A coalition is an alliance among individuals or groups, during which they cooperate in joint action, each in their own self-interest, joining forces together for a common cause. Labor and management in the building trades of West Virginia have done exactly that in their joint effort to control the costs of workers’ compensation insurance. Recognizing the benefits of training, drug testing, and proactive communication in the objective of reducing workers’ compensation injuries, labor and management have combined efforts and created an insurance program that returns the benefits of reduced workers’ compensation losses. The insurance program is known as a Group Captive, and it not only provides the essential coverage for workers compensation but rewards participants with superior training and loss prevention.
The Alliance
Too often the discussion in the media on the topic of labor and management is focused on their conflict. Disagreements surrounding collective bargaining, organizing, political fundraising, benefits, and foreign competition fill the papers. After a heavy dose of this conflict, it’s easy to forget the parties and people involved share a lot in common. The craftsman is an employee of the employer contractor. In other words, they work at the same company with common goals and objectives. Both work together in bidding and completing a construction project that offers compensation and personal satisfaction. Each gain when the project is completed timely and under budget; the contractor employer through profits and the tradesman through improved wages and benefits. It is undeniable that when construction projects are not profitable, labor and management both lose.
When the employer and its employee look for ways to work together in an effort to jointly improve their self interest, the cost of operating the business inevitably presents itself. One operating expense where the tradesman and contractor can come together is workers’ compensation insurance. The expense of funding losses arising from injured workers is no small part of a contractors operating budget. This is especially true for contractors employing the building trades whose skill and training demand a higher wage. With workers’ compensation insurance premium determined by multiplying a premium rate by payroll, union contractors pay more for workers’ compensation insurance than their competitors employing lower wage non-union labor even though union tradesmen’s training and focus on safety would suggest a more attractive claim outcome. The insurance pricing anomaly union contractors present can be mitigated when labor and management cooperatively share risk through a Group Captive.
Joining Forces
Even before the Group Captive was implemented, the building trades in West Virginia joined forces with contractors in the development of a first class training program in response to claim activity on the individual job sites. The claim activity monitoring started as a method to quantify the benefits of and need for specific training topics. Certified, experienced experts regularly provide hands on instruction to apprentice as well as veteran craftsmen. The training includes coursework in equipment operation, safety, and loss prevention. Thousands of hours are dedicated to the development and improvement of the skills deployed on every construction project. This is unique to the union labor market as the higher wages in part fund specialized apprentice training facilities for the aforementioned trainers to educate apprentices and craftsman. Labor and management also joined forces in developing a credible drug testing program that provided both labor and management with confidence in the accuracy, fairness, and completeness of the testing. While the Department of Transportation programs test based on a five panel screen, the building trades in West Virginia perform a higher level of testing.
These programs continue to improve through regular meetings where labor and management share ideas, obstacles, and solutions for the delivery of the most effective training and safety programs available. These meetings take place at least quarterly and maintain as their objective an open dialogue on the challenges confronting the participants. Challenges are best solved face to face with candid discussion. This works for training curriculum, drug testing, communication, and safety. In fact, the benefits from open, clear, and regular communication are further embraced by labor and management in this insurance program through the implementation of a trouble shooter.. The trouble shooter’s job is to make sure the back to work, claim adjudication, fact gathering, and loss prevention programs that are available to the contractors are deployed timely and efficiently. A combined force of labor and management is focused on the reduction of workers’ compensation expense.
Realize the Return
With the groundwork laid for the effective control of workers’ compensation costs by labor and management’s cooperative efforts, an insurance program that offered the participants the greatest return for their outstanding loss results was needed. A Group Captive offered the employer contractors the best opportunity to realize a return of underwriting and investment income from their workers’ compensation premiums. A Group Captive is an insurance company that is owned and/or controlled by its insureds. In this case, the insureds are employer contractors, and they are the participants of the Group Captive.
Group Captive participants purchase insurance the same way they do in the standard market; they send in their underwriting information, receive a quote and bind coverage. A Group Captive insurance program provides the necessary infrastructure for the delivery of claim payments, including a claims administration or TPA company, an insurer to issue the policies and a reinsurer to cover the large or unforeseen loss events. The Group Captive then adds a Captive insurance facility that is controlled by the group to assume a portion of the risk that is typically retained by the insurer. The Group Captive functions like any other insurance company and reports to its owner contractors its financial performance with premium earnings, loss payments, expenses, and investment performance activity.
Through retaining risk in the Captive and the application of programs designed to prevent and reduce workers’ compensation losses, the Group Captive participants may experience underwriting results enabling a return of underwriting and investment income. Without the Captive participation by the employer contractors, these positive underwriting outcomes would have inured to the benefit of the insurance company alone. The return of underwriting and investment income obviously reduces the union contractors’ expense of insuring their workers’ compensation and offers a cost advantage over traditional insurance coverage.
Does It Work?
The proof is in the numbers. Are the employer contractors realizing a savings over buying traditional workers compensation insurance? A review of historical premiums and losses for more than 30 different union contractors were revealing. On average, the employer contractor could realize between a 20 and 30 percent expense reduction by participating in the Group Captive. This revelation is causing the idea to flourish with more than thirty contractors applying for participation in the West Virginia Group Captive. Indeed, the Group Captive approach is spreading to neighboring states where the same labor management coalition is taking hold. An exciting development that truly can be described as a “win win” for all involved.
