August 2, 2022
Ontario snow contractors work together through Self-Insured Retention
BY SCOTT BARBER
Ridiculous numbers. Quotes with six figure deductibles. Go away prices.
Gerald Boot, owner of Richmond Hill, Ont. based Boots Landscape and Maintenance was looking for a new insurance provider for his winter maintenance operation.
“I did a pretty thorough investigation in terms of getting quotes and I got some pretty ridiculous numbers,” Boot said. “Some insurance companies were just simply getting out of the winter maintenance business altogether.”
In the profession since 1981, Boot had seen ups and downs in the insurance market before. But his renewal of it in 2019 was different.
Jon Agg, owner of Ajax, Ont.-based Pristine Property Maintenance, faced the same situation. PPM has a large winter maintenance portfolio, with over 450 residential and commercial properties across the Greater Toronto Area and the Kawartha Lakes region. Agg says insurance for their winter maintenance operations was getting to the point where it wouldn't make financial sense to stay in the business.
“Everyone is insurable if you want to spend a million dollars a month,” Agg said. “But the problem is eventually the math stops making sense. What's the point of working all those hours, with constant stress and all that risk if you're not making a profit?”
Jim Monk, co-owner and president of Markham, Ont.-based MPS Property Services had a similar experience.
“I've been in the industry for more than 30 years and over that time, I've seen hard and soft insurance markets,” Monk said. “I think what's been happening with our industry is there have been fewer and fewer companies willing to underwrite, period. The consequences of that are twofold: One is premiums going through the roof, and the other is deductibles getting up to really high levels with numbers like $25-50,000 becoming pretty common. I've heard of $100,000 deductibles. It becomes something that a lot of companies can't afford.”
One of the big factors at play was a string of catastrophic natural disasters, including Hurricanes Harvey and Irma in the southern United States. The global pool of insurance capital was depleted, which led to higher rates and for some insurance companies to exit riskier business areas, including snow and ice management.
By 2019 it was clear the global insurance market was hardening.
And for insurance companies, snow and ice management was riskier than ever.
According to Insurance Business Canada, “personal injury lawsuits have increased dramatically in recent years, especially in Ontario, where personal injury law firms have been working on a contingency basis, which means that lawyers agree to only receive payment if they win a settlement. This has resulted in more people taking their chances with personal injury claims, such as pursuing compensation after a slip or fall at an icy or snowy location, and it has given personal injury lawyers more incentive to be aggressive and potentially seek higher damages.”
Mark Jackson, president of The Insurance Market, an insurance brokerage based in Pickering, Ont., said a similar pattern — rising numbers of personal injury lawsuits spurred on by hasty insurance company settlement payments — had also been a problem for the elevator contractor industry.
“The problems the snow industry has been going through are very similar to what elevator contractors were dealing with about 15 years ago,” Jackson said. “They were being targeted by personal injury lawyers, getting dragged into all kinds of lawsuits and insurance companies were really not equipped to fix the underlying problem, and to invest the time into coming up with an appropriate for the industry.”
He added, “I think insurance companies did try their best to defend claims, but in many cases, business decisions were made to settle claims and close out files to reduce legal costs. Unfortunately, that really hurts the industry in the long run because the more claims that are paid out and the higher the amount that is paid, that just attracts more claims and personal injury lawyers into it.”
Insurance 101: Hard vs Soft markets
HARD MARKET: A hard market is the upswing in a market cycle, when premiums increase and capacity for most types of insurance decreases. This can be caused by a number of factors, including falling investment returns for insurers, increases in frequency or severity of losses, and regulatory intervention deemed to be against the interests of insurers. SOFT MARKET: This side of the market cycle is characterized by low rates, high limits, flexible contracts, and high availability of coverage. *Definitions provided by the International Risk Management and Insurance society (IRMI).
Self-Insured Retention (SIR)To address the issue, Jackson began offering a number of elevator contractors Self-Insured Retention (SIR).
The International Risk Management Institute defines SIR as: “A dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss. Thus, under a policy written with a SIR provision, the insured (rather than the insurers) would pay defense and/or indemnity costs associated with a claim until the SIR limit was reached. After that point, the insurer would make any additional payments for defense and indemnity that were covered by the policy. In contrast, under a policy written with a deductible provision, the insurer would pay the defense and indemnity costs associated with a claim on the insured's behalf and then seek reimbursement of the deductible payment from the insured.”
With SIR a company or group of companies will pay into a pool to cover claims up to a set amount, and also to defend or settle those claims as they see fit. This process allows members to be more active and involved in the way claims are being managed. It also typically involves traditional insurance to cover claims over the set amount.
In 2019, Jackson began meeting with Boot, Monk, Agg and a number of other snow and ice management business owners based in Ontario to discuss forming a SIR group.
“We started the process with just asking a whole bunch of questions and trying to really dig deep and understand how to reverse engineer a solution,” Jackson said. “We called a meeting and invited a whole bunch of contractors into our office for a brainstorming session. We asked a bunch of questions about how claims were being defended and what insurance companies were doing. One of the questions we asked was around expert witnesses. Who are insurance companies hiring to show that you met your standard of care in a claim situation? Every contractor in the room told us that this was not a practice they had ever experienced with their insurance company. We also received feedback that in claim situations, contractors would provide the insurance company with everything they asked for in terms of records and documentation, and they would be told they were in great shape and have done everything right. There would then be little to no further communication regarding the claim until the following year's insurance renewal. The contractor would be presented with their claims experience report from their insurers which would show a significant payout for that claim which they apparently were in great shape with. Of course this had a direct impact on their renewal rates. When the contractors asked the question 'what could we have done differently to change the outcome,' they would be looked at with blank stars.”
The lack of transparency with how and why claims were settled, and the apparent unwillingness to fight lawsuits — even when the contractor had ample records to prove they had fulfilled their contractual obligations — was a major source of frustration for Boot, Agg and Monk.
“With traditional insurance you have no control, none whatsoever,” Boot said. “For a lot of people, that has been a point of contention. The problem is claims are expensive for insurance companies, even for cases that would likely win in court. By the time they pay all the legal costs just to get to the discovery phase, they've already spent thousands of dollars. Often it makes more sense for them to try to settle long before the case gets to trial.”
They saw the creation of a SIR group with like-minded snow and ice management contractors as an opportunity to cut their insurance costs in the long term, and also to take control over the claims process.
“I look at SIR as a middle ground,” Monk said. “You have the typical insurance model where you hire an insurance company and pay them a premium and if there is a claim, you trust that the insurance will pay it. The farside of that is an insurance captive, where a number of contractors form and fund their own insurance company. And the third type is SIR, which is not owned by the contractors but it's funded by the contractors in a pooled manner. So we each pay into the pool to self insure our own claims up to a certain point. Then there is an umbrella on top of that we pay for a policy that will kick in, in case we exhaust the pool; basically it is catastrophic coverage. However, what makes SIR powerful is not so much the way it is organized, but rather the interaction of the members in the group. We all must commit to working at the highest standards when it comes to training, maintenance records, documentation, signing on to fair contracts. All of those elements ensure we are doing everything we can to prevent claims, or at the very least having a strong defense if they do arise.”
High standardsNow, the Ontario-based SIR program managed through The Insurance Market includes around 35 companies, including Boots Landscaping and Maintenance, Pristine Property Services, and MPS Property Services. To join the group, companies need to demonstrate best practice for staff training, record keeping and documentation, pre-season site inspections, and that they don't take on undue risk with the contracts they sign. And there are audits to insure each company is maintaining those standards.
The goal is to make sure everyone in the group is doing everything they can to prevent slips and falls on their sites. And if a lawsuit arises, they have the documentation to prove they were not at fault.
“We hire a third party, independent auditor to audit every company that is in our program,” Boot said. “They aren't hired to audit the numbers, they audit the process. They want to see the training records, they want to see the pre-season inspections, they want to see the calibration of the equipment. They want to see timesheets, journals, everything. And we had a lawyer draft our own contracts.”
Agg added, “We need to show that we're doing our calibrations, and logs, and weather journals properly. All of our trucks need to have GPS tracking. Our employees have to be trained. All of these things make it so that we are untouchable for frivolous lawsuits.”
Pre-season site inspections
Pre-season site inspections are mandatory for members of the Ontario-based snow and ice management SIR group. Jeff Wooldridge, general manager of TCG Oshawa, a member company of the group, said pre-season site inspections are “inspections you do on all of your snow sites prior to the season beginning for any hazards or potential hazards that could be a detriment to you doing your job.” Wooldridge said some things they look for are “gutters on sites that are leaking onto walkways where there is going to be high traffic. We look for gutters coming down onto storefronts or parking lots that are far away from drains that are going to cause potential freeze-thaw hazards. We are looking for cracking and uneven asphalt and concrete. Really anywhere where someone may trip when snow covers the surface.”
Jim Monk, co-owner and president of MPS Property Services agreed that pre-season site inspections are critical. “Of course there are the obvious things you look for, like whether there is any pre-existing damage or things that might get blamed on snow removal operations through the winter. But really it’s more than that, and in a perfect world it’s a visit with a property manager to look for potential hazards. It could be things like bad asphalt, it could be awnings or downspouts, even where the snow piles are getting placed. When you fast forward to March and go through the freeze-thaw cycles, you know, where is that water going to melt and run too? So the idea behind it is that we are looking at what things we can encourage the property owner to do and what things we can do to ensure the site is safe throughout the winter months.”
Getting premiums backUnlike traditional insurance the contractors of The Insurance Markets SIR program have the ability to earn back their contributions to the Self Insured pool which currently sits at $1.5 million. The more successful they are at reducing claims costs, expenses and settlements, the more of those funds that are returned to the members, including any interest earned.
“One of the key differences in a traditional insurance program is that you pay your premiums and if you don't have a claim then your premiums are gone,” Jackson said. “In our program we are financially accountable. Our job and our claims team's job is to use the least amount of those funds as possible. If half the pooled funds are used, then the other half goes back to the members. So the better we get at preventing or successfully defending claims, the more money gets returned to each company. Our elevator contractors SIR group is getting money returned to them every year. That is certainly our goal for the snow and landscape Industry as well.”
Boot says with the SIR program he is, “paying a little bit more than what I used to pay, but it's a whole lot less than those quotes” he received back in 2019. And being able to get money back in successful years is a real bonus.
The bottom line“Each step of the way we are looking at everything from a defendability standpoint,” Jackson said. “An SIR program is also really about accountability. We are running a mini insurance company where each member is really a shareholder of that insurance company. So we take it very seriously. To be accepted into the group you are audited and members vote. If you say you are going to follow these guidelines and operating procedures then you are expected to, because if you don't and there is a claim, you're putting all the members' capital at risk. We find it to be very self-regulating from that perspective.”
Jackson added, “This program is not for everybody. There is a lot of involvement expected of each member. The contractors that are typically excited about the SIR program are the ones who really want to make a difference and want to change the industry and the way they are being targeted by claimants. They want to have more control of the outcome of claims and create much needed insurance stability for an industry that hasn't experienced that for many years.”