Workers Comp Storm Threatens Tower Service Companies

January 1, 2014

By Bruce Eades, CIC, AAI…

A perfect storm is brewing in workers compensation in the tower service industry. I have seen the insurance industry have its hard and soft markets, but the market we are in now is of serious concern for the tower service industry.

We are in a hard market with fewer insurance companies, where demand for coverage outstrips supply. There has been a change in the coverage class code and the split experience modification. Additionally, we have poor hiring practices and a highly litigious society. What is brewing could turn the industry on its head. Without workers’ compensation, the industry is dead. Here are my concerns:

1. National Council on Compensation Insurance (NCCI) Split Experience Modification change — The carriers are contractually requiring tower companies’ experience mod to be a 1.0 or lower. The NCCI has changed how the mods are being calculated. Most experience mods are going up because of this ruling.

2. A hard insurance market — The current hard market is driving pricing up for all tower service companies. This is because of poor underwriting results and lack of investment income. The downturn in the economy also had an impact. There has been an increase in fraud cases. Employees facing layoffs opted to file a workers’ compensation claim instead of taking unemployment. For more information on the continued hardening market go to www.insurancejournal.com/topics/hard-market/.

3. Fewer workers’ compensation insurance carriers — There are only a few insurance companies willing to write workers’ compensation policies for tower companies. Most insurance companies have a treaty exclusion that will not allow them to insure companies with height exposure. For companies with fewer than 20 employees, there are only two or maybe three possible carriers willing to insure tower service companies: Zurich, Amerisafe and AIG.

These three carriers can provide coverage for most states. All three have limitations, including minimum premiums, which hurt small companies. These carriers like to operate in some states and not in others, which can hurt companies doing business in multiple states. To my knowledge, there are no insurance companies willing to write workers’ compensation coverage for new startup tower service companies. Zurich has made a few exceptions in the past. New tower companies and some existing tower service companies are being forced into the assigned risk pool in the various states they are working in. There are some companies getting their workers’ compensation through professional employment organizations (PEOs). Buyer beware; the states covered by PEOS are limited and there is no coverage for an uninsured subcontractor. Recently, a tower service company insured with a PEO had a fatality. The PEO is denying coverage.

4. Fatalities — The number of fatalities and major injuries increased this year. This will tighten the already hard workers’ compensation market even more, and I believe the regulatory environment will get tougher.

5. Poor hiring practices — Current hiring practices are at an all-time low. Todd Schlekeway, executive director, NATE, said it perfectly, “There is an arms war going on.” It is the worst I’ve ever seen. There is so much work out there that many tower service companies are hiring anyone they can get their hands on to meet customer demand. Pre-hire practices are poor, post-offer practices are poor, pre-claim processes are poor, and post-claim processes are poor. I believe this is why there has been the increased number of fatalities that have occurred this year. Many tower service companies have lost their safety culture.

6. Continued contractual demands — The customers of tower service companies are demanding more and more. They are shifting a greater amount of their liability to the tower service companies — as much as they can. Some of the requirements are getting ridiculous, and the insurance companies are saying they just don’t need the headache and so are saying no to this class of business.

7. NCCI class code change — The governing code is being changed from 7612 to 7600. The rate per $100 of coverage on class code 7600 is less than for 7612, which owners of tower service companies will like. However, as already mentioned, there are very few companies willing to write workers’ compensation policies for tower service companies. And the few insurance companies that are writing policies for tower service companies are already having poor underwriting results. Why would they take an even greater premium loss with the code going from 7612 to 7600? Also, lower premiums with the same amount of losses will force experience mod even higher. I fear the few carriers remaining will stop writing policies for tower service companies altogether.

8. Lack of awareness in the tower industry — Tower service companies, tower owners and major carriers are clueless about how serious the situation is. It reminds me of our national debt. People in our country do not want to hear about the national debt. They just put their heads in the sand and hope the problem will go away. The same holds true in the telecom industry. There has to be serious conversation with all parties.

9. Lack of coverage knowledge — Many tower service companies are doing business in several states assuming they have workers’ compensation and general liability. Workers’ comp is triggered in three ways: the state in which the injury occurred, the state in which the employee lives or the state in which the corporate office is located. A claimant attorney will often file the claim where the benefits are the richest. If a tower service company does not have this state listed on its workers’ comp policy, the claim can be denied.

10. Legal environment in some states — This year, many insurance companies have pulled out of certain states — New York, Florida and Illinois, just to name a few. Many tower service companies have a general liability policy with no idea that there may be a total exclusion for work being done in New York or Illinois, for example. The courts have awarded some injured workers’ benefits under workers’ compensation and general liability. This is unfounded and very serious. Workers’ comp was designed to be a sole remedy. This legal maneuver is forcing general liability carriers to put state exclusions on the policies.

The good news is I believe all of these issues can be fixed with proper communication. I truly believe it starts with hiring practices, pre-hire, post-hire, pre-claim and post-claim policies. Tower service companies that focus on best-in-class hiring practices are more profitable and have fewer losses, happier employees and lower insurance costs, and the owners have few headaches.

About the Author

Bruce Eades is regional president of Insurance Office of America. Since 1994, he has focused on the telecommunications industry, building one of the largest retail telecommunications agencies in the country. Bruce is a 28-year veteran of the insurance industry. He received his Accredited Advisor of Insurance designation in 1996 and received his Certified Insurance Counselor designation in 2005. He can be reached at [email protected] or 678-923-3336.