were related to slips, trips, and falls.” That’s a shockingly large number especially when 100% of falls are preventable if you take the time to plan, according to the National Safety Council (NSC). The NSC recommends:

• Walking a job before employees get there to ensure proper set up is achievable with the equipment you are bringing for that job.

• Pay attention to environmental conditions such as wind, rain, or excessive heat.

• Check your equipment frequently to ensure nothing is worn down or damaged.

• Make sure employees are wearing the proper foot wear and other Personal Protective Equipment (PPE) items required for the individual job needs.

Having employees working on ladders or scaffolding is essential for some jobs, and fortunately is a risk you can control. In addition to evaluating the work site, the equipment, the environmental factors, and PPE needed, you should also evaluate the health and fitness of all employees. Factors to consider should include the employee’s:

• Experience

• Fitness level

• Age

Height Matters

A fatal fall can happen at almost any height. According to the NSC, only 16% of fatal falls in 2016 occurred as a result of a fall from over 30 feet; however, 53% of fatal falls that year resulted from below 20 feet. Given this data, best practices would dictate that construction companies should step back and reevaluate the safety procedures they have in place and determine if any changes need to be made, particularly for jobs that are considered the lower heights.

RM365 Advantage Safety Star™ Program

To get your employees properly trained, we recommend enrolling in our RM365 Advantage Safety Star™ program that includes Fall Prevention training. This program includes fundamental safety topics that allows your foreman or key management team to go through internet-based safety trainings and earn their Safety Star certification. This program has shown to improve safety while helping to reduce your workers’ compensation premiums. Register to start your RM365 Advantage Safety Star™ program, today.

Rancho Mesa understands the exposure our clients face on a daily basis and can help implement safety procedures to mitigate these risks. Underestimating a project’s risk or undertraining employees is an exposure you can address.

If you would like help in reviewing your safety protocols and procedures or if you have further questions, do not hesitate to reach out to me at (619) 438-6900 or email me at ccraig@ranchomesa.com.

The Construction Risk Management Guide

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

As a business or firm, you are most likely aware of many risks that come with construction projects. Whether it is meeting the terms of a contract, maintaining employee safety on the job site, or dealing with natural disasters, every project has its own set of hazards. If not managed, these risks can compromise your projects and prove fatal to your bottom line. Thus, construction risk management is a must-have for any company, but an effective plan must have easy-to-follow, yet detailed processes to help you control the risks, make decisions on how to deal with them, and turn them around to uplift your company. With the presence of rising material costs, more complex projects and increased safety concerns, having a risk management plan is more crucial than ever.

What is Construction Risk Management?

Risk management is the process of determining the risks present in your business and evaluating the procedures to minimize their impact. In the construction world, the process involves planning, monitoring and controlling instances of risk. At the center of this process is your risk management plan, a formal document that details the risks and your processes for addressing them.

Sources of construction risks may include:

• Safety Risk - any risks or hazards that can lead to worker accidents at a construction site;

• Financial Risk - internal and external factors like sales, problems with the economy, unexpected cost increases and competition from other firms;

• Legal Risk - disputes in the fulfillment of contracts with clients;

• Project Risk - hazards such as poor management of resources, miscalculation of time, lack of proper policies, etc.; and

• Environmental Risk - natural phenomena that damage construction sites like floods and earthquakes.

How to Manage Risks

Before you can manage risk, companies must develop a risk management plan. This process can be broken down into six steps.

1. Identify the Risks
   Risk identification should take place during the preconstruction phase of a project to allow ample time to manage any potential risks before accepting them. One effective way is to hold brainstorming sessions with your project team with an emphasis on identifying all the possible scenarios that could impact the project at hand. Once the brainstorm is complete, hold regular meetings to continually identify new risks that develop.

2. Prioritize Risks in Order of Importance
   High-probability risks should be handled first while low-impact, low probability risks should be addressed last. As an example, an unexpected price increase in the materials for your project can severely hurt your profit margins and might be considered a high priority.

3. Determine your Response Strategy
   Once you have evaluated the priority of risks, your team must decide a response strategy for each hazard. You can avoid the risk altogether, mitigate the risk, transfer the risk if possible via insurance and/or performance bonds, or accept the risk.

4. Execute the Plan
   Much like a sports team on game day, your company now has to execute the plan after you have developed your strategy. Your plan must detail crucial information for each team member and provide specific solutions to mitigate, transfer, or accept risks.

5. Involve Members of the Team
   Great plans are developed with multiple opinions, involving contribution from all team members typically including the ownership group, the financial officers, and the field team. Members are managing cash flows, schedules, inspections, project logs, contracts and regulatory documents.

6. Create Contingencies and Revise
   Strong risk management programs have contingency plans. That is, alternative methods for finishing a project despite accepting the risk. Consistent monitoring and revisions to your plan will help increase resilience against any possible risk and ensure that your “document” evolves and changes over time.

Benefits of Risk Management in Construction

Along with the actual building process, risk management should be seen as one of the most critical steps of a construction project. Identifying, assessing, controlling and monitoring risks strengthen awareness and teamwork among those key members of your organization. Working in step with your insurance broker for resources, templates, and feedback can be key to integrating your plan with the company’s safety initiatives. Request a sample Accident Prevention Template to start your Construction Risk Management plan. And, in turn, communicating an effective and tested plan to the insurance marketplace can position you and your broker to leverage the most competitive terms and pricing within your renewal cycle.

For more information or questions related to this article, please contact me at 619-937-0172 or via email dfrazee@ranchomesa.com.

Download Accident Prevention Template

How to Choose a Workers’ Compensation Carrier Partner

Author, Dave Garcia, President, Rancho Mesa Insurance Services, Inc.

Many years ago, when I was a young producer, one workers’ compensation carrier legend pulled me aside and told me never to forget that a workers’ compensation decision is not a one-year decision, but at least a 4-year decision. Of course, policies are only written on a one-year basis but what he was teaching me was that the carrier you choose will handle all the claims you have through your Experience Modification cycle. So, evaluating and recommending a workers’ compensation partner for my clients just became a much more thorough analysis of many critical factors beyond just the premium.

I understand and want to acknowledge that competitive pricing is very important, yet other than price, most business owners are not sure what to look for when comparing carriers. All businesses should consider the following in their evaluation of a workers’ compensation carrier:

• What is the A.M. Best rating of the carrier?

• How long have they been in the State workers’ compensation marketplace?

• What is their premium volume within the State?

• What “in-house” services does the carrier provide? Two services for special consideration are:

  • The Claims Department

  • Loss Control Service

• How does their medical cost containment numbers compare to the industry averages?

• How does their claim closing rates compare to the industry average?

• Are the following services available?

  • Telemedicine

  • Nurse Triage

For any businesses that pay above $250,000 in annual premium, should consider these additional questions:

• Does the carrier offer a dedicated indemnity claims examiner for your business?

• Does the carrier offer Claim Review Meetings?

• Does the carrier offer a Client Services coordinator?

• Does the carrier offer on-line claim status information?

• What loss sensitive programs do they offer?

Further, for any businesses that are exploring loss sensitive programs (usually above $400,000 in annual premium) like deductible workers’ compensation, they should evaluate the following:

• What are the terms of the letter of credit required?

• Is there a Loss Conversion Factor (LCF)?

• Is a Loss Fund required?

• How are Allocated Loss Adjustment Expenses (ALAE) handled?

• Is there a policy deductible aggregate?

• Are there any claims handling charges?

• Are there Medical Cost Containment charges?

Since many of the concepts and terms above require a deeper understanding and explanation, listen to my podcast episodes where I examine this topic in greater detail.

Also, consider attending one or both of my live webinars that cover this topic and afford you the opportunity to ask questions. Register for our Thursday April 1, 2021 webinar where I will focus on businesses with annual premiums below $400,000, and/or register for my Thursday April 8, 2021, webinar where I will deal specifically with deductible workers’ compensation. Both webinars will be 30 minutes in length.

If you would prefer to speak with me directly, I can be reached at (619) 937-0170 or email me at dgarcia@ranchomesa.com. 

I wish you all a safe and profitable 2021.

How Rising Pure Premium Rates Will Impact the Tree Care Industry

Author, Rory Anderson, Account Executive, Rancho Mesa Insurance Services, Inc.

In California, each workers’ compensation insurance company has its own set of base rates for each class of business. In order to come up with their base rate for each class code, the insurance carrier applies their Loss Cost Multiplier (LCM) to the Workers’ Compensation Insurance Rating Bureau’s (WCIRB) pure premium rates.

Pure premium rates are determined by the WCIRB and include the loss cost of claims for that particular class of business. Those costs include:

• The cost of the claim itself (i.e., indemnity, medical and expense payments)

• Loss adjustment expenses  

• Future loss adjustment expenses (e.g., fees for expert witnesses and salary/overhead for outside legal counsel)

A pure premium rate reflects the amount of losses that an insurance carrier can expect to pay out in claims for that class of business. Every 6 months, the WCIRB submits pure premium rates to the California Department of Insurance for approval. These pure premium rates are based on loss and payroll data submitted to the WCIRB by all the insurance companies in California.

A carrier’s LCM will include those additional expenses separate of the pure premium rate considerations. These would include a carrier’s:

• General overhead expenses (e.g., rent, payroll, employee benefits, etc.)

• Sales and Marketing

• Taxes, licenses and fees

• Profit

The 2021 pure premium rate in the tree care industry (class code 0106) has increased to $10.50 per $100 in payroll, which is roughly a 3.5% increase from last year’s $10.15. This means that the overall workers’ compensation claim activity in the tree care industry is up about 3.5%, and the WCIRB is recommending that workers’ compensation insurance carriers increase their base rates to address this change.

As a tree care professional, what can your company do to prepare for this change and mitigate the impact to your business? Reviewing your claims experience, benchmarking your company with the tree care industry, looking for root causes of the claims, and then implementing best practices safety trainings will go a long way in providing you a path to insulate you from future changes like these.

As part of our proprietary TreeOne™ program, we have created a Key Performance Indicator (KPI) dashboard for the tree care industry that puts this information at your fingertips. To see how you compare with your peers, request the KPI Dashboard for your company.

For more information on rising pure premium rates, contact me at (619) 486-6437 or randerson@ranchomesa.com.

Bondability Letters – Surety Prequalification for Owners and General Contractors

Author, Matt Gaynor, Director of Surety, Rancho Mesa Insurance Services, Inc.

In the normal process of bidding a construction project, our contractor clients are required to post a 10% bid bond to guarantee that they will execute and deliver a signed contract along with 100% performance and payment bonds, if they are awarded the referenced project. While this is a requirement for public projects, bid bonds have also become more prevalent for certain private projects. By approving the required bid bond, the surety company provides their stamp of approval that they have reviewed the bidding documents and are willing to support the contractor for the specific project.

On certain occasions, the owners and general contractors will require a less formal surety prequalification in the form of a letter of bondability. Although the owner/general contractor requesting the letter does not have the 10% guarantee provided by a bid bond, the letter of bondability can be issued rather quickly to let the owner know that a bond program is in place for the bidding contractor. If this contractor is deemed to be the low and responsible bidder by the general contractor, they know in advance that the contractor has been through a third-party prequalification by the surety company.

This document is normally issued by the bonding agent and contains the following:

• Name of the current surety carrier, A.M. Best Rating, treasury listing, and length of relationship.

• Approved single and aggregate program bonding amounts.

The other key wording contained in a typical bondability letter that differs from a bid bond is as follows:

“The issuance of surety credit is a matter between the principal (contractor) and surety… We assume no liability to you or any other third party if for any reason we do not execute said bonds.”

This wording is important because unlike a bid bond, the surety company does not have an obligation to provide final bonds if their principal is awarded a contract. While this rarely happens, the bond company will need to review additional information (i.e., contractual or financial) before they agree to provide performance and payment bonds in support of a project. For example, the contract or bond form may contain onerous wording that the surety company is not willing to support.

For more information on letters of bondability and how they affect your business, please contact me at 619-937-0165 or mgaynor@ranchomesa.com.

Builder’s Risk Reporter Form Policy: The Ultimate Time Saver

Author, Kevin Howard, Account Executive, Rancho Mesa Insurance Services, Inc.

Builder’s risk policies protect construction materials while they are being stored on a jobsite or have been installed during the course of a project, prior to the completion of the work. These policies are often required by the project owners or developers and provide protection from day one up until the last speck of paint is dry when the project is completed. They are considered the glue of a general contractor’s insurance program because they can provide critical protection if there is an insurance loss that otherwise could derail an entire project.

There are two methods of purchasing builder’s risk policies.

Purchasing Individual Builder’s Risk Policies

Imagine, as a general contractor, you are eager to bid a project. You identify the need for a builder’s risk policy while reading through the prequalification documents. You then need to take steps in order to secure this policy or to make sure that the proper pricing is included in your bid. Even with a faster than average timeline, the process can take days for the actual policy to be underwritten, quoted, communicated, agreed upon, bound and then certificates issued. Add the variable of needing several policies per year and/or bidding Job Order Contracts (JOC) through local municipalities, and the workload involved can be significant.

The process of interacting with your insurance broker in order to secure a builder’s risk policy that satisfies the needs of each project, and also the vendors that require the policy, can be time consuming and involves multiple steps.  

Builder’s Risk Reporter Form Policy

Another approach, often overlooked, would be to secure a “builders risk reporter form” policy that offers:

• Annual blanket basis

• A “pay as reported” basis

The annual blanket basis would provide coverage for any size of project you would perform, annually, and that can be written on a blanket basis for projects that have not even been open for bid. A lot of time can be saved for companies accustomed to procuring one builder’s risk policy at a time.

A “pay as reported” basis builder’s risk reporter form allows policies to be purchased as they are reported to the carrier, which is ideal for any entity who needs multiple policies or that have multiple projects going on at once. Reporter forms can be set up on monthly, quarterly or on an annual reporting basis.

Items Needed to Generate a Builder’s Risk Reporting Policy Proposal

In order setup a Builder’s Risk Reporter form, you will need the following:

• A list of past projects with project name, size, type and length included (i.e. the last 10 projects is the minimum, but more info can create a more favorable response from underwriting),

• An executed and signed supplemental application, and

• A favorable loss history.

A builder’s risk reporter form can save a ton of time and energy. And as we know, time is the only resource we cannot gain back.

If you have questions about setting up a builder’s risk policy, contact me at (619) 438-6874 khoward@ranchomesa.com.

A Hardening Employment Practices Marketplace Likely to Impact Many Businesses

Author, Jeremy Hoolihan, Account Executive, Rancho Mesa Insurance Services, Inc.

The Employment Practices Liability Insurance (EPLI) marketplace has faced a number of factors that are contributing to skyrocketing premiums and deductibles. Many insurance companies are facing the choice of whether to remain in the marketplace or exit altogether. Those willing to remain are then faced with having to consider the following changes:

• Increase their premiums to offset increased claim activity

• Increase their deductibles

• Consider adding exclusions of previously covered exposures

• Consider only renewing existing clients’ policies

• Pulling out of certain business segments such as retail, hospitality, leisure, and transportation which is currently being impacted the most from COVID-19.

Below are some of the main factors causing the hardening EPLI marketplace. As you will see, they vary significantly but combined they have created a perfect storm.

COVID-19

These are unprecedented times with businesses being forced to shut down for months due to COVID-19, employees having to work remotely and our economy seemingly coming to a standstill. Couple this with a significant increase in layoffs, severance packages, furloughs, and unemployment, and we have seen a significant increase in claims filed. By January 2021, the plaintiff’s bar had filed over 1,200 COVID-19 related employment lawsuits. These types of lawsuits have continued to grow each month since the pandemic began.

We have also seen the unemployment rate spike from 3.5% in March of 2020 to 14.7% in April 2020. Currently the unemployment rate has settled to about 8% but this still represents a double digit increase from2019.

EPLI claims often follow large changes in workforce, including reductions, promotions and demotions. Three areas of particular growing concern include:

• Sexual Harassment

• Privacy

• Retaliation

Sexual Harassment

The heightened awareness and increased public intolerance for harassment developed in part from the #MeToo movement has given a voice to people that are now not only speaking out but filing lawsuits against their employer for sexual harassment. This national attention has also altered the legal environment surrounding these types of claims, often leading to much higher settlements outcomes..  Industry wide, the total monetary benefits awarded to sexual harassment victims has increased 68% from 2016 to 2019 according to the U.S. Equal Employment Opportunity Commission.

Privacy

In addition to discrimination and sexual harassment claims, insurance carriers also anticipate privacy-related claims. As businesses begin to reopen, there are new policies and procedures in place that require a Human Resources department to question employees about their personal health, their health history, and their family’s health history. The nationwide Health Insurance Portability and Accountability Act (HIPAA) and other state-specific laws like the Illinois Biometric Information Privacy Act (BIPA) regulates how companies collect, store, use, and share biometric information. With temperature-taking requirements and a certification form filled out, there is a concern that some employees may feel their privacy has been invaded. 

Retaliation

There is also a growing concern that there will be more retaliation type claims relating to an employee’s use of social media. With COVID-19 in mind, employees are already expressing their concerns via social media about their employers’ lack of safety measures or personal protective equipment (PPE). It’s reasonable to consider that if these employees are terminated that they may feel they were retaliated against because of their posts.

Retaliation could also be a result of employees exercising their rights under Family Medical Leave Act (FMLA) or other benefits such as workers compensation or paid sick leave.

US Supreme Court LGBTQ Decision

The Supreme Court ruled in June 2020 that Title VII of the 1964 Civil Rights Act protects employees from discrimination based on sexual orientation and gender identification. 

Previously only 28 States awarded such protections. Now that these protections are law in all 50 states, we will likely see additional claims alleging employment discrimination based on gender identity and sexual orientation.

In conclusion, running a business remains a challenge under normal circumstances. Add in the many side effects of the pandemic and it can feel overwhelming. EPLI-related claims can result in catastrophic financial impacts to a company’s balance sheet. The cost of defending your business alone can potentially put a company out of business. While EPLI premiums continue to rise, so does your exposure to a myriad of claims that fall under this coverage umbrella. Having EPLI in place can mean the difference between absorbing fair and reasonable claim costs or forcing an uninsured business to close their doors. To learn more about EPLI coverage and ways to construct a policy that meets your needs, please reach out to me at 619-937-0174 or jhoolihan@ranchomesa.com.   

Profitable Bids Should Include Often Overlooked Insurance Costs

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

We will take a look at factors that go into your bid and ways to ensure you are hitting your target profit margin.

There are many factors that go into creating a profitable bid on a construction project. They include:

• The scope of the work

• The location of the project

• Material costs

• Labor costs

For most construction companies, their estimators are well versed in all of the areas mentioned earlier and yet despite their best efforts, an unforeseen circumstance may occur and drive up the cost of a project, resulting in reduced profitability or a loss on the project.

One area that is often overlooked, but controllable, is the impact insurance has on the profitability of the project. The question to ask is how prepared are you and your staff to address the following questions:

Do you have the required insurance, coverages, limits, and terms in place to meet the contractual requirements of the project? If not, what will be the cost to add those requirements?

Will the project overlap your insurance renewal? If so, what changes in your Experience Modification Rate (EMR) can you anticipate and what will be the dollar impact?

What changes in your General Liability and Excess Insurance rates can you expect? 

Working with your insurance advisor on the above is a necessary step is helping to create a better opportunity for profitable jobs. At Rancho Mesa, we follow strict Best Practices and have prescheduled meetings with our insureds throughout the policy term, but additionally conduct a focused pre-renewal meeting 120 days prior to policy expiration.

Those meetings allow us to:

• Keep our clients aware of changes in the insurance marketplace that may impact their business.

• Project their EMR for the coming year and discuss how this might influence your bidding process.

• Review industry workers’ compensation trends in both Pure Premium Rates and Expected Loss Rates and their impact on workers compensation costs.

So, work with your insurance advisor and uncover those overlooked insurance costs to minimize risk and maximize profitability. To understand these factors in more detail or to look at our new KPI Dashboard that puts this information at your fingertips you can reach me at 619-486-6900 or ccraig@ranchomesa.com.

Can Employers Mandate a COVID-19 Vaccination Policy?

Author, Sam Brown, Vice President of the Human Services Group, Rancho Mesa Insurance Services, Inc.

As COVID-19 vaccinations become more available and the positive results of our efforts are realized, employers may ask how this impacts the workforce and a full-scale return to the workplace. More specifically, they may ask if an employer can mandate a COVID-19 vaccination policy.

The laws are complex, so please do not rely on this article as legal advice. Please consult your labor law attorney before deciding how to proceed.

The short answer is yes, employers can mandate a COVID-19 vaccination for employees, when it makes sense. 

The 1905 court case Jacobson v. Massachusetts forms the U.S. Equal Employment Opportunity Commission’s (EEOC) basis for guidance. Following a deadly smallpox outbreak in New England in 1901, the Supreme Court ruled that the government may impose “reasonable regulations” to protect the “safety of the general public.” The EEOC makes clear that employers may implement similar demands.

According to the EEOC, an employer can implement a mandatory vaccination policy if there is a job-related need for it or if non-vaccination threatens the health of other employees, customers or themselves. The EEOC’s guidelines date back to the 2009 outbreak of H1N1, and was updated in March 2020.

A mandatory COVID-19 vaccination policy would commonly be used in a health care environment or in emergency services where the likelihood of exposure may be higher based on the nature of the work, opposed to the average office environment that is following the Centers for Disease Control COVID-19 guidelines along with implementing a COVID-19 Prevention Plan.

Employers should take caution when deciding whether or not to implement such a policy and whether it makes sense for their industry and organization. According to OSHA’s January 2021 Guidance on Mitigating and Preventing the Spread of COVID-19 in the Workplace, employers should not distinguish between workers who are vaccinated and those who are not. All employee should follow the same safety precautions regardless of vaccination status. 

Essential workers in sectors like construction and landscaping, community-based organizations and financial services to name few, can operate under the provided guidance without requiring their employees to get the COVID-19 vaccine in order to resume normal business operations.

Some employers are waiting to impose a mandatory vaccination policy, choosing instead to offer employees incentives for getting vaccinated. These incentives may include a vacation day, a few hours of regular pay, or a cash bonus. To avoid discrimination, an employer may offer the incentive to all employees if the company’s work force meets a vaccination goal. Whatever path you decide, make sure to include the policy in your employee handbook or COVID-19 Prevention Plan.

Considering a recent Kaiser Family Foundation survey, 27% of Americans are “vaccine hesitant.” So, the employer will need to decide if a COVID-19 vaccination policy is right for their organization.  Questions regarding mandatory vaccinations will continue to present a challenge to employers.

For specific questions about your company’s vaccine policy, consult our RM365 HRAdvantage™ portal’s live HR experts.

The Heart of Rancho Mesa

Author, Daniel Frazee, Executive Vice President, Rancho Mesa Insurance Services, Inc.

If you are reading this article, listening to our podcasts, and taking advantage of the meaningful risk management content we share weekly, you and your business likely find some degree of value in what is produced. While much of this content originates from our Media Communications Group, they, with other Rancho Mesa family members join together as the backbone of our operation. Our Certicians®, Account Coordinators, Benefit Analysts, Claim Advocates, Associate and Account Managers, and Sales Executives are the beating heart of our company. That core focuses on three main principles that guide our values, shape our decisions, and directly influence our daily interaction with clients and one another. They include Developing Solutions, Protecting Clients, and Building Trust.

Developing Solutions

A solution is defined as the act, method or process of solving a problem. Our clients face daily challenges and problems as they manage their organizations and continually look for competitive advantages. They rely on us to provide complete solutions but those can look far different across our many departments. Here are a few examples:

• One of our Sales Executives might recommend higher limits of coverage or adjusting deductibles to meet new exposures.

• Our Workers’ Compensation Claim Advocate might deliver a quarterly status to a company’s Safety Committee and make recommendations on return-to-work options. 

• It might also include an Account Manager reviewing contractual requirements for a client bidding a new job.

• And lastly, an Account Manager in our Benefits department might help to resolve a sensitive claim issue with a member. 

• These actions are just a few of the many day-to-day priorities that are centered entirely on serving our customers. We remain fearless in our approach to problem solving!

Protecting Clients

Risk comes in all shapes and sizes. Protecting our clients with insurance is one vehicle we may use to transfer some or all of that risk to a third-party. But, that process can only be effective when our team actively listens to clients and prospective clients through regular interaction at policy audits, pre-renewal meetings, claim reviews, stewardship reports, and renewal meetings. 

A key part of that protection are the resources we offer internally that help mitigate risk and reduce overall exposure to claims across all lines of coverage. Those resources include our:

• Risk Management Center Platform,

• RM365 HRAdvantage™ Portal,

• RM365 Advantage Safety Star™ Training Program,

• Weekly Educational Newsletter and Podcasts, 

• Workshops and Webinars.

Our clients can use these tools for risk management trainings, HR issues and concerns, safety certifications, and consistent risk management education and guidance.

These examples represent a very small sample of what is available from our organization. Building a risk management program that centers on controlling losses by implementing the proper protocols and best practice techniques is ultimately our vision for protecting clients.

Building Trust

We cannot develop solutions and properly protect our clients without building customer relationships based on a deep level of mutual trust. And, we view a distinct difference between establishing trust and maintaining it over the course of our partnership. While we are proud that our customer retention ranks in the top percentile across the nation, we recognize that trust is the key component to our success. And so, our work is never done. We continually expect more from ourselves, our team members, and our carrier partners to maintain, and ultimately, exceed customer expectations. It is simply how we were built and what we stand for. We see No Limit to what we can do.

To learn more about Rancho Mesa Insurance, subscribe to our weekly newsletter and podcast.

Funds Control May Secure Project Bond

Author, Andy Roberts, Account Executive, Surety, Rancho Mesa Insurance Services, Inc.

As surety brokers, we initiate bond programs for our construction clients. Single and aggregate limits are determined in large part by their financials and experience. Often, there are jobs that exceed the single limit we have in place, or are larger than any job that our client had previously completed. When it is a job that makes sense for the contractor, it is our job to work with the bond company and find a solution so the contractor can bid the job or take on the contract. One available solution is a process referred to as funds control.

Funds control is a service that bond companies use to ensure funds involved in the project will be used for appropriate work-related expenses. This arrangement involves a third party company engaged to handle the disbursement of the funds to the different sub-contractors and suppliers on that specific project. In order for this to be set up, the contractor is required to execute two documents, a Disbursement Agreement and an Irrevocable Direction of Funds. 

The Disbursement Agreement addresses the specific terms agreed upon by the contractor and the third party company and also details the responsibilities of both the contractor and the funds control company. The second document, the Irrevocable Direction of Funds, is a one-page document that requires the project owner, or the general contractor, to send all payments directly to funds control. Once the funds are received, they are placed into a project specific bank account that is set up in the contractor’s name. The payments are then disbursed to the sub-contractors and suppliers based on the pay applications that the contractor submit to funds control. And, while this adds some additional steps and work to the process, there are benefits to funds control and good reasons why the bond company will require it on certain projects. 

For the bond company, with a third party taking control of the distribution of funds, there is a much lower risk of financial mismanagement, and subcontractors, suppliers and vendors can expect to be paid for the work that they do, which leads to a lower risk of payment bond claims being filed against the contractor’s bond. 

While adding funds control to a project adds some additional work and steps to the job, it can be a valuable alternative route and one that contractors should gain familiarity. In many cases, funds control can be the solution that helps get a surety underwriter comfortable with supporting a bond for a particular job that otherwise would not be approved.

For more information or for any questions regarding your surety needs, please contact me at (619) 937-0166 or aroberts@ranchomesa.com.