Signs of Future Increased Costs in Workers’ Compensation Continue

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

Senator Anna M. Caballero recently introduced Senate Bill 555 (SB 555), also known as the Workers’ Disability Adjustment Act. While the bill is currently stalled in the Senate Appropriations Committee, SB 555 could, if signed into law, increase weekly Permanent Disability (PD) benefits for injured workers in the California workers’ compensation system, adjusting these annually to reflect economic inflation through a cost-of-living adjustment (COLA).

According to the official Senate Committee analysis, the projected cost of SB 555 is estimated at $570 million to $907 million over eight years. This potential increase in long-term claim cost could catch workers’ compensation underwriters and actuaries off guard. Exploring things further, we have provided an example below of an injured worker’s permanent disability benefits should SB 555 generate enough interest back in Sacramento.

Meet Joe the Roofer

If Joe is deemed 25% permanently disabled, here is how his PD benefits would look before and after SB 555. I am using a 5-year period in this claim scenario:

Before SB 555 (Current System)

• Weekly Benefit: $290/week

• Duration: 5 years

• Total: $75,400

(Note: These rates have remained unchanged since 2014.)

After SB 555 (COLA)

• Benefits increase annually with inflation (assume 3% COLA/year)

• Estimated Total: $80,051

Bottom line: Over five years, Joe would receive 6–8% more in PD benefits under SB 555. These payments would reflect modern cost-of-living realities for injured workers.

Projecting these new claim costs could dramatically impact underwriting within the worker’s compensation marketplace. It would most certainly elevate premiums to levels not been seen in years.  While it is clear this bill may continue to be stalled, we expect the push for higher permanent disability benefits to be a regular theme in this and other potential new legislation.

How to Prepare For the Hardening Workers’ Compensation Market

Work closely with your broker at your pre-renewal meeting to understand your company’s key performance indicators and how those can be leveraged for the best possible pricing outcome at renewal. Re-visit your safety program and protocol, focusing on lowering claim frequency and severity.  And finally, understand how your broker is developing your risk profile to the underwriters. To learn more about how Rancho Mesa can help in these areas, contact me at khoward@ranchomesa.com or call me at (619) 438-6874.

About the Author
Kevin Howard is a Commercial Insurance Broker at Rancho Mesa Insurance Services, Inc., specializing in risk management and insurance solutions for artisan contractors including solar, roofing, and other skilled trades. Based in San Diego, California, Kevin serves contractors throughout the Southern California region, helping them protect their businesses with tailored coverage and proactive support. His clients benefit from access to exclusive tools like the SafetyOne™ Platform, RM365 HRAdvantage™ Portal, and workers’ compensation claims advocacy services, designed to improve safety, streamline HR processes, and support better claims outcomes.

Mid-Year Insurance Outlook for Contractors: Rising Costs, Tighter Margins

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

As a contractor in California, you are likely feeling the squeeze, right now. Material costs are up, labor is more expensive, and insurance, typically a predictable line item, is becoming a growing burden on your bottom line. 2025 is proving to be one of the most challenging years yet for construction business owners. Even companies with best practice risk management controls in place are getting hit with premium increases that are hard to absorb.

Auto Insurance

Auto premiums continue to climb, making fleet coverage one of the fastest growing expenses for contractors.

Replacement parts and labor costs have skyrocketed. Even a basic bumper repair now involves expensive sensors, which take longer to replace and recalibrate.

Distracted driving is at an all-time high. Today’s younger drivers have never known life without a smartphone, and it shows—claim frequency is rising, especially in high traffic areas like Southern California.

These and other factors are pushing rates higher, regardless of your claims history and shrinking margins even for the most careful contractors.

Workers’ Compensation Rate Increases Expected Soon

Even as jobsite safety improves and injury rates fall, workers’ compensation costs are trending upward—driven largely by the costs associated with litigation and cumulative trauma claims.

Each claim costs more, especially when attorneys get involved.

Once a claim becomes litigated, it can escalate into a cumulative trauma (CT) claim. This drastically increases costs while also impacting your experience modification (Ex-MOD). Even when carriers believe the injury did not occur on the job, the burden of proving it often forces them to settle anyway.

Fraudulent or exaggerated claims are becoming more common, particularly after layoffs or when employees feel disgruntled.

Contractors with tight margins and lean crews are at higher risk as a single claim can now have twice (or more) the financial impact compared to just a few years ago.

Shrinking Margins: More Pressure, Less Room for Error

Between rising insurance costs, wage inflation, and higher overhead, contractors are operating with less margin for error than ever before. Jobs that were profitable five years ago may now just get you to breaking even—or worse. Compound this with fewer jobs to bid leading to more competitors bidding on each job, all while trying to remain profitable.

This puts even more importance on risk management and proactive insurance planning. It is not just about reducing the frequency of accidents—it is about protecting your margins and keeping your business viable in a high-cost environment.

What You Can Do Right Now

Do a thorough review of your insurance policies to ensure you have the broadest coverage in place and understand clearly where the market is headed in advance of bidding projects. Revisit your stretch and mobility program, heat illness prevention protocol, and ladder safety training—especially with the rise in fraudulent claims. Avoidable injuries will only add to the pressure and compromise margins.

Ensure your fleet safety program is updated and consider using cameras or apps in vehicles that restrict phone use while driving.

Make sure foremen and all staff are treating employee’s well. Disgruntled employees are typically the ones who can and will file claims if layoffs are required.

Track and manage claims closely to prevent small issues from becoming a larger impact to your Ex-MOD and your future workers’ compensation costs. This includes building out a formal, written return-to-work program.

Partner with a broker who understands your trade and can advocate for the most competitive rates and broadest coverage for your exposures.

If you have any questions relating to this article, I am more than happy to provide a detailed audit of your insurance portfolio and safety programs. Contact me at ccraig@ranchomesa.com or call me at (619) 438-6900.

New Auto Insurance Minimums Could Expose Coverage Gaps for HVAC and Plumbing Contractors

Author, Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

The State of California has raised its minimum auto insurance limits effective January 1st of this year, and it could be problematic for some HVAC and Plumbing contractors.

Although the intention of the limits increase was to expand coverage for victims of accidents, there is concern that it will marginalize many drivers.

According to a 2023 study from the Insurance Research Council, California was already among the nation’s leading states for share of uninsured drivers at 17%, with many anticipating that number to be increasing.

Drivers that had carried the previous minimum limits due to financial constraints may not be able to afford policies with the higher limits and may choose to forego insurance altogether. For those that qualify for the California Assigned Risk Plan, their policy limits ($10k/$20k/$3k) will actually be lower than the previously imposed minimums ($15k/$30k/$5k).

Other drivers that had previously carried higher limits may now choose to reduce their limits to the state minimum due to the rising cost of auto insurance statewide.

With the commercial auto insurance marketplace already facing challenges, many carriers have chosen to reduce coverages they are willing to provide.

One key area of concern for HVAC and Plumbing contractors is Uninsured/Underinsured Motorists coverage, which provides coverage when an accident is caused by a driver who either does not have insurance or whose policy limits are inadequate to cover the costs of medical care and property damage arising from the accident.

Without appropriate coverage, an HVAC or Plumbing contractor could be found responsible for significant financial costs caused by medical expenses, lost wages, and pain and suffering due to injury to drivers and passengers of their vehicles – even if they are not at fault for the accident.

Here are 3 steps to help insulate your business from such a loss:

1. Review the personal use policies in your company’s fleet safety program.

   Do employees drive company vehicles home and/or are allowed to use company vehicles outside of the course of work? Who else can drive or be in the vehicle as a passenger? Establish clear answers to these questions and enforce your policies, reminding employees of them, as well as the risk of neglecting them.

2. Review your current insurance coverages for limits and symbols.

   Uninsured/Underinsured Motorist coverage limits can vary greatly from one carrier to another, while California allows policyholders to waive the coverage completely. Also, verify that the limits apply to the appropriate vehicles for your company with the relevant auto symbols.

3. Meet with your broker early in the renewal cycle.

   Discuss auto coverages, review vehicle and driver schedules, and develop a strategy to approach the market to secure the appropriate coverage for your business.

If you have questions on auto insurance coverages or would like to complete a policy review, you can reach me at (619) 486-6554 or mgorham@ranchomesa.com.

How Changes to the Expected Loss Rates Will Impact Concrete Companies

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

In addition to the Workers’ Compensation Insurance Rating Bureau’s (WCIRB) proposed 11.2% workers’ compensation pure premium rate increase, the WCIRB will also be updating the 2025 Expected Loss Rate (ELR) effective 9/1/25.

Each workers’ compensation class code has its own ELR and it is used in the Experience Modification Rate (EMR) calculation. ELRs are the average rate at which losses for a classification are estimated to occur during an experience rating period. They are expressed as a ratio per $100 of payroll and can have a significant impact on the EMR.

For example, the ELRs for 5201/5205 concrete class code will be dropping 19% and 10%, which we believe is not getting the attention it deserves. These decreases will have an adverse effect on concrete contractors’ EMRs effective 9/1/25 and beyond. 

In addition to your EMR, the lowered expected rates also impact your primary threshold. Your primary threshold is the maximum primary loss value for each individuals’ workers’ compensation claim. If the primary threshold goes down, a small lost-time claim will have a bigger impact on your EMR. As all contractors know, any increase to your EMR can not only increase your overall workers’ compensation premium but also impact opportunities to bid certain projects in the municipal/commercial market.

So, how can concrete contractors get out in front of this? 

1. Conduct open claim review meetings on a quarterly or semi-annual basis.

2. Audit any open reserves on claims that are impacting your current and future EMR.

3. Determine the timing of your next unit stat filing date.

4. Ensure that your accident investigations program addresses the root cause of claim frequency and severity.

5. Use trade-specific Key Performance Indicators (KPI) that benchmark you to other concrete contractors.

6. Work with your broker to project your EMR up to 7 months prior to your renewal date.

7. Conduct industry- specific trainings that are OSHA compliant.

We recommend taking a proactive approach. Here at Rancho Mesa, we can provide you with your industry specific KPI’s, a dedicated workers compensation claim advocate, a proprietary safety app, monthly safety workshops and more.  Start now to insure you understand the financial impact to your company and the steps necessary to minimize the disruption.

If you would like to learn more or have us assist you   I can be reached at sclayton@ranchomesa.com or (619) 937-0167.

Key Dates that Will Define California’s Workers’ Compensation 2025 Rates

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

In California, September 2025 will be a pivotal month for the state’s workers’ compensation marketplace. With inflated post-Covid-19 payrolls still affecting premiums, both the Workers’ Compensation Insurance Rating Bureau (WCIRB) and California’s Insurance Commissioner Ricardo Lara have been working to establish appropriate pure premium rates that are reasonable for both insurance carriers and employers.

Many California worker’s compensation carriers have shared that their combined ratios continue to rise. This means the cost of claims and expenses are increasing disproportionately to the collected premiums. And, at some point, a middle ground needs to be met based on the data analytics to ensure the carriers can continue to operate in the state.

Over the last few years, the WCIRB has provided Lara with recommendations to increase pure premium rates which should help to lower the carriers’ combined ratios, though the approved rates have trended lower than the recommendations. Now that the data shows carriers’ combined ratios are too high to sustain long-term, all eyes are on Lara over the next 5 months to see how this will unfold.

Pure premium rates are the WCIRB’s advisory rates, which change annually for each California class code. Pure premium rates do not include factors like commissions, carrier overhead expenses, or profit margins that are later added to the equation. The pure premium rates can be viewed as the starting point for independent carrier actuaries when they are deciding on annual increases or decreases based on the WCIRB’s posted pure premium rates.

A deep dive into the timeline of events that will shape the future of pure premium rates, dual wage thresholds, and carriers’ base rates per class code is important in order to understand the current workers’ compensation changes to come.  

January

Up until 2023, January 1 was the official date when carriers would file new base rates with the California Department of Insurance (CDI). However, moving the carrier rate filings away from the beginning of the calendar year helps carriers avoid the year-end crunch, analyze data more efficiently (including the prior Q4), and better synchronize their timelines with the WCIRB and CDI recommendations.

April

Around mid to late April, the WCIRB will make a recommendation for pure premium rates that would go into effect on September 1. This recommendation is based on actual data that has been analyzed by actuaries. This analysis offers tangible insights that the insurance commissioner, the Department of Insurance’s chief actuary, and independent carriers can use to make informed decisions.

May–June

At the San Francisco headquarters, the CDI hosts public hearings where stakeholders, unions, and insurers can comment on the WCIRB’s proposed changes that include, but are not limited to, pure premium rate recommendations.

July

Dual wage recommendations are issued by the WCIRB in July. Based on data collected since the prior 4th quarter, the WCIRB will make a split class code recommendation that takes into account wage inflation and economic shifts throughout each industry that utilizes dual wage thresholds.

September

Advisory rates approved by the insurance commissioner go into effect in September. For example, in the current year of 2025, the WCIRB has recommended a 11.2% increase in pure premium rates. The Insurance Commissioner and the chief actuary will make the advisory pure premium rates official, which could be the same, less, or more than the WCIRB’s recommendation.

In September, carriers also lock in their base rates according to their own predictions, needs, and actuarial results.

October

The WCIRB prepares for the next year by gathering actuarial data.

California has some really important dates to pay attention to this summer and into the fall. The current WCIRB-recommended 11.2% increase is the largest recommended increase in the past 5 years.  Communicating with your insurance broker and developing plans to prepare for this most certain increase will be critical to managing this line item on your profit and loss statement.

For questions about the pure premium rates and how they will affect your workers’ compensation premiums, contact me at khoward@ranchomesa.com or (619) 438-6874.

Workers’ Comp Rate Increases are Here — Are You Prepared?

Authors, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.; Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

The workers’ compensation market in California is hardening. After many years of rate decreases, it appears that the market has started to bottom out.

The Governing Committee of the Workers’ Compensation Insurance Rating Bureau (WCIRB) voted in favor of pursuing an 11.2% rate increase. If the California Department of Insurance approves the WCIRB’s request, it would make the first rate increase in more than a decade.

In recent years, wage inflation has helped to offset rising medical care and claims handling costs within the workers’ compensation system, while carriers’ reserve redundancy releases have also contributed to the soft market.

With reserve redundancies declining and wage inflation stalling, the effect of rising costs in the workers’ compensation system are becoming more noticeable. Added to that, the diminishing investment returns for carriers and the need for rate increases and stronger underwriting performance becomes even more pronounced.

Below are four ways that your insurance broker should be helping to prepare you for the coming change:

Understanding Your Workers’ Comp Claims

Meeting with your insurance broker throughout the year can help you identify trends and underlying root causes for your claims. This can help you to implement practices and procedures that reduce the likelihood of the same type of claim recurring.

As an example, we identified that lower back strains are among the most common work injuries in one of the industries that Rancho Mesa specializes in, which led our team to develop the Mobility & Stretch Program and A.B.L.E. Lift Protocol.

Providing Effective Safety Resources

A strong safety culture depends on individuals consistently making safe choices and having access to the tools they need. Among other resources, Rancho Mesa provides clients with the SafetyOne™ platform, a website and mobile app that offers a suite of tools to implement safe practices, such as a library of topics for toolbox talks, online safety trainings, and safety observations.

Utilizing Workers’ Comp Claims Advocate

The workers’ compensation process can be complex and costly. Rancho Mesa offers an in-house workers’ compensation claims advocate to help navigate the claims process, manage claims, and provide accountability to adjustors. Leveraging your broker’s claims advocate can help manage the overall impact of claims on your insurance costs.

Exploring Loss Sensitive Plans

Rancho Mesa can help you evaluate a variety of loss sensitive options, such as captives; self-insured groups; large, intermediate and small deductible options; or retro plans to see how they compare against guaranteed cost. Having access to more product options allows for more relevant, effective advice on which program best meets your risk tolerance.

That final decision and recommendation will be done and take effect September 1st 2025.

While these increases will not directly impact you until your next renewal, taking action to prepare for the coming change is critical. Rancho Mesa is informed, has the resources available and most importantly the proactive commitment to help you navigate the approaching storm.

If you would like to learn more about our resources and approach to this process, please reach out to Sam Clayton at sclayton@ranchomesa.com, or Matt Gorham at mgorham@ranchomesa.com.

Evolution of Exterior Insulation and Finish Systems in California

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

Exterior Insulation and Finish Systems (EIFS) has been around since 1969 and has grown in demand for new construction in California with a constant push to get closer to “net-zero” buildings. With our strong niche in plastering, drywall and painting contractors in California, one of the most frequently asked questions by insurance carrier underwriters pertains to whether a contractor self-performs or subcontracts out EIFS work. This has become a significant concern for insurers, particularly when it comes to the proper installation of drainage systems over wood-framed buildings and/or the use of inferior materials. Over the past decade, there have been significant strides to insulate contractors from claims arising from EIFS.

The major turning point for EIFS occurred during the 1995 hurricane season in North Carolina, when an increase in insurance claims highlighted the risks associated with improper drainage systems in EIFS installations (i.e. walls and ceilings). These claims prompted a dramatic shift in the way EIFS systems were installed and regulated moving forward. In response to these challenges, the industry made considerable strides to enhance moisture control, seismic resilience, and the use of materials that are better suited to California’s diverse climates—ranging from dry desert conditions to coastal, humid areas.

California’s building energy efficiency standards continue to evolve. As these standards become more rigorous, it is expected that EIFS will play an even larger role in meeting the energy demands of new buildings. The insulation provided by EIFS systems makes them a critical component of energy-efficient design, helping buildings achieve net-zero energy performance while still having curb appeal.

It is likely that EIFS will become a requirement for most, if not all, new construction projects in California in the near future. However, despite the system’s growing importance, many insurance carriers still view EIFS installations with caution, due to the historical challenges and claims associated with improper installation techniques. As a result, some insurers continue to treat EIFS as a “high-risk” exposure and require stand-alone policies to cover the potential risks.

Currently, there are approximately 7,660 plastering professionals employed in California, according to the most recent data from the Bureau of Labor Statistics (BLS.gov). However, only a small fraction of these employees are actively involved with EIFS installations. This limited exposure has contributed to a gap in the insurance market, with many carriers potentially lacking a deep understanding of the evolving EIFS industry and its improvements.

For plastering contractors in California, working with a knowledgeable broker is crucial to navigating the complexities of insuring EIFS work. Each company’s exposure to EIFS risk is unique, and it is essential to have a broker who understands these nuances. A specialized broker can help secure the most competitive pricing available and ensure that they are paired with insurance carriers that are not only familiar with the latest industry advancements but are also willing to offer comprehensive coverage for EIFS-related risks.

While industry change can take time, it is vital to have a broker who actively advocates on your behalf, challenging insurers’ outdated guidelines and promoting an accurate understanding of the current EIFS landscape. By building strong relationships with insurers who understand the evolving nature of EIFS, contractors can improve their risk management profiles and position themselves for long-term success.

If you have any questions relating to EIFS or any other insurance needs you may have, do not hesitate to reach out to me directly at ccraig@ranchomesa.com or you can call (619) 251-8278.

Controlling Auto Insurance Costs for Plumbers and HVAC Contractors

Author, Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

Like most businesses, vehicles are an essential part of a plumbing or HVAC contractor’s operations. Whether the focus of their business is service and repair, tenant improvements, installation, or new construction, company leaders depend on trucks, vans, and cars to get their people, equipment, and materials safely to the jobsite.

Unfortunately, the cost to insure those vehicles has increased dramatically over recent years and there appears to be no imminent sign that trend will change.

According to AM Best, the U.S. commercial auto insurance segment sustained a $5 billion net loss in 2023. While it is still too early to know how the auto segment performed in 2024, early indications from the first half of the year showed further deterioration, marking the 12th straight year of net underwriting losses for auto insurers.

There are multiple reasons for the increase in auto losses. Distracted driving is contributing to an increase in the frequency of automobile accidents, while social inflation and third party litigation funding are amplifying the severity of associated losses. As all of these causes will continue to negatively affect the auto insurance marketplace broadly, avoiding auto accidents becomes increasingly more important for individual companies in controlling auto insurance costs.

While there are many factors that can lead to an auto accident, businesses can benefit from focusing on those within their control. Implementing or enhancing a fleet safety program with clear, actionable policies will better equip drivers to avoid accidents. Consider how your fleet safety program handles the following:

• Driver selection, qualification, and performance management. Establish clear written guidelines on who is eligible to drive and how their driving performance is evaluated. This may include policies such as requiring an applicant to provide their motor vehicle record as part of the interview or hiring process, participation in the Employer DMV Pull Notice program, incentives for safe driving, and responses to unsafe driving practices, near misses, tickets, or at fault accidents.

• Safety rules, vehicle use, and operating procedures. Define how and when drivers are allowed to operate vehicles. This should include policies that address use of cell phones and hands-free devices, impaired driving, personal use of company vehicles, company use of personal vehicles, passengers, seatbelt use, and speeding, among others.

• Driver training. Provide ongoing training for employees to understand their responsibilities as drivers and the risks that are present on the road. This could include in-person or video trainings that discuss topics like defensive driving, distracted driving, safe following distance, and driving in inclement weather. Having potential drivers successfully complete an in-person driving test in a controlled environment before getting on the road, as well as annual driving tests can also help reduce the likelihood of an accident.

  Learning management systems like Rancho Mesa’s proprietary SafetyOne™ platform can offer effective and convenient online trainings to ensure your drivers are knowledgeable and well equipped to drive for your company.

• Vehicle maintenance and inspection. Schedule and document routine maintenance tasks like oil changes, tire rotations, and brake inspections to help keep vehicles running smoothly. Implementing a daily vehicle inspection for items like active turn signals, working headlights and brake lights, and tire pressure reinforces the importance of safety to your drivers, while also proactively minimizing the risk of a dangerous maintenance issue that could lead to an accident.

Providing an easy way for your drivers to document and report their daily vehicle inspections and maintenance issues can increase the likelihood of compliance. Try one of our QR code-enabled Driver Vehicle Inspection Report (DVIR) to see just how simple it can be to document and report mechanical or safety issues with your fleet.

In addition to a robust fleet safety program, there are other tools and strategies that can be leveraged to provide savings in a challenging insurance marketplace, without sacrificing coverage.

To discuss these tools and strategies or for a complimentary review of your current fleet safety program and insurance program, contact me at (619) 486-6554 or mgorham@ranchomesa.com.

Group Captives May Be Contractors’ Solution to Rising Insurance Premiums

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

Over the last few years, contractors have started to see rate increases on multiple lines of coverage within their insurance program. And, the difficulty insurance companies are having in the property market, especially here in California with the wildfire risk, has been pretty well publicized. We have seen both homeowners and commercial landlords forced away from the standard property market and into surplus lines, or, worst case scenario, the California Fair Plan. We are also seeing commercial auto policies come under pressure due to increases in litigation, costs to repair vehicles and social inflation. 

Believe it or not, workers’ compensation has been the lone outlier from these increases, until now.  In the last 6 months, we have started to see a shift in the market. Carriers’ combined ratios have been steadily creeping up and underwriters are cutting back on the amount of schedule credits they can apply.

As a result of the premium increases felt across the board, one alternative risk financing strategy contractors may want to consider is a member-owned group captive.

A member-owned group captive is an insurance company owned and operated by the captive members, strictly for the benefit of those members. This structure enables middle market companies the ability to increase their underwriting credibility through the collective purchasing power of the group. These groups can be related (what we call homogeneous like a trade group or association), or unrelated (which would be a heterogeneous group which could be companies similar in size).

There are real advantages of a group captive, like:

• Lower insurance costs over time

• Financial incentives for strong loss control

• Increased control over claims management

• Investment income

Who should consider a group captive?

• Companies that have shown long term financial strength

• Owners who are committed to safety and have strong safety programs in place

• Loss histories or experience modification rates that are significantly better than average in their respective trade

• Annual premiums of $150K or more for workers’ compensation and commercial auto

As we see the workers’ compensation market continue to harden, best-in-class contractors who are looking to control their costs and protect their bottom line may want to consider this alternative risk financing strategy. 

If you would like to learn more about captives, contact me at sclatyon@ranchomesa.com or (619) 937-0167.

Exploring the Self-Insured Group Alternative

Author, Kevin Howard, Partner, Rancho Mesa Insurance Services, Inc.

The fabric of the California’s workers’ compensation landscape is ever changing. Most California-based subcontractors utilize what are called guaranteed cost options for their workers’ compensation needs. This is a safe option that allows for business owners to budget for their overhead costs, however, they have minimal control based on the ebbs and flows of the market. Additionally, with medical inflation and litigated claims on the rise, CA is now experiencing a hardening market as rate increases threaten 2025 and beyond.  This has caused many contractors to seek more control over their workers’ compensation program, especially those who have displayed best-in-class safety habits and lower loss ratios to prove it. While guaranteed cost options are widely known, Self-Insured Groups (SIG) are quickly gaining traction as a compelling alternative. By pooling resources, subcontractors can access benefits that are better suited to their specific operational needs.

Predictable Expenses with Added Benefits

A key strength of SIGs is the financial predictability they provide. Unlike traditional insurance with fixed premiums, SIGs have the flexibility to reward participants who maintain excellent safety practices with reduced contributions and the possibility of surplus return premiums that are traditionally nontaxable. This structure not only encourages proactive risk management but also helps members potentially reduce workers’ compensation costs through the hard market.

Comprehensive Risk Management Support

SIGs can often go beyond the typical insurance offering by providing members with access to advanced risk management resources. Because SIGs utilize group communication for safety needs, members can lean on each other and pool data to utilize the hive-type safety support systems. These systems can include safety training programs, compliance audits, and in-depth data analysis. These tools help subcontractors pinpoint and address potential risks, leading to safer worksites and fewer insurance claims.

Collaborative and Transparent Decision-Making

A distinctive feature of SIGs is the active role that members play in the governance of the program. Subcontractors participate in selecting providers, setting policies, and shaping the group's strategies. This cooperative approach ensures that the program aligns with the interests of the members, fostering trust and transparency.

Strength in Numbers

Joining a SIG connects subcontractors to a broader network of industry peers. This collaborative environment encourages knowledge exchange, problem-solving, and collective negotiation, ultimately contributing to mutual growth and resilience. Many SIGs also hold quarterly and/or annual meetings, offering opportunities for additional sharing and recognition when warranted.

When is a good time to consider a SIG?

When annual estimated premiums reach between $150,000 and $1,000,000, and your firm can show competitive loss ratios over a 5 to 7-year window, SIGs can become a viable alternative.  More than anything, educating yourself and your management team on this loss sensitive option allows for a more proactive approach to your upcoming renewal.

If you would like to learn more about SIGs and have an interest in this type of program, reach out to me directly at khoward@ranchomesa.com or call me at (619) 438-6874.

Mitigating Inland Marine Losses

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

Inland marine insurance can sometimes be a forgotten line item in some construction companies’ insurance portfolio. This insurance covers your materials, equipment and tools once they are in the field or in transit. Sometimes insured’s feel they have coverage through their property insurance but once the equipment, materials or tools leave your premises, inland marine is the line of insurance that covers you.

Historically, inland marine coverage had fewer losses than other lines of coverage and this type of insurance had not seen a change in premium. However, this has changed in recent years with bolder criminals stealing larger equipment and materials from jobsites, breaking into work trucks to take higher valued tools and vandalism. What are some ways you can cut down on cost and help insulate yourself from losses?

By utilizing new technology to track where you are storing your materials and equipment overnight and investing in security measures, you can help prevent claims and reduce premiums. With theft on the rise, it is a good time to make sure you are storing your materials and equipment in the best way possible. Placing air tags or similar GPS tools on larger equipment is extremely helpful in recovering stolen items and tracking where they are being stored. If leaving equipment at jobsites, removing batteries is also helpful but if possible, try to not leave equipment at the jobsite. Train your employees to properly secure and store equipment if they are taking it home in their work truck. Most theft or vandalism are crimes that are a result of convenience or opportunistic. The harder it is to commit crime because of preventative measures, the less likely the crime will happen.

Ensure you have proper limits for your equipment and materials with your carrier. In reviewing and insuring your tools and equipment, it is important to understanding what is considered miscellaneous tools. Typically, this might be tools with a value less than $2,500, thus necessitating the need to “schedule” equipment above that value. Often times, we see insureds who have aggregate miscellaneous tools limits much higher than needed and then also including those tools or equipment on the scheduled equipment list.

When insuring the materials that will be used on a job, it is important to distinguish between a transit, jobsite and temporary location limits. These limits should be specific to your actual needs and not necessarily always the same values, that is another common mistake we see in auditing insurance portfolios. These vital discussions can help you save on premiums and ensure you are properly insulated from exposures.

While inland marine insurance isn’t typically one of your largest expenses in your insurance portfolio, it is something you need to monitor so costs do not creep up over time from frequency of losses. With rising costs in both auto and property insurance, it is becoming more important to make sure you are insulating your company from risk as much as possible to keep your controllable exposures down.

Discussing your inland marine coverage with your insurance broker regularly can help keep premiums and losses down. If you have questions relating to inland marine or any other of your insurance coverage, please reach out to me at ccraig@ranchomesa.com or (619)438-6900.

Putting Your Best Foot Forward: Slip and Fall Preparedness

Author, Jadyn Brandt, Client Communications Coordinator, Rancho Mesa Insurance Services, Inc.

With winter fast approaching, it’s important that employees are prepared to handle potential hazards caused by the change in weather. Slip and fall prevention is essential for any businesses operating in areas where employees will encounter rain, ice, and snow during the workday.

Wet or icy surfaces and snow build-up can increase the likelihood of slip and fall accidents. Unfortunately, it is not always easy to spot ice that has formed on walkways, stairs and building entrances. Workers may unknowingly step on dangerously slick spots, and snow build-up on pathways can obscure tripping hazards like curbs or cracks in the sidewalk.

One way to raise employee awareness all winter long is through a safety campaign. Regular safety reminders and updates can help keep slip and fall prevention on an employee’s radar, until temperatures warm up again.

Employers can communicate potential hazards to their team through physical signage, email alerts, and proper safety training. Signage can be posted in employee common areas, as well as in places where snow or ice may accumulate, alerting workers to the potential hazards around them. Safety trainings should be assigned to team members who will be working in these winter conditions. Regular email reminders should also be sent to team members to caution against dangerous behaviors.

There are a number of safety tips that employers can provide to their staff members either in a training or through email reminders. Here are a few examples:

Proper Footwear: Boots with enough tread or ice cleats should be worn when working outside in winter conditions.

Walk Carefully: Adjust your gate when walking on a slippery area. Take slow, small steps and pay attention to the ground in front of you.

Precipitation: Stay informed about current weather expectations. Be aware of the potential for rain or snow before heading to work each day.

Choose a Safe Route: Follow marked routes to building entrances. Obey signage and don’t take short cuts because they could be dangerous.

Keep Your Hands Free: Make sure your hands and arms are free to help keep you stable while walking. Use bags or backpacks to free up your arms and avoid carrying heavy loads long distances.

Know How to Fall: Knowing how to brace yourself after a fall can reduce the risk of injury. Stay informed on how to protect your body in case things go wrong.

Employers should always make sure their staff are educated about the specific risks of winter weather. Proper training should be provided on adequate footwear, how to walk safely on icy surfaces, and how to lessen or avoid injury if a fall does occur.

Preventing slips and falls requires a proactive approach from both employers and employees. Building awareness in the workplace can reduce the risk of serious injuries and foster a culture of safety in the workplace.

Rancho Mesa has a variety of toolbox talks available through the SafetyOne™ platform that can be utilized in order to prepare them for winter-related hazards. If you have questions about the available safety trainings, contact your Client Technology Coordinator.

Five Tips to Protect Your HVAC and Plumbing Vehicles from Break-Ins

Author, Matt Gorham, Account Executive, Rancho Mesa Insurance Services, Inc.

Contractors’ vehicles have long been a preferred target for thieves. Due to their distinct shapes and often eye catching branding, contractors’ vehicles are generally easy to identify, and they often contain thousands of dollars’ worth of tools, equipment, and materials.

Heating, ventilation, air conditioning (HVAC) and plumbing business owners that allow their employees to drive their work vehicles home face an especially difficult challenge to keep their tools and equipment safe. And, the cost of a vehicle break in goes far beyond the financial cost of replacing what has been stolen.

Being the victim of a vehicle break-in will lead to delays in your operations, it can cause frustrated customers, and the affected employees can suffer psychologically, especially if they have had their own personal tools stolen.

Here are the top 5 tips to help navigate the risk of vehicle break-in’s at an employee’s home:

1. Have clearly defined policies and discuss them with your employees.
Before allowing employees to drive their vehicle home, ensure that they understand what is expected of them. Having policies to avoid or minimize losses are only effective if the driver is held responsible for actually following them.

And drivers are more likely to follow the policies if they:

• Are aware of them

• Clearly understand them

• Are accountable for implementing them

2. Leave expensive equipment, tools, and materials at the shop.
While it may be inconvenient for your techs to unload their trucks at the end of the day, creating and reinforcing a habit of securely storing expensive equipment at the shop is much more likely to prevent theft of that equipment.

If taking the equipment home is unavoidable or impractical, discuss with them if it is preferred to bring the equipment inside their home overnight.

Capreece Serna, Senior Safety Services Consultant with Sentry Insurance, offers an important reminder: Anything that is kept in the truck should be placed out of sight from the outside, and do not leave the keys in the ignition, on the seat, or tucked in the visor. Leaving electronics, keys, garage door openers, security badges, wallets, purses, or expensive tools in plain sight to potential criminals can encourage them to break into the vehicle.

It is also important that your techs know what is on their trucks. Having them conduct a quick inventory check at the start and end of their shift can help increase security of your tools and equipment, as well as theirs.

In the event that you ultimately experience a vehicle break-in, having an inventory of what was on the truck will help expedite the process of getting tools and equipment replaced.

3. Lock your vehicles and set your alarms.
This may sound basic, but locks are one of the most effective ways of securing your vehicle. Keep in mind that many technicians are getting in and out of their trucks repeatedly throughout the day, often times without locking their vehicles. This can lead to a false sense of security and unconscious habit of leaving a vehicle unlocked overnight. Having security bars or grates on the interior of the windows or doors will provide little security if the doors themselves are unlocked.

It is also important to recognize that there are different types of locks available. While not fail safe, aftermarket locks can provide an added layer of security on either the exterior or interior of a vehicle. As an example, puck locks are commonly found on the exterior, while cable locks or chain locks can be used in the interior to secure tools, tool cases, or equipment to mounted shelving.

Having an alarm system installed on each vehicle that gets driven home can be another effective deterrent. Would-be thieves are much less likely to target a vehicle with an alarm. However, if they are undeterred, the attention that an alarm system attracts in the event of a break-in can substantially reduce the amount of time they have to find and take anything.

4. Be aware of and monitor surroundings.
There are a number of environmental factors that employees can leverage or put in place to increase the security of the company vehicle. Serna offers the following suggestions whenever possible:

• Parking inside the employee’s garage or behind a security gate,

• If in the driveway, backing up to the garage door to prevent the vehicle doors from opening fully,

• If in the street, parking in a well-lit area or using a physical obstacle to limit door access,

• Making use of motion activated lights or cameras pointed at the vehicle,

• Placing a camera inside the vehicle facing tools and equipment.

5. Review coverage for tools, equipment, materials, and employees’ tools with your insurance broker.
Each of the above tips will help reduce the risk and severity of break-ins. However, eliminating the risk of a break-in altogether is impossible.

Serna points out, “When thieves decide to commit their crime, they are looking for the biggest payoff with the lowest potential for getting caught. The focus of your practices should be to minimize the appeal of your vehicles to thieves, which will also minimize the loss to your business.”

Talk with your insurance broker to develop a coverage strategy that aligns with your appetite for risk and have the carrier take on the remaining risk.

A unique advantage for Rancho Mesa clients is their access to the SafetyOne™ mobile app. Within it, business owners are able to make their vehicle policies available to their employees digitally, as well as provide security checklists through a QR code, while also being able to take pictures of their parked vehicle at the end of the work day, helping to reinforce safe practices, accountability, and employee implementation.

For a complimentary review of your current tool and equipment coverages, as well as your safety practices, you can contact me at (619) 486-6554 or mgorham@ranchomesa.com.

Advising Indemnification Agreements with Charles Stec, J.D.

In the second episode of a special two-part series, Executive Vice President Daniel Frazee interviews Charles Stec, J.D., accomplished attorney at Lanak & Hanna, to advise construction companies on what to include in indemnification agreements.

Daniel Frazee: Welcome back to StudioOne™ everybody. We're happy to be joined again by Charles Stec from Lanak and Hanna. We're going to change the conversation a little bit. Charles was nice enough to talk with Drew Garcia, our landscape leader about sub-contract agreements. We're going to shift into indemnification So, welcome back to the studio, Charles, and thanks again for joining us.

Charles Stec: Thanks for having me back. It's my pleasure.

DF: Okay, well, let's talk about indemnification agreements. More specifically, tell our listeners what should go through their minds when they hear that word indemnification and how it may impact them in construction?

CS: So indemnification is a big legal word that simply means a promise to pay for damages or defects that arise from your work.  The bigger concern lately because of the cost of litigation is that there is a duty to defend also included with a duty to indemnify. What that really means is that if there's a claim, you end up being responsible to pay for the legal fees and costs of the person that's making that claim against you. And those costs, especially in smaller claims, can sometimes exceed the value of the actual damages at issue.

So an indemnification provision in a contract can be used to really define who is going to be responsible and to tell a subcontractor that they're responsible for damages that arise from their work. But how we write that provision can very much impact how it will be interpreted and what your actual allocation of responsibility will be.

DF: Okay. So, furthering that part of what you're talking about, can you provide us with an example how indemnification, when worded a specific way, can negatively impact, let's say, a lower tier trade that we might represent?

CS: Sure Daniel. Let’s take a drywall subcontractor as our example. If our drywall subcontractor has an indemnification provision as contract, that ultimately says that he is responsible to defend and indemnify for claims arising from or any way related to his work, then if we had a scenario where there was a water leak from the roof, from plumbing, whatever it is, and it ultimately results in the wall that's dry walled having buckling or mold, then in the event of a claim, that drywall subcontractor could arguably be responsible to indemnify and defend because our provision says in any way relating to his work.

But if we rewrite that position to just say he's only responsible for claims that arise from the negligent performance of his work. Now, in our scenario of the water leak, his duty to indemnify and to defend won't be triggered because the claim ultimately comes from a water leak, not from something wrong with how the drywall work was installed

DF: Okay, that makes sense. And I'm going to go a little off cuff with you, but I want to better understand because I think we have a lot of clients that have concern with redlining contracts, right? They're working with a preferred contractor, a really solid relationship. They don't want to disrupt that. So in your experience, when there is pushback, when there is redlining of contracts, how do most general contractors respond to that when you insert that type of wording. Does it depend on the general or is there some reasonable compromise that you've seen?

CS: So I've actually seen mostly reasonable compromise. I think everybody knows that a contract is ultimately supposed to be negotiated at arm's length. It's supposed to be the two parties are negotiating their position. What people are afraid of as a subcontractor is, "Oh, I'm not going to get the work because I'm not just accepting the contract as it is." But in that scenario, that contractor is running the risk that you're going to argue later that this was a contract of adhesion. Take it or leave it and therefore it's not enforceable. So they're typically open-minded and I have many, many a times in my recent past found myself on the phone with the general contractor's lawyer and we negotiate the few positions that are disputed in a contract. They expect it and for the most part if your requests for revisions are reasonable, they're going to get accepted.

DF: Very helpful. That's very helpful. So let's continue looking at indemnification clauses from a subcontractor's perspective. Walk us through what they may see in a typical contract and some specific examples, again, back to redlining or changing language that can minimize their exposure.

CS: So all contracts are a little different, and every one of these indemnity provisions has been written by different lawyers, so they're all a little different, but I'll give you kind of a general idea of what one normally sounds like. So my example is, “subcontractor agrees to indemnify and hold harmless the owner, contractor, and their agents, and any entity or person for which the contractor is responsible per the contract documents, from and against any claims, damages, or losses, including attorney's fees and costs arising from or in any way related to the subcontractor's work.”

So using my example, there's a few things that you would want to consider redlining with that provision. The first is the vague description of who you're promising to either defend or to indemnify. So in our example it said any entity or person for which the contractor is responsible. Well that's not defined and that creates a very real possibility that you could find yourself either having to provide defense fees for--or indemnity--to parties you've never even met and having to pay potentially multiple defenses. So in that case, I would strike that language in its entirety and instead make sure that each of the people that you were agreeing to identify are clearly defined. Normally that's going to be the prime contractor and the owner only. There may be some scenarios on certain jobs where you would agree to someone else, but it should be defined so you know who and what responsibility you're taking on.

DF: Okay.

CS: In our same example, another consideration is you could add language excluding liability for the owner or the general contractor's negligence. So let's talk about what that would be. For example, if the owner knows there's an unsafe condition there, there's a hole in the ground, a bad step, whatever the case may be, he doesn't tell anybody about it and leaves it there and one of your employees gets injured. Excluding that liability would make sure that the owner becomes responsible and you're not indemnifying the owner for your employee or some other person's injury that's actually coming from a condition the owner knew about and left there and didn't tell anybody.

Similarly, if another contractor on the job has done something that is so poor that it is potentially a danger either to other work or to cause injury. Let's say framing was done with a too small of a header and nobody knows that one day comes crashing down. That would be an example that if the contractor knew that their other sub had put in that bad header and didn't tell anybody that you would want to exclude that damage. So I definitely recommend adding language, excluding the gross negligence of either the owner or the contractor.

DF: Okay, all right.

CS: And a final example, it goes back to the defense costs. So in every contract for indemnity, the law implies this duty to defend. And the duty to defend arises at the time that they tender it to you, they say we've got a claim against us. And so you're now paying the legal fees of somebody else before the claims ever resolved and it's determined whether or not you did anything wrong.

Now, in our example, it said attorney’s fees and costs and you could imply that that is that duty to defend, but simply striking that wouldn't be enough, because the law actually implies the duty in to any contract of indemnity. So you have to specifically excluded it. So what you could say is I have no duty to defend a lot of times though Your contractors and owners might reject that. So what we could also consider is limiting what that duty to defend to be.

Two possibilities you could talk about is; saying that you will only agree to pay your proportionate share of the potential defense costs based on your proportionate share of the potential damages so that it's now shared amongst other subcontractors or of the contractor whoever else might be involved in the particular accident or event. The other would be to put a limitation of liability provision in where you could say our liability is either limited to what insurance proceeds pay or even to a specific dollar amounts. I've seen people say let's put it to the total amount that I was paid on the project or a set number like $100,000. Those types of provisions can help limit that defense cost that you ultimately could see picking up from an alleged accident.

DF: Okay, all right. Thanks for kind of going into that detail. Very helpful for our subs to understand some areas to be focusing on. So, if you look at indemnification clauses from a direct contractor's perspective on commercial and service contracts, what should they be watching out for and how can they redline or a change language that can minimize their exposure?

CS: Sure. So, obviously, when you're talking about these direct contractors, those on a commercial or a service agreement, their relationship is a little bit different. So they're now no longer a subcontractor lower down in the chain, but they're in a direct contract, probably with the project owner. So a lot of our discussion before on subcontractors would still apply, but there's a few other things that you might want to look at as well.

First, I've seen in a lot of direct contracts lately that in the indemnification provision, one of the parties to indemnify that owners have been adding is the design team, either the architect or the engineer. Those should be excluded because as the contractor--unless we're talking about a wholly different subject, which is design build agreements--the contractor has no control over the design. They're not able to influence how it's done, how it's built, or most of the times the design's done long before they ever get there. So to indemnify the design team doesn't make sense because it's not someone that you ever had any ability to control the quality of that work. So I think that those should be excluded, be redlined out, and also you would consider adding a phrase that says something to the effect of the contractor is not responsible for claims that arise from design defects or design errors or emissions. You don't really want to be taking on liability for a designer that you didn't have any business with and you're not in contract with.

DF: That makes sense.

CS: Another example that I've seen is that a lot of these indemnification agreements with owners are very broad. They say all claims, damages, liabilities, or losses and the problem is it doesn't clarify for what claims. Are we talking about claims from the owner or claims made to the owner? So what I've been recommending lately is that in those broad indemnity provisions, that it be revised to say for third party claims. That way the owner can't sort of hodgepodge the indemnity provision into a requirement to you to pay their defense fees to sue you. So that's a revision that we've seen come up more often than not lately.

Another that really is beneficial and it sort of goes back into the design question from a minute ago is putting in a reverse indemnity provision. So in a lot of projects, the owner provides to the contractor a set of plans, maybe some reports, some geotechnical reports, whatever the case may be, and the contractor does their work based on those reports. In a reverse indemnity provision, the owner agrees to indemnify the contractor for errors and emissions in those reports. So let's take for example, you are doing, you know, subterranean grading and there is a retaining wall to hold in that subterranean dig if the design plans didn't build a big enough set of supports and you build what's in the design plans and it fails, you shouldn't be the one responsible for that failure because it's the design, not the construction. So the reverse indemnity provision would then make the owner responsible to go to that designer for that claim rather than come to you as the contractor.

DF: Okay, all right.

CS: Finally, there are a lot of other ancillary provisions in a contract that read together with the indemnity provision can help minimize your liability. We talked about two of them with the subcontractors. That's a consequential damages waiver, those indirect costs that may come up. And the other being excluding damages for latent defects. We talked about it in the underground, an unknown type, things you wouldn't know there, like utility or box. Those types of provisions you could consider having in there and they would define when your indemnity would kick in.

Others that you could talk about adding would be a clearly defined delay provision. If your project is running late, who's responsible for that or defining what the damages would be and maybe setting a liquidated damages amount on a daily rate or a monthly rate. So at least you could control your risk because you know what that potential damage would be if it runs late.

And finally, it would be a provision limiting what recoverable damages could be, either to insurance proceeds or the maximum amount of liability, like we discussed earlier.

So the main point is that every construction business is a little different. And it makes sense to tailor your contracts to the type of trade that you're in, the type of jobs that you're doing, they could be public, they could be private, and there's different risks and allocations that come with those different types of projects. So in my belief, a little bit of foresight in working with your contracts in advance can really help control your risks in the event that something does go wrong in the future.

DF: Well, and I think Drew alluded to it too, that your process of being out in front of this and proactive really aligns with how we interact with our clients trying to mitigate risk on the front end. But so often we get feedback that sometimes crosses that line of insurance to legal, where we can comment and provide some feedback, but we don't have the expertise that you do in the background that can really help them truly negotiate these contracts or just tighten up everything that they have with respects to sub-agreements and/or indemnification.

So these bullet points are so helpful for us and our team, and I can't thank you enough for sharing this. I know this is just the tip of the iceberg too. I know what you do for many of our clients is so effective. Tell us again, if people need to connect with you, what's a good way to start the dialogue?

CS: Well, again, thank you for having me here today. It's been a pleasure. You're absolutely right. It is the tip of the iceberg. There are so many different things we could talk about. We could have gone on for hours. I really do like to tailor to a specific contractor's needs. So the best thing to do is literally to reach out. We're available by phone, consultation is free, I can be reached at my office, it's 714-451-7919, send me an email, that's ckstec@lanak-hanna.com or you can go to our website, which is Lanak-Hanna.com.

I say it all the time and I'll say it again here, I think that a little bit of upfront attention, a small amount of money you spend consulting with a lawyer. If it saves you from one lawsuit, it's worth every penny.

DF: Agreed and I think that's been consistent with the clients that have partnered with you and I think they would say the same thing. So thank you again and thanks to our listeners for joining us again in this series and we'll see you next time.

Catch Up on Part 1

Navigating Subcontract Agreements with Charles Stec, J.D.

In the first of a special two-part series, Executive Vice President Daniel Frazee and Landscape Group Vice President Drew Garcia, interview Charles Stec, J.D., accomplished attorney at Lanak & Hanna, to discuss how construction companies can best navigate subcontract agreements. 

Daniel Frazee: Welcome everyone and thanks for joining us. I am Daniel Frazee, the construction group leader and we're back in StudioOne™ with Drew Garcia, our landscape group leader. Welcome Drew.

Drew Garcia: Dan, good morning. How you doing?

DF: Doing fantastic. We're really excited to be joined by Charles Stec, an accomplished attorney supporting the construction industry with Lanak and Hanna. Charles is here to share his experience in representing California trade and general contractors, which includes several of our clients. And more specifically, I think we're going to get inside two important but very distinct topics, subcontract agreements and indemnification. Welcome, Charles, to StudioOne™.

Charles Stec: Thanks for having me, it's my pleasure.

DF: So before we get started, Charles, tell us more about yourself and how you became so focused in the construction industry?

CS: Well, I actually got my start in the trades. I worked as a roofer back in the 90s and 2000s and worked on a lot of different projects: residential, commercial, public projects. Ultimately I still have and maintain a general contractor's license and when I got into the law I ended up gravitating back to construction both because of my experience but also because I believed as a lawyer that I could help contractor clients navigate the pitfalls of the construction industry by getting involved earlier.

What I've noticed in my practice is that many contractors don't consult with an attorney until something goes wrong and they get sued. And at that point, they've already got the contract, says what it says, the facts are the facts. What I like to do is get involved earlier. And at that point, we can look at contracts, we can look at what's going on in a project, and try to assess risks and minimize risks. So the firm I work for, Lanak and Hanna, were really a one-stop construction shop. We handle everything that's related to a construction business. So from the outset, we handle, for example, the contracts, but also bids during the project, labor issues that might come up. And at the end, collections such as stop notices and mechanics liens, or in the event something goes wrong, defending against a defect or a damages claim.

DG: Very good. Yeah, I think we can relate with your guys’ proactive approach to business and how you're trying to kind of consult with your customers in advance of an issue and obviously when there is an issue reacting to it and making sure that you're there for them. We take a similar approach to the way that we do our business. And when we jump into subcontract agreements you know Rancho Mesa we've got a number of different businesses that we help support. We could have general contractors; we could have trade contractors that are a part of a project. We've also got service contractors that might be subbing out small portions of their work where it might not be as glaring or they might think there's not a need to have a subcontract agreement.

Obviously, it's important. Can you talk to us about why the sub contract agreement is an important step in the relationship between two service partners and how it provides clarity?

CS: Sure, Drew. Let's start with the basic, what is the purpose of a contract? Really the purpose of a contract is to allocate risk by defining the rights and responsibilities between your two service providers to avoid disputes that are caused by misunderstandings or to set forth what's going to happen if something actually does go wrong. So generally what we see a lot of in the most common disputes between contractors and subs or a service provider and their subcontractor is simple things like payments, or what happens when there's extra work. So a subcontract agreement can be used to put those things into writing and set forth those basic terms; what that subcontractor is going to get paid, what the specific items that are included in their scope are, so if there is extra, we can define what is and what isn't extra, and then how that subcontractor is going to get paid. Are they getting paid on a progress payment, or are they getting paid on a lump sum when it's done?

If something does go wrong, the subcontractor agreement also has the benefit of setting forth how it's going to be resolved. For example, if that subcontractor doesn't finish their work or they get terminated, who's responsible for the cost to complete that work? Another example would be if there's an injury or damages that come from their work, how do we apportion that responsibility? And another example after that would be If something does go wrong and we can't resolve it, what's the procedure going to be? Are we going to go to litigation and spend years in court? Are we going to consider arbitration, which might cost us a little more upfront, but could get to a resolution faster?

The main point is a subcontract agreement is giving you an opportunity to allocate your risks, which allows you to better bid a project. If you are taking on a lot more risk, you're probably going to want to charge a premium for that risk. On the opposite side if you are passing that risk on to your subcontractor perhaps then you might be able to bid at a tighter rate. So a subcontract agreement's big main purpose is to really define things so that we know what's going to happen rather than leaving it up in the air.

DG: Well, so that makes sense. And when somebody's putting together a subcontract agreement, maybe it's the first one that somebody like you is putting together for a business. Is it kind of a, “hey, this one agreement fits all types of work that you might subcontract” or should the business look at more of a focused approach in terms of the type of work that they're subbing out or the type of project that they're on? Would that bring any nuance to the subcontract agreement?

CS: It would. So there's really two answers to your question Drew. First, yes, there are many general provisions that you're going to use through all your different types of subcontractors. Those are going to be those basic provisions like price, payment methods, what's the scope of work, how do we handle change orders, what's that procedure and the notice, maybe schedule and your insurance requirements.

But second, there's going to be some provisions that really are specific to the type of work you're subbing out. So take for example, if you're subbing out work where people are working in the ground, they're doing digging, they're doing trenching, they're planting materials. There's a large possibility that you could have unknown obstructions, whether there's big rocks or boulders in the ground or there's an unidentified utility. You might want to have a provision then that's going to assign who's responsible for those unknown encounters? Is it going to be the subcontractor who's then going to price it higher to deal with their risk of the unknowns? Or is it going to be the general contractor? Or is it going to be the owner? And that's going to affect both your pricing and bidding on the project, but it's also going to affect when that comes up, how do you deal with that dispute? Having that provision in place allows you to have the answer so you don't actually have to have a dispute and go to litigation.

Comparatively let's imagine that your subcontracting out work like roofing or windows or plumbing. Those come with the possibility of a water intrusion claim, there could be a leak there could be a burst pipe. So first and foremost we think well damages from that would probably be covered by insurance but there are other things that aren't and that's going to be those incidentals. For example, if you have a plumbing leak and it's in a residence or in a business, there's a possibility that owner is going to make a claim for loss of use or for a loss of profits because they haven't been able to operate their business. What we would want to then consider is whether or not you should have a consequential damages waiver that essentially says if there's these other indirect costs like the loss of use or like the loss of profits, who's going to be responsible for that? Is that going to be the owner or is that going to be the contractor or the subcontractor that caused the damage? And again, that's going to allocate to you how do you want to price this project? Because your bid is probably going to be affected by how much risk you're taking on. So those are two possible provisions that you might want to make more specific to your individual subcontractors and the type of work that they're doing.

DG: Got it. So obviously having open dialogue with a professional like yourselves in terms of what the project might look like for the business helps to kind of cater to the subcontract agreement or the specific needs of that agreement.

So in general, how often should somebody relook at their, the general provisions of their subcontract agreement that might be unanimous across all of their agreements? Is it an annual thing, bi-annual? Is there a recommendation in terms of how and those things should be re-looked at and revisited?

CS: Well, we generally recommend having your contracts re-looked at yearly. Now, some years there might be nothing to change, but other years there could be. The issue is the law is constantly evolving. So what the regulations are out there, whether it's from the CSLB or it's going to be from decisions from the court, are going to change over the years.

Let's take example, most common thing, pay. In the last several years, we've seen many revisions. Going back, not long ago, if paid provisions were allowed, which essentially said that the contractor and the subcontractor would share the risk that the owner doesn't pay. California has since prohibited those and said, no, that's not reasonable., it's against public policy, we want subcontractors to get paid. So now those are prohibited. Yet I still see them in contracts all the time that haven't been updated.

Similarly, California does allow pay when paid, which says that the subcontractor’s payment can be delayed until the contractor is paid by the owner. We saw just in the last couple of years, the court come back though and find one scenario where it decided to limit those provisions. And specifically, it was a lot of these provisions were being written to say that if the owner and the prime contractor got into a dispute, that the subcontractor had to wait to get paid until that dispute, whether it was litigation or arbitration, was resolved. Courts came out and said, that's not reasonable because it potentially makes that subcontractor who may have nothing to do with the dispute have to wait for payment for even years until that litigation is resolved. So the court said now that “pay when paid” provisions have to be reasonable. So I've been recommending in the last couple of years’ revisions to contracts to define what that reasonable period is.

So the answer to your question is ultimately contracts should probably be reviewed yearly. Some years it's going to be more, some years it's going to be less, but you want to stay up to date with the current codes, the current decisions, and the CSLB rules that are ever changing.

DG: Very nice. Now that makes sense. Last question, last subcontract question for you. So obviously having them is important, making sure that they are catered towards the work that you guys are, that you're putting into place. You know, I think the answer is probably obvious on this, when should that subcontract agreement be signed? But I'd like you to comment on that, but also what are some pitfalls if they're not signed before the project takes off? What are some concerns or what could that create in terms of, you know, future issues or maybe more immediate issues if that agreement isn't in place before the project takes off?

CS: Well, I think starting off, I would say what we've been talking about assigning risk and responsibility is really going to impact your pricing. So I would recommend having those agreements signed early.

What a lot of my contractor clients have been doing is they're doing master subcontractor agreements where with the regular vendors that they're using, they have an overall agreement that sets forth the terms and conditions and their assignment of risk and how they're going to deal with problems that they typically would foresee in an agreement that gets signed long before there's ever a job in place. Then when there's a particular job, they'll issue a purchase order and that purchase order will just incorporate the terms and conditions of that master subcontractor agreement. That's a really good place to be because then when you are bidding on a project, you already know how you are allocating risk amongst yourself, your subcontractor, and the owner, and you can price accordingly.

DG: Yeah. Again, it makes total sense.

DF: Okay. Well, tell us if people need to connect with you, what's a good way to start the dialogue?

CS: Again, thank you for having me here today. I can be reached at my office, it's (714) 451 -7919. Send me an email, that's cksetc@lanak-hanna.com or you can go to our website, which is Lanak-Hanna.com.

DG: Thank you again and thanks to our listeners for joining us and we'll see you next time.

Continue to Part II

Umbrella vs. Excess Liability: The Key Differences Contractors Need to Know

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

When reviewing insurance requirements that contractors receive from municipalities and/or general contractors, two lines of coverage that are often misunderstood are umbrella and excess liability. These terms are commonly interchangeable in the contract, but have subtle differences. In addition, the limits required by contracts are increasing significantly.

Excess vs. Umbrella

An excess liability policy has two primary functions: it provides excess limits above the underlying liability insurance limits and replaces underlying insurance limits as aggregate limits are exhausted; the excess policy will be subject to the same coverage terms, conditions and exclusions as the underlying policies. This is what is called follow-form.

A commercial umbrella liability policy has three primary functions: it provides excess limits above the underlying liability insurance limits; replaces underlying insurance limits as aggregate limits are exhausted; and offers broader coverage than primary policies for certain losses which would be subject to an SIR or self-insured retention.

Why are they important?

A commercial umbrella or a properly structured excess policy will sit above a contractor’s existing policy’s general liability, auto liability and employers’ liability limit. This protects contractors from large unexpected losses that can have devastating financial impact on the company.

With the dramatic rise in costs of insurance claims the last few years, either from social inflation or third-party litigation funding, multi-million dollar settlements are becoming more frequent. For example, if one of your employees is in an auto accident that causes severe bodily injury to multiple people, the legal and medical costs incurred could very easily exhaust your primary auto liability limit very quickly. Umbrella or excess policy limits would be available cover those losses.

So, when reviewing a contract, pay close attention to the umbrella or excess insurance requirements, and ensure that you understand the subtle differences of how they can impact your bottom line if there is a claim.    

To learn more about these specific coverages and how they can be incorporated into your current insurance program, reach out via email to sclayton@ranchomesa.com or (619) 937-0167.

Maximizing the Value of Your Next Loss Control Visit

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

There are a few different reasons for a carrier to schedule a loss control visit. Sometimes, a carrier may want to perform a loss control visit before they quote your insurance. However, for the purpose of this article, I’d like to focus on the loss control service offering provided directly from your current insurance carrier.

From the perspective of a tree care business owner, uncertainty, skepticism, and hesitation are often the most common initial reactions to an insurance carrier loss control visit. However, these visits should not be seen as a negative process. Instead, they present an opportunity for tree care business owners to enhance safety protocols, reduce risks, and ultimately improve their insurability.

Loss control specialists have dedicated their careers to understanding risk and safety, and are committed to make the workplace safer. By engaging with the loss control specialist and reviewing their recommendations as constructive guidance, tree care companies can make valuable changes that not only improve their risk profile, but also potentially lower insurance premiums.

To get the most out of a loss control visit:

• Set clear objectives. Establish goals and determine what you would like to accomplish. Communicate your objectives of the visit with your team members and the loss control representative. It is a good idea to engage your key employees and involve your team. Your safety officer, fleet manager, and crew leaders should be present. This will encourage participation and help cultivate a culture of safety.

• Share information.  Have your safety programs, training records, maintenance records, and any other safety information ready to share. Discuss any safety incentive programs and/or initiatives set forth by management.

• Maintain an open mind and practice humility. Welcome feedback and approach the visit with a positive attitude. View the loss control specialist as a partner and be open to recommendations.

• Conduct a walkthrough and jobsite visit. Tour your facility and visit a jobsite, unannounced. It is best to drop in on your crews without them knowing you will be there. This will provide real insight into your operations, accountability, and identify gaps in safety compliance.

• Document recommendations. Most of the time, your loss control representative will generate and send to you a report for your records. However, if that is not the case, make sure to record key points and suggestions.

• Create an action plan and prioritize changes. After the visit, review the recommendations with your team and prioritize the changes and completion of your plan within a certain timeframe.

• Build a relationship. Stay in touch after the initial visit and maintain communication with the loss control representative to discuss ongoing safety improvements and updates.

Maximizing a loss control visit strengthens your business by improving safety, reducing insurance costs, and maintaining a long-term relationship with your carrier partner. It is easy to view loss control visits as a chore or another task to check off the to-do list, but doing so overlooks the valuable insights the loss control representative can offer. Instead, try to view it as a partnership so you can leverage the representative’s knowledge to improve workplace practices and create a safer and more efficient operation.

To discuss how your tree care company can make the most of a loss control visit, contact me at (619) 486-6437 or randerson@ranchomesa.com.

Employer’s Guide to Handling Cumulative Trauma Claims

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

A growing thorn in employers’ sides has been the rise of worker’s compensation cumulative trauma (CT) claims. Cumulative trauma refers to the ongoing psychological and physical injuries that accumulate over time, often resulting from repetitive stress or exposure to adverse conditions. Employees missing time can lead to larger workers’ compensation claims, lower moral, and less efficiency. It can be easy as an employer to take a defensive stance and fight each one of these, but there are a few factors that must be taken into consideration prior to deciding if you should settle or challenge these claims.

Not every CT claim should to be fought. As hard as it is to hear, you can win the battle but lose the war. Sometimes the cost of gathering information, medical reviews, time spent away from operations and litigation can add up to more than it would have cost to settle these claims. This is extremely tough to achieve in construction as the burden is on the employer to prove that there is no way that their stated injuries could have happened while working for you.

Employers can proactively fight CT claims by staying ahead of the exposure as much as possible. This means making sure your workers have the safest, most ergonomic-friendly environment possible. Stress and repetitive motion are two of the largest causes of CT claims. Trying to keep your employees from doing the same repetitive task over and over is extremely important in keeping both moral high and frequency of claims lower. However, this can be difficult for most construction companies with the need to perform the same motion over and over, but it is necessary to have your employees switch up tasks if at all possible.

This does not mean that every cumulative trauma claim should be settled either. We are seeing younger and younger employees filing these once they have been let go or have chosen to leave. These post termination claims typically come attached with an applicant attorney and can include multiple body parts being named that appear initially as fraudulent statements. If it is determined that there truly was no record of injury and they are able to perform all normal duties, fighting the claim may make sense.

Each claim is unique and needs to be handled as such. Relying on your insurance broker and carrier claim consultant for guidance is critical in staying focused on the facts, not the frustration and emotions that often accompany these types of claims. While settling a claim that could be fraudulent can be frustrating and does have an impact on your experience modification rate, it can often be the best path towards minimizing costs and maintaining lower loss ratios that lead directly to lower renewal premiums, which is the ultimate goal.

If you have any questions about how to handle cumulative trauma claims, reach out to me at ccraig@ranchomesa.com or (619)438-6900.

Exploring Innovation and Problem Solving in the Commercial Construction Industry

Kevin Howard, Partner with Rancho Mesa, interviews Jeremy Dentt of Dentt Properties Inc. and explores a range of topics relating to innovation and problem solving in the commercial construction world.

Kevin Howard: Welcome to StudioOne™. I'm Kevin Howard, Partner here at Rancho Mesa Insurance. Very excited to have our guest today, Jeremy Dentt. Jeremy, how are you doing?

Jeremy Dentt: I'm good. Thanks for having me. First time podcaster here.

KH: First time podcaster. I feel privileged. Jeremy Dentt is the owner of Dentt Real Estate Services. He's been specializing in the development, management, leasing, and sales of commercial real estate since 2004.

Jeremy, you mind if I go through your resume really fast? Geez, Louise. 19 years of experience in commercial real estate, which officially makes you a guru. San Diego State Aztec, and I'm looking through the development and management, you just have a ton of different types, a multitude of developments: commercial, habitational, gas stations. Which one of those was your favorite?

JD: I would have to say that my favorite is industrial. It's easier, four walls, some concrete, less chaos to the mix of the development where gas stations, carwashes; lots of moving parts, lots of different subs and smaller lots to build on.

KH: Makes more sense, it's more concise, less of a busy zone. And that would be your ideal build.

Well, we're going to go over some commercial real estate topics that I think.a lot of listeners are maybe asking themselves, you know, “What’s going on out there?” There’s been a ton of change since COVID, a ton of change nationally, internationally, so, just really excited to dive into this.

Let’s start with this question; if you could solve one major challenge in the commercial real estate industry today, what would that challenge be and what would you do?

JD: Well I think the biggest challenge we're still facing in commercial real estate, and just the building industry in general, is the escalating costs. We had huge spikes during COVID and we were hoping for a softening post-COVID but, some things have slowed down. It's still challenging to get material on time, costs are still going up, specifically switch gears are a year out from manufacturing to delivery to the site which presents just a major challenge to getting a project out of the ground.

KH: So you're estimating for a project to be, you know, six months, seven months, and you're way behind just because of how the economy is just so slow right now?

JD: Yeah, the supply chains are still on a significant delay for certain parts. Most of our projects that we started in the last three years, we ordered some of the important items like the switch gear and any large equipment six, seven months before even signing up a contractor.

KH: Right, frustrating, but what would you do to solve that problem? You know, you have a magic wand and you're like, "Hey, this is the big fix."

JD: That's a great question that I don't think there's one easy answer. I think having a little bit more manufacturing in the States would help. Some of the shipping logistics was the biggest challenge, getting it across seas. If we had more opportunity to manufacture some of these products locally, I think it would be easier for us to streamline the process.

KH: Totally agree. Your career spanning, you know, 20 plus years, what was the defining moment if you could just name one in your career so far, as far as a commercial real estate developer?

JD: Yeah, I think for me, I started my own project in 2019. It's an industrial complex, seven buildings in total, broken up into two phases. In the first phase, we got out of the ground in early 2019. And as you know, in 2020, March, we hit COVID and the world shut down. And I specifically remember the moment in this development when I was sitting there looking at my Excel spreadsheet with all my costs; my loan, which was a personal guaranteed loan of over $6 million and the world shutting down and wondering, what do I do next? And there's actually a funny picture of me laying in my backyard face down in, you know, March, where it's still 75 degrees here, I'm outside lying face down with a Patagonia jacket on just contemplating the decisions I've made.

KH: Yeah. “Where do we go from here?” Perfect timing, right?

JD: Yeah. I think for the defining moment side of it, it made me realize that I'd worked on this project since 2012 and we timed everything as best as we could. But there's so many factors in real estate and just anything you do that can come out of nowhere, that blindside you. And so having important economics to the deal is more important than ever because tomorrow something can change. And in that instance it was a global pandemic that I did not factor in my investment performance. But it was still a great project in a great location and luckily things turned and we did just fine but it was certainly one of those moments where it constantly changes your risk assumptions and how much risk you're willing to take on given that nothing's guaranteed.

KH: Right. Nothing is guaranteed. And obviously, that project is done. I've seen it. It's beautiful.

JD: It's done. It's insured by you, which is great. It's financed. So, yeah, it turned out to be a really good project for us.

KH: It worked out. Let's switch over to some innovation conversations. What innovations are you most excited about? I know there's just so much change with AI and, you know, remote workers What are you excited about when it comes to innovation?

JD: Well with innovation and construction and, you know, development of commercial property I've been really tracking more of the AR technologies that are coming out. Specifically, I've been working on a lot of construction projects where I'm out there, kind of old school, with a set of plans looking at details making sure the contractor built it right and I've lately come across these Apple goggles.

KH: Apple Vision Pro, the augmented reality. So cool, right?

JD: The augmented reality. Yeah those I really like and I've been tracking some of the programs that you can get where instead of the old school way of walking around with blueprints and checking the details making sure it's getting built right, the AR goggles you can build in the architectural plans with all the overlays of all the MEP sheets. And instead of looking down, they're essentially cast in front of you in the building and so if you had questions about, you know; the structural components behind it or what's behind that drywall or is that plumbing line supposed to be there? The plans are in front of you in these Apple goggles.

And I just think about how much efficiency will be brought to the construction industry when you're essentially staring at the plans while standing at the project. I think it's going to be huge for the construction industry in terms of not missing things. For instance, like right now I've got a project that I'm really concerned about some of the waterproofing and I can't get those layers pulled out. And I'm not sure that the details perfectly followed because there's some missing elements there. So now we're going to pull back some of the panels and make sure it's all there. However, if we had these technologies at the start, it'd provide one more opportunity for them to make sure that they're getting it right.

KH: That layer of comfort for you, right? Because you can see it.

JD: Absolutely.

KH: Yeah, I think that AR is definitely, it's going to come fast. It's going to affect how we train everybody in different industries, but it's definitely going to create more accuracy. You know, you can see it. It's right in front of you.

JD: Yeah, the technology doesn't just span construction. We're seeing it every year in the property management. You know, my company is unique where we do development, we do property management as well. It actually, the property management feeds itself from the development because understanding how the building is built is as important to managing it as well.

But, the technology there is constantly changing. Just coming into your office, looking at these elevator systems that have negative air systems now post-COVID, self -cleaning buttons. The property management software is changing, the connectivity between you and the tenant is easier than ever. It's really about streamlining that connection. And I always tell my clients that we incorporate these new technologies to connect us to the tenant, to get the rents paid, to get the tenants needs taken care of, but it's not to lose that connection with the manager. These types of technologies actually free up our time more so that we can be connected to the tenant base, which is important. They want to know their manager; they want to feel like they're being heard. And these programs are to kind of get rid of the minutia and streamline whatever it is, maybe a maintenance call, getting them connected to our vendor so that we can open lines of communications for other things.

KH: Right. It frees up the opportunity cost for you to go do other things, plug in your time. I mean, those are the advancements that we're so excited about.

JD: Yeah.

KH: I'm imagining listeners that are interested in commercial real estate would have some questions for you having to do with the future. What are you seeing in 20 years from now? You know, 20 years ago, if we talked about AR, augmented reality, we'd be like, “What?”

What's on the horizon and what would be really cool?

JD: Well, I think that one's more of a challenge for guys like you and I that are born and raised in San Diego. Perfect example, 25, 30 years ago, downtown San Diego was never on my radar. I didn't think there was any opportunity to develop. As you know, when we were kids, it wasn't the safest area to go. For me, I remember going down to Old Spaghetti Factory and my pops would drive up to that front door, open the minivan, say, “Get out, go inside.” Then he'd come in hour later, said, “Wait at the door,” minivan comes around, open, jam in. That was my understanding depiction of downtown, right? And then all of a sudden this ballpark comes in and everything explodes down there.

I think it's part of what I'm talking about of what 30 years looks like, density, right? We are out of land in San Diego. Single family homes, building them is a challenge. We just don't have big tracks to put it together. You'll get your small pockets here and there, but the reality is, is most of our housing is going to come from density. And you've seen it in downtown San Diego. You see constant sky rises going up. You're seeing it more in North Park than ever before with the cities updating their community plans for denser locations near freeways. And so I think that the 20, 30-year outlook for San Diego is just a completely different sky rise. The single family huts that we grew up in East County, all those areas will have to accommodate growth, and we’re out of land. So how do you do it? You go up.

And I think that's honestly, we're seeing it even in industrial. It hasn't hit San Diego, but in markets like Seattle, Oakland, New York, they're building two and three story industrial buildings now. Those same markets are constrained with land. And so how do you create more industrial space?

KH: Go up.

JD: You go up. It's expensive, but at some point it does make sense. So I think just a vertical skyline is going to be the future of San Diego.

KH: Right, and that reminds me of the book Ready Player One that I asked you to read years ago.

JD: Sure, what a great recommendation.

KH: And that story, the stacks are stacked high because of that same problem, right?

JD: Sure, hopefully, we don't lose the social interaction that is lost in that world, but the density, I agree.

KH: We shall see. We'll listen to this podcast later on in life and say, "We were way off," or "You nailed it." So, we've talked about innovation. We've talked about the future of commercial real estate, what are you doing for risk management? What are you doing out there to really mitigate major risk?

JD: Yeah, I think that's one of the biggest things where we constantly look into. First things first is hire a good insurance agent, like you, to ensure the entire portfolio and be as cost effective as possible.

At a property level, we're encouraging all of our owners and looking at our own assets and trying to add cameras. I think from a perspective of risk for litigation, having captured more data on your building; what people are coming and going, what happens when they're at their building, I think is one of the best things that you can do. It doesn't help proactive. Of course, we got to stay proactive with getting eyes on our property, checking to make sure that everything's in good order. We don't want broken concrete. We don't want tripping hazards, all the kind of normal checks. But inevitably things are going to happen, right? And so mitigation of that risk after it happened. Well, not to say anyone lies about trip and fall on a property, however, having an understanding of what happened can be a defensible situation for us. And so having cameras at our properties to pick up on any activity of what may or may not happen is something that we're trying to roll out across our portfolio. And we do it on our large properties, which cost a little bit more because you have a bigger area to capture, all the way down to the properties that we represent that are one and two units. And this can be achieved with even installing a ring camera that has the ability to just capture an area.

And what we found is in these situations if something arises, we understand what happened so we can defend or acknowledge the situation and oftentimes it's just using it as a defense opportunity. The risk perspective is, we got to hand it over insurance and then our insurance premiums go up, right? So, doing as much to the building as possible to protect us and keep our claims low.

KH: I think it's especially very timely as far as adding a control, adding something to invest in that will just pay benefits over the long run If you do have a claim like that. It’s the same with commercial auto right now like, “Hey, so what happened?” Is it he said, she said or oh, “Here's the footage, we have it right here.” So that's really smart.

JD: Great point. Yeah, it's no different than insurance policy to us. It helps after the fact of collecting the data and understanding. And on an amenity base for tenants, they're actually finding a lot of value in it.

So we've got two high traffic buildings, one in Chula Vista and one in Escondido. And now multiple times I've provided footage for a tenant or a client of the tenant that reached out and said, "Someone backed up into my car." And I provided them the make, the model of the vehicle and they were just blown away like, "This is fantastic. This is what my insurance needed. They know it's not me.”

KH: I love it.

JD: What they do with it, I don't know, but it at least helps them on their side.

KH: Right.

JD: And so, we've been really trying to push for a lot of that.

KH: This is really innovative and can't cost too much either, right?

JD: It's coming down in price. I remember when I started, you would look at it and it just didn't make financial sense. But with the wireless connectivity, which is the most challenging part, because you don't want to be running wires 600 feet down the building, right? In a conduit, it all starts adding up. But with the new wireless capabilities and the quality of these videos, it's cheaper than it's ever been.

You know, I do all these things, right? And I put in all these checks and balances for my buildings. My most recent project, that you're aware of, is the ESFR rated fire system. The best you can get. If anything catches fire there, that fire system is going to suppress. But, the industry in general, every year, not every year, I should say the last couple of years, we've seen it premium spikes. And the comments have been, “Well, there's been a lot of wildfires, there's been floods.” Nothing that's been extremely detrimental to my properties or in my location, but my premiums continue to go up. I'm curious is why are outside events affecting my properties?

KH: That's a really good question. I think that, you know, we see premiums go up and we're wondering, “Hey, time out. My portfolio was not affected, you know, I'm so far away from these fire zones.” In reality, you know, I have some statistics in front of me. In 2023, 7,127 wildfires. The year prior, 7,667 wildfires. Both years ranging $10 billion to $ 15 billion and paid out insurance costs.

So, your insurance companies, they're buying reinsurance. They're buying insurance on top of insurance. Those reinsurers, they're getting killed. Hurricane Milton, for example, has an estimated $60 billion payout. So when we have these disasters internationally that are taking a huge hit and these re-insurers are taking a huge hit. The pressure passes down to the insurers and ultimately the consumer, right? So we'll see the effect of Milton and Hurricane Helene. But that's the long and short of it is you can have the best controls in place, but because of what's going on with natural disasters, Unfortunately, you're seeing the effect.

And then one more added layer is the cost of goods. Like you mentioned, you know, gas prices being up, money costs more. If there is a situation where a building has to be rebuilt, it costs way more now than it did 10 years ago.

JD: Sure.

KH: So you combine those two together and, you know, that's why we're seeing premiums go up. And the best way for us to really help you fight, you know, at commercial real estate portfolios, you know, fight down those costs, is to communicate early with your insurance agent, make sure they know everything about those controls that you're talking about. Do you have the cameras? And what else are you doing that really helps us mention that to the marketplace and find savings where we can find savings?

JD: So my mitigation of risk can transfer over to their mitigation of risk and hopefully, maybe move the needle of premiums?

KH: I mean, for example, we talked about property premiums going up. General liabilities are usually a good portion of your total insurance costs. Can we push that down? Should we raise the deductible? Are we fighting for the best rate on that? We got to fight where we can fight right now when we have no control, we're completely powerless over what's happening in the property marketplace.

Similar to homeowners right now that live in these fire zones, paying five, six, seven thousand dollars a year in premiums. They weren't expecting that. They didn't budget for that. So we have to just hold tight, be as creative as possible, and really dig deep as far as how we market your account and how we fight for credits.

JD: Yeah, I agree.

KH: We've covered a lot of ground here. We've talked about how you're mitigating risk. We've talked about the implementation of new technology. With everything that you have under your belt, who can you help right now? Who's out there that might need your services?

JD: So our focus is twofold. We're looking for clients and partners that have land or a building that has some type of value-add lift that needs someone with expertise of construction, ownership, and management. And then also over the past five years, we've added multifamily into our portfolio. Which, the landscape of San Diego has changed from a few small developers and managers to multi-billion dollar companies. And so being just focused in one silo of commercial real estate presented challenge. So we pivoted and took what we experienced in commercial real estate, which is a higher level of care and trust for a building and added that to our multifamily portfolio.

So there's a lot of families out there that are self-managing their own portfolio, whether it's a three unit, four unit or a couple hundred units that the family was doing on their own. They're reaching that point of retirement where that building--it makes a nice cash flow for them--and to give up that management fee to shed all risk and just the risk of everything that's constantly changing. They don't have to stay on top of anymore giving passing that baton over to a company that stays on top of it works with the right people, the right insurance, the right GCs to keep that building running healthy for a long time is who we're really looking for. Someone that we can form a relationship with. We're not just there for just the management. We want to be a partner to it and provide them the highest level of service that we originally started our roots in, which is commercial real estate.

KH: Right. And it sounds like you'd bring a real peace of mind in that scenario where somebody's kind of at the end of where they want to manage their property and they want to hand it over to a pro.

And I'll vouch for Jeremy. I've known Jeremy my entire life. He's such a good guy. I really truly believe in what you're doing out there in the community for San Diego. Jeremy also contributes his time to Miracle League, which is a fabulous, very important part of San Diego as far as a nonprofit. And I'm just so proud to be your friend.

JD: Appreciate that. You know, we're here to help. I understand management comes at a cost. Oftentimes there's an opportunity to offset that expense that you see from management fees. So we're really pushing for families and owners that, looking for retirement, that want to hand over their asset that they worked really hard. And we're going to honor how hard they work to make that deal and to hold it for so long and carry out that legacy of management for them.

KH: That's a good point. It's a very good point. Well Jeremy if somebody wants to reach out to you. How can they get ahold of you?

JD: Yeah, we can attach my email to this post. It's jeremy@denttprop.com Happy to help.

KH: Very cool.

JD: Thanks so much for having me.

KH: Thank you for coming to StudioOne™.

JD: Great introduction to my first podcast.

KH: There you go. Appreciate it.

JD: Thanks.

Three Industry Benchmarks all Landscape Companies Should Track

Author, Greg Garcia, Account Executive, Rancho Mesa Insurance Services, Inc.

There are three major benchmarks that all landscape companies should consider when looking at how well they manage risk.  The three benchmarks are your:

• Average Claim Cost

• Claim Indemnity Rate

• Claim Frequency Rate

Knowing the importance of this, we designed a key performance indicator (KPI) dashboard that highlights these industry benchmarks, as well as compares them against other landscape companies in their geographic area.

We have pulled data from all landscape companies using the 0042 class code and have come up with some industry averages.  For the sake of this example, we will use California landscape contractors only. 

In California, the average claim cost for landscape contractors is $50,300 per 1 million dollars of landscape payroll.  In other words, on average for every 1 million dollars a landscape company has in the 0042 class code they should incur about $50,300 in claim cost. That number would rise to $100,600 in claim cost if a landscape company had 2 million dollars in 0042 class code. 

The next major category to consider would be indemnity rate.  Indemnity rate, or claims that result in lost time and temporary disability, the industry average is 0.7 claims per 1 million dollars of 0042 payrolls. 

Finally, the last category we consider is frequency rate.  In California for every 1 million dollars allocated to the 0042 class code on average that company will have 1.5 claims.

Knowing the data will not only give your team a good indication of how safe your company is, but these categories also play a significant role in determining work comp premiums.  There are several underwriting metrics a worker compensation underwriter takes into consideration when looking at a prospective business.  The Experience MOD, loss history, and of course safety protocols and procedures to name a few. 

The other major metric that underwriters are looking at are these three benchmarks: , average claim cost, indemnity rate, and frequency rate.  Simply put, the better a landscape company scores in these critical metrics, the better chance that an underwriter will add schedule credits to lower the worker’s compensation premium.

Now is a great time to see how well your landscape company stacks up against your peers, and consider any internal options to improve your metrics in any of these three major categories.