Insurance alternatives under study

When there is financial squeezing going on, most fingers are pointed in opposite directions. One only has to read the long list of attorneys, cause and origin experts, marketers, suppliers and defendants down stream from liability to recognize that interests are being protected at all levels. Accusations are expelled like heat-seeking missiles.

Take a recent series of stories, published in the New York Times about the employment safety practices of McWane Inc. In addition, view the PBS special on the same subject.

I can’t remember the entire joke about bad news, but it ended with “… and 60 Minutes in is your waiting room.”

The exposés were filled with accusations of safety violations and worker exposure to deadly or catastrophic risk. All activities — or lack thereof — were carried out or directed with “cost containment and productivity” in mind.

These articles and documentaries also painted a picture of a hamstrung Occupational Safety and Health Administration (OSHA) enforcement process. Penalties for extreme violations were described as “slaps on the wrist.” I must admit after reading the articles and viewing the documentary my faith in OSHA enforcement went the way of Santa Claus and the Easter Bunny.

There are two sides to every story. On one hand, the employer was trying to contain costs through aggressive claims investigation. At the same time they were lax about worker safety issues and appeared to ignore pleas for compliance from workers and OSHA officials alike.

While these issues are related to employment safety, propane marketers have similar concerns. How they deal with them will dictate their liability fate.

A recent study of insurance issues related to propane marketers has outlined a fairly clear road map for safety and compliance issues. The verdict is clear: Propane marketers must push for the goal of 100 percent Gas Check or the equivalent and document their files. They also must train their employees and document it.

Lastly, Out-of-Gas procedures must be adhered to with constant vigilance. These gray areas of compliance drive the liability concerns of a propane marketer.

But the marketer is quick to point the finger at the insurance industry, claiming it is responsible for all increased costs and liability ills. In fact, many marketers want to create an alternative insurance market called a “captive.” It’s easy, they say. Besides, everybody’s doing it.

For the record, forming a “captive” insurance program is not easy and not every group qualifies with regard to feasibility. It sure looks good, though. Besides, it takes the focus off the real liability issues.

Wisdom comes from experience

The difference between planning and experience is that experience is what you get when you fail to plan. History is filled with examples of mistakes made while searching for less painful alternatives. Take, for example, the late LP Gas Risk Retention Group.

Formed in 1987, the risk factors were clearly pointed out on the feasibility study and in the declarations of the stock offering. The goals were noble and the cause was clear: Lower our insurance premiums and bring stability to our exaggerated and unrealistic insurance costs.

Unfortunately, the market turned, marketer support dwindled, claims were experienced and the program began to run out of money. Within five years, the program was taken private and then struggled many years under the tutorship of Nobel before declaring the end of providing liability products to propane marketers.

In a July 2002 letter to all agents, Nobel cites: “This is a direct result of adverse loss history in the program, as well as failure of industry members to adhere to required safe practices necessary to anticipate an improvement in loss ratios.”

It continues: “Significant changes in the propane industry must be made in order to provide quality service and products to this industry while achieving an underwriting profit.”

What Nobel does not say is that, from the very beginning, marketer cohesiveness in mutual risk taking and a zero tolerance for lapsed or inadequate safety procedures were difficult goals to achieve.

I believe significant changes have been made in the area of improved safety practices, customer awareness information dissemination, employee training, percentage of Gas Checks or equivalent and improved Out of Gas procedure compliance.

As an active catalyst and advocate for safety I salute the efforts and progress made by marketers who daily demonstrate their concern and dedication to safety success. That said, there is a great deal of work yet to be done before I would recommend a self-insured process of developing a “captive” alternative insurance market.

It seems to me that blaming the insurance industry for liability experience and the cost thereof is a form of avoiding the real problem.

In ancient times, the way they figured out a well was poisoned, was that people died. They had two choices:  Clean up the problem causing pollution  or move the village. If you move the village and forget that it was the metal smith that created the real problem, you will soon replicate the experience.

While safety management is under siege – and clearly it is under siege – I recommend the focus be directed at the cause of liability issues. With improved experience and fewer liability settlements will come more competitive insurance rates. Once this is achieved, propane marketers can pursue alternative insurance markets with wisdom from the past and a reasonable chance for success.