Is Investing in Safety a Sound Business Strategy?

In many businesses the only thing most employers are aware of is that they have to spend money to have an effective safety program.  Successful companies, however, maintain very effective safety programs and continue to pay the expenses involved even when business is slow and times are tough.  Unfortunately, however, the cost of effective safety measures are all too often deemed an “unnecessary” expense. When business is slow, what is the first expense to get to get cut? You already know: the safety program. Normally the responsibility gets transferred to the HR manager, and training and other expenses are cut, which typically leads to disaster, especially for the new employee you just hired or the long term employee, who thinks he can cut safety to increase productivity. If you are not motivated to have an effective safety program by either OSHA, the threat of fines or care for your employees, one thing that will motivate you is the actual cost of a workplace injury to your business. How much do you think it costs?

Statistics and Costs

Every year in the United States there are over 6,000 workplace fatalities. The majority of these fatalities are men ages twenty-five to forty-four.  This does not include deaths related to occupational illness. Another 50,000 workers die every year in the United States from occupational illnesses. In addition to deaths, there are over 6 million U.S. workers that suffer non-fatal workplace injuries with an estimated cost to U.S. businesses of around $128 billion annually. A person’s life or health is obviously priceless, but incidents and injuries carry a tangible cost to business, one quarter of each dollar of pre-tax corporate profits, to be exact.

The actual cost of a workplace accident or illness to your organization depends on a few different variables. Costs depend on the number of employees you have, the numbers of incidents you have and the type of work you do. For any company experiencing a tough time financially, all losses are serious. For a large employer, losing a skilled worker on a job, for even a few days, can have a larger impact on profits than the actual direct costs might suggest. With smaller businesses this is magnified because they often have very little buffer when it comes to accidental losses. A serious incident could not just make it difficult to get by, but put them out of business.

Why should we do anything, our Workers Compensation Insurance pays our claims?

Insurance only covers what is detailed in the policy, and it usually only pays for the direct costs associated with an injury. Most of the costs that are not covered by insurance include lost time, sick pay, damage or loss of product and materials, lost time and failure to keep schedule, extra wages for overtime and temporary labor, investigation time and expenses, OSHA fines, loss of contracts, legal costs and loss of company reputation, just to name a few.

The uninsured costs differ between businesses, the type of work being done, insurance and type injury. No matter how you look at it, though, the uninsured costs are many times greater than the insured costs.  As a general rule of thumb un-insurable expenses often run up to as much as 4 times more than the actual costs covered by insurance.

Hire a third party safety professional to ramp up your program quickly

An investment into an effective safety and health program and/or professional for your business is just that, an investment. Not only is it unethical to risk an employee’s health or safety to save money and cut costs, but in reality, it does just the opposite. It creates unnecessary risks, costs and headaches. A safe company with limited incidents and injuries will not only have an increased profit margin, but will be more appealing to potential clients and good employees. Successful businesses plan for the future, for growth and for potential risks. Safety should play a key role in your strategy and is the reason long-term successful businesses invest so much into their safety and health programs, because as I am sure some of you know, gambling isn’t a good long term, or short term investment. As they say in Vegas, “in the end the house always wins”.  Why wait?  Get started today and implement your safety & health program.

Safety VS. Production

We hear it time & time again -“I don’t have time to meet for safety” & “We need to meet our productions goals” & “I do not have time in my day for safety related tasks."  The question is will safety goals ever be able to coexist with production goals?

Have you ever seen a sign posted in a plant that says, “Production First”?  Of course not, why would anyone post contradictory signs? The signs take other forms such as output graphs, production goals and reward programs that suggest production is the real No. 1 priority.

So when companies post signs at your workplace that say “Safety First,” how can employees still get the impression that production is more important?

Only when employees understand the proper integration of safety and production are they able to make the right choices to make sure it really is “Safety First” at your company.

So how do you get them to do that? It’s all about communication.

Help employees make good choices

It’s clearly not enough to tell them that safety comes first – if that were the case; the signs would be all you need.

Employees have to learn how the consequences of their choices can impact the things they value most. Speak to employees in small groups that have structure and provide plenty of time for open discussion. Include supervisors and managers to show all levels of company employees are involved in this discussion.  Ask co-workers to talk about current perceptions about workplace challenges such as safety versus production and what drives their risk-taking activities.  Discuss the nature of hazards in your workplace. What are the risks associated with them? What are the potential consequences of these risks?  At the end of the day, when management acknowledges hazards and lets employees know how important it is to manage them, better personal behavior and choices will naturally occur.

Get down to a personal level

Have you ever asked your employees about their personal work/life goals and how to reach those goals? What if an employee’s primary goal was to spend more time with or provide well for their family?  How do you participate in helping help them reach these goals? What would be the impact on these goals if the employee had a workplace accident?

The break through occurs when employee’s understand their actions impact their personal lives. Challenge employees to reconsider benefits versus consequences of risk-taking.  To reinforce this discussion, have real-life stories ready about workplace accidents and how they affected the victims and their personal lives.  How are you going to handle the clash between safety and production at your workplace? Get personal and get the results you seek.

Study & Develop Strong Incident Reporting Systems

“There are ‘known known’s.’ There are things we know that we know.  There are known unknowns.  That is to say there are things that we now know we don’t know.  But there are also unknown unknowns.  There are things we do not know we don’t know.” Donald Rumsfeld, former United States Secretary of Defense.  June 6, 2002

Have you ever asked yourself, how are we supposed to manage the things we don’t know or have never experienced? Or, how do you assess the exposures that present no sign at all of being known?

Unknown unknowns involve us being aware of what relevant information is needed to guide us to decision.  Common sense tells us, if you don’t know what you need you tend not to seek it.  This concept is known as the relevance paradox.  You don’t know what is relevant until it becomes relevant.

Many people live there entire life without ever experience an unknown that presents itself to them each & every day.  Do they ever think to themselves, I would not know what I don’t know?  I would guess not.

This paradox takes center stage when you think of what happened on 9-11.  No one could of ever imagined such a horrendous event and by default, it was impossible to  prevent.  As you think about this, your safety team must remember, even if the information your team is gathering is limited to collectiveness and knowledge of your team members, try not to worry too much about what you don’t know.  Focus your efforts on building strong sustainable incident and reporting management systems with proper communication and problem solving protocols.  When the unknown happens, then you will know what to do.

Stay safe.

Why Not Consider a Captive Insurance Arrangement? Part Two

Is your business a stand alone Captive candidate?

Captives will not work for every business. However, good candidates generally meet two or more criteria:

• Profitable operations, with taxable income ranging from $1.5 million to $100 million.
• $250,000 self-insured/uninsured business risk.
• 100 or more employees.
• $500,000 or more traditional third-party insurance expense.

The reason for these stringent qualifications is that a captive can be expensive to form and manage. In order for it to be a cost-effective option, actuaries and underwriters must be able to quantify $500,000 or more in risk premiums from the parent company's business operations. Hence, the parent company must be large enough and in a risky enough industry to qualify.

The owners, shareholders and executives must diligently study a captive's potential benefits and burdens. Such an analysis should extend considerably beyond the cost of existing insurance, and focus on net dollars to shareholders.

Traditional insurance has become extremely expensive for some types of coverage.  As a result, many middle-market companies have chosen to actively manage their insurance portfolios by taking on large deductibles and/or self-insuring areas where they are exposed.

Is your business a rent-a-captive candidate?

Where a business does not have enough of its own capital to start a captive, or where a license to sell a particular type of insurance is required, the business may enter into an arrangement with an existing and licensed captive to borrow the captive's facility so that the business can enter into a captive-like arrangement.

In a rent-a-captive arrangement, the captive usually issues a new class of preferred shares to the business owner. The business then purchases insurance from the captive and the business makes payments to the captive. The business owner may also be required to issue a letter of credit to the captive to protect the captive against any underwriting losses.

At the end of the policy period, any excess cash above underwriting losses is distributed to the business owner by way of dividends paid to the preferred stock shares, less of course whatever fee was charged by the captive to rent it. Thus, the business owner was able to realize the benefits of a captive in terms of the deduction within the business and to share in underwriting profits, but without having to bear the expense of creating a new captive. The trade-off is, of course, the fee paid to rent the captive.

Looking forward

Fortunately, the trend has been positive for captives, and the IRS has demonstrated the willingness to work with taxpayers by clarifying rules rather than by reversing them.  If you have not completed at the very least a captive feasibility study for your company, you should consier doing so sooner than later.

Why Not Consider a Captive Insurance Arrangement? Part One

A business that does not have a captive insurance program or has not completed a feasibilty study to implement a captive insurance program may soon be in the minority: Insurance industry trends indicate that most businesses are looking at implementing a captive insurance program.

Captives have been used by Fortune 500 risk managers as a way to capture commercial insurance premiums. Large multinational companies self-insure several lines of coverage via a captive – general liability, workers' compensation, employee benefits and property insurance. With favorable claims experience, self-insurance and/or a captive can become a profit center.

Recent changes to Internal Revenue Service policies are allowing middle-market businesses to utilizing captives as another profit center. More than 10,000 businesses – representing industries ranging from finance to construction – have begun to accumulate vast amounts of pre-tax wealth through captive insurance programs, which use insurance subsidiaries formed to insure or reinsure their risks.

How does a captive work?

A captive writes policies at the business owner's discretion with negotiated terms and conditions. If the business has years of good claims experiences, the premiums that have been successfully deducted can later be taken as dividends or as liquidated capital at the capital gains tax rate.  A typical commercial business with taxable income of $10 million will pay 45 percent in federal and state income taxes, leaving it with 55 percent, or $5.5 million for claims or for distribution to shareholders. Instead of paying premiums to an insurance company the business funds $4 million in premiums to its wholly owned captive insurance company. It now has an additional $1.5 million available for expenses, claims or additional distributions to shareholders.

Captive insurance enables business owners to better manage insurance needs including cost, coverage, service and capacity. Additional benefits include:

• Pre-tax wealth accumulation. Insurance premiums are an expense to the parent company and flow tax-free to the insurance company, where they collect on a pre-tax basis in anticipation of future claims.
• Favorable distribution rules. In the event that claims do not materialize, underwriting profits can be distributed to shareholders as dividends.
• Asset protection. Because the captive is an independent corporate entity, creditors of the parent company may find it difficult to seize the captive's assets.
• Estate planning. A family trust or other entity can own the captive.
• Retention of key employees. Giving key employees restricted ownership in the captive can provide a foundation for retention.

The captive transaction is a powerful yearend planning tool because insurance premiums are deductible to the parent and flow tax-free to a captive qualifying under §831(b)of the Internal Revenue Code. At year end, a captive can provide nearly twice as much capital to the business as would have otherwise been paid in taxes. This makes the formation of a captive an attractive and viable option for middle-market companies.

Safety is a CEO Issue

CEO’s are responsible for communicating safety to senior leadership - leadership that, in some cases exhibits “a profound failure” of understanding safety and the importance of its presence within their organizations.

On the heels of high-profile workplace catastrophes such as the BP oil spill or the Upper Branch Mine disaster, it become abundantly clear that “safety really is a CEO issue”.  Ask the public who is responsible for safety after one these disasters and they invariably point their fingers at the company CEO’s.  Serious safety people already know that that safety is important but the million dollar questions is “Why don’t CEO’s get it?”.  Why is such a rarity when a CEO does gets it?  Actually, as a safety professional, I don’t think we can blame them without taking a look in the mirror and making sure we are doing everything possible to help.

As a safety professional, take the following suggestions and use them to help make safety a part of your companies management objectives:

• Educate leadership about safety, starting at the very top, with upper management commitment and buy-in and move down the organizational chart to the rest of the organization
• Measure, record and monitor all injuries and potential hazards and do it methodically and consistently
• Develop process to identify problems and take the appropriate countermeasure
• Integrate audit and observation program with the appropriate progressive discipline program

Safety should not an option.  Take it very seriously and make sure everyone in your organization know the way you feel about safety.  Let your action’s do the talking and your business will reap the rewards of a productive and profitable workplace.

Workplace Safety Makes Good Business Sense.

The costs of reacting to workplace injuries and illnesses far exceed the costs of preventing them from happening in the first place. The direct costs of workplace accidents were estimated at $48.6 billion in 2006.*

Direct costs of a workplace accident/incident include:

• Payment to workers,
• Workers’ compensation payments,
• Medical expenses, and
• Costs for legal services.

Businesses paid an additional $127 billion to $212 billion of indirect costs in 2006.*

Indirect costs of a workplace accident/incident include:

•  Replacement workers,
• Damaged property,
• Accident investigation,
• Corrective action,
• Delays/lost productivity,
• Low employee morale,
• Increased absenteeism, and
• Poor customer/community relations.

The total financial impact of serious workplace incidents is between $170 and $255 billion annually.*

*Liberty Mutual 2008 Workplace Safety Index

Does your company have an effective Drug-free workplace program?

Running an effective drug-free workplace program to keep employees safe and avoiding liability issues is certainly a challenge today.

Alcohol abuse is the most common controlled substance found to contribute to workers suffering fatal injuries but, recent reports show prescription drug abuse has become a public health crisis.  Not to mention, more states now have laws that make medical marijuana use legal.

Alarming trends in drug use
According to researchers from the Center for Behavioral Health Statistics and Quality at the Substance Abuse and Mental Health Services Administration, the rate of increased prescription drug use has become a public health issue and should be a concern to employers. Results of the 2009 National Survey on Drug Use and Health showed that of the estimated 19.3 million illicit drug users who were 18 or older at the time of the survey, 12.9 million (66.6 percent) were employed either full or part time.  The most alarming is the use among people the age 18 to 25 that are just entering the workplace.  Record numbers of this age group are turning up in emergency rooms every day.

Cost to employers and employees

The cost to employers shows up in a lack of attention to surroundings, increased absenteeism, increased injuries and motor vehicle accidents off the job.  Employees who abuse drugs are 10 times more likely to miss work, 3.6 times more likely to be involved in on-the-job incidents (and 5 times more likely to injure themselves or another worker in the process) and 5 times more likely to file a workers’ compensation claim. They also are said to be 33 percent less productive and responsible for potentially tripling health care costs.

Drug testing trends
Positive drug tests for cocaine and methamphetamine are on the decline, however an increasing number of American workers and job applicants are testing positive for prescription opiates. Depending on the particular prescription opiate, post-incident drug-test results are showing much higher positive rates compared with pre-employment tests.  For example, post-incident drug test results for hydrocodone detected opiates can show up to 4 times more often than pre-employment tests. These findings point to the possibility that prescription drugs are playing a role in incidents.

Drug testing policies must spell out conditions for testing, which closes the gap to worker claims of discrimination or invasion of privacy.

Emerging legal issues for States with medical marijuana laws

The District of Columbia and the following 15 states have passed medical marijuana use laws.

·        Alaska

·        Arizona

·        California

·        Colorado

·        Hawaii

·        Maine

·        Maryland

·        Michigan

·        New Jersey

·        Oregon

·        New Mexico

·        Rhode Island

·        Montana

·        Nevada

·        Washington

Employee use of medical marijuana also may raise issues with the federal Drug-Free Workplace Act, the Family and Medical Leave Act, the Americans with Disabilities Act, and other federal regulations, such as drug testing requirements mandated by the Department of Transportation.

Employers should examine which employees have safety-sensitive responsibilities and make sure state compliance & regulations will not be violated or impacted by their established Drug Free Workplace Policies & Procedures.  And remember, Drug-free workplace programs are not a one-size-fits-all plan.

Employers should provide employee assistance programs, which offer counseling for employees and their family members about substance abuse problems. When run well, EAPs can be extremely helpful for both employers and employees, but measures for punishment for violating drug policies should be included.  Employees also should be aware of whether or not their employee benefit coverage will pay for treatment. Lastly, do not underestimate the importance of your safety professionals being well-versed in understanding different types of addiction.

OSHA Under the Obama Administration

An analysis of OSHA enforcement during the first two years of the Obama administration shows how the agency has changed its enforcement tactics compared to the Bush years.
OMB Watch says “the leash has been taken off the OSHA inspectorate under the Obama administration.”

The numbers paint the picture:

• In 2009, federal and state OSHA programs handed out more than 68,000 citations, a 167% increase from the previous year. In 2010, OSHA handed out almost 114,000 violations in just the first six months of the year.
• In 2008, OSHA handed out 203 willful violations. That number rose to 1,166 in 2009 and is on track to reach nearly the same number in 2010.
• OSHA conducted 6,000 more inspections in 2009 than it did in 2008. OSHA is on track to conduct 1,600 more inspections in 2010 than in 2009.

How is OSHA escalating its enforcement? Two ways.

OSHA’s budget increased 7.68% from 2009 to 2010, and the Obama administration has asked for another 2.5% increase for 2011.

But it’s not just money that’s responsible for the OSHA crackdown on companies. Support from the top has something to do with it, too.

After two workplace disasters that spent much of 2010 in the headlines — The Upper Big Branch mine explosion that killed 29 miners and the BP Deepwater Horizon rig explosion that killed 11 workers — President Obama signaled support for tougher safety enforcement.

After Upper Big Branch, Obama said “a failure first and foremost of management, a failure of oversight and a failure of laws so riddled with loopholes” allowed companies, such as Massey Energy, to repeatedly violate safety regulations without penalty.

In the aftermath of the BP spill, Obama said, “So one of the lessons we’ve learned from this spill is that we need … better enforcement.”

More than ever during the current administration, the phrase, “Don’t get on OSHA’s hit list, you’ll never get off it,” has taken on significant meaning for companies.

In April 2010, OSHA announced its Severe Violator Enforcement Program under which it has:

• increased inspections at companies with patterns of safety negligence,
• conducted mandatory follow-up inspections, and
• inspected other workplaces under the same ownership as those where severe problems have been found.

When all this is put together, what is OMB Watch’s conclusion about OSHA enforcement under the Obama administration? “OSHA appears to be developing an enforcement regime that focuses on industries and workplaces where employees are at greater risk for injury and illness.”

Does putting safety first send the wrong message to our organization? Part 2

Culture Change

One of the fundamental breakthroughs a company should realize is that the very same leadership and management skills used in achieving outstanding production, quality and cost could deliver similar results for health and safety. In other words, managers do have the skills to achieve health and safety excellence. They either do not see it that way or they do not see health and safety lending itself to the management systems they use for production, quality and cost.

When health and safety managers finally get the ear of senior management, they rarely choose to communicate in the language of the customer. Instead, they talk about job safety analysis, incident investigations, lost workday cases, OSHA incidence rates, etc. Certainly, all of these have their place, but the manager’s impression at this point is usually: That skill set is not part of my knowledge base. As a result, they reject their ownership role for health and safety. After all, their expertise is achieving production, quality and cost objectives, not health and safety.

Management needs to be taught, or convinced, that safety is not first but rather an equal held to the same level as production, quality and cost. More importantly, they need to be convinced that those same skills they use to achieve production, quality and cost will work in achieving health and safety results.

Steps to Accountability

How do we get management enrolled in the safety process to the extent they own it and lead it? Let’s break this task down into four steps:

1) Get off the Safety First kick if that is your current mind-set.

Instead, find out what the top two to four objectives of your enterprise are. It is a good bet that production, quality or cost will have a presence, but there could be others.

2) Adopt a system to approach safety.

Do not approach safety as a problem to be solved. Be proactive and don’t focus on lagging measures such as safety performance.  Instead, build a management systems approach that has the same elements used to achieve the most important objectives of your enterprise.  Develop a system that focuses on leading edge measures such as:

·        Defined objectives for health and safety established by senior management.

·        Significant management and employee involvement.

·        Establish goals and action plans.

·        Job safety analysis.

·        Training.

·        Performance and results tracking.

When you proactively develop the elements of your system, you have a before the fact system that drives continuous improvement, not an after the fact system focusing on solving the problem of the day.

3. Get management/supervisor buy-in that safety is one of the top objectives of your company.

Meet and share your observation’s that safety need not be first but should be of equal rank to the other two to four top objectives of your company.

For example, assume productivity is one of the key business objectives. Show how improved safety can positively impact productivity and by illustrating the impact when a serious, or even a minor, injury occurs. This can be demonstrated by calculating the impact of indirect cost’s on your balance sheet by illustrating what the company needs to produce in sales to offset the direct claim cost.  This is an eye opener for many managers.   

4. Create the Culture.

Now that have their attention, your job is to train them on how they can apply their management and leadership skills in deploying and executing your management systems approach for safety.  Facilitate their linkage with safety and help them see that their primary roles are to:

·        Set the EXPECTATIONS for the entire organization.

·        COMMUNICATE these expectations to the organization. 

·        Demonstrate management COMMITMENT to these expectations.

·        Provide reasonable RESOURCES to succeed.

·        Create ACCOUNTABILITY standards.

·        COLLABORATE with employees and REWARD progress and performance.

Safety management is a process based on a systematic approach to achieving identifiable objectives. Second, the fundamental role of a management is to communicate, demonstrate and commit to expectations.  Lastly, to accomplish this, provide the resources, audit and implement accountability standards and recognize/reward progress and performance. All this comes together when your THREE SIXTY SAFETY approach is not first but equal to the other organizational objectives.

Does putting safety first send the wrong message to our organization?

Safety first! Is this an empty, time-worn slogan or a forceful admonition by management that they move forward relentlessly to label their organization, “Best in Safety” or “Best in Class”?

We know the answer. Do you think it is unrealistic that management will day in, day out place safety above all else? I am not saying that management is numb to the contribution and importance of safety but, the fact is management must take an ownership role for safety in your organization and the way to do it is not by belting out a slogan.

Safety must be an integral part of management’s responsibility. In fact, safety should rank right up there on par with other primary objectives of the enterprise such as productivity, quality and cost. 

Think about this.  What would the implications be if management simply managed safety the same way it manages other sustaining priorities such as production, cost or quality? The implications are powerful.

Safety Month!

June is National Safety Month!
 
We are encouraging businesses and communities across the country to participate in National Safety Month this June – an annual observance to increase awareness of the top causes of preventable injuries and deaths and to encourage safe behaviors.

Unintentional injuries and deaths in the United States are at unacceptable levels, demonstrating the need for a national observance such as National Safety Month. Unintentional deaths reached an estimated 128,200 in 2009. The 2009 estimate – the highest on record – is 47% greater than the 1992 total of 86,777 – the lowest annual total since 1924.

The cost of unintentional injuries to Americans and their employers exceeds $693 billion nationally, or $5,900 per household, and causes great suffering among individuals and their families.
For more information and helpful safety suggestions visit; http://www.nsc.org/

Use of Safety Management Systems Benefit Workers

April 28 marked the World Day for Safety and Health at Work.  What exactly does the application of an occupational safety and health management systems in the workplace mean for the effective management of hazards and risks?

Each year, 2.3 million workers around the world die because of injuries or illnesses suffered on the job, while 337 million workers suffer from occupational-related injuries.

Work-related accidents and illness take a heavier toll in terms of lives lost and disability than global pandemics such as HIV/AIDS and tuberculosis. The tragedy is that so many accidents, illnesses and deaths could be prevented with appropriate managerial measures. It is a matter of respecting the dignity of the human being through the dignity of work; of shaping policies that reflect the central role of work in people’s lives, in peaceful communities, in stable societies and in resilient economies.

Successfully building a strong preventative safety and health culture depends on strong commitment, collaboration and concerted action by employers and workers.  Adequate participatory training, awareness raising, low cost measures and good practices can save lives and contribute to improving work environments and profitability.

To accomplish this, occupational safety and health must be integral components of strategies for productive employment and decent work, and must strike the right balance between voluntary and mandatory approaches reflecting your company needs and practices.

It’s not just a matter of saying you are committed to safety and health, it is a matter of respecting human dignity and the dignity of work.  It is a matter of ensuring that decent work for all is part of the framework for sustainable growth.

We Asked, You Answered!

We recently asked our clients what they were looking for in a full-service safety program and we all agree on the basic facts:

·         Safety has an impact on your bottom line.

·         Frequent education keeps safety top of mind.

·         Properly implementing a safety plan yields the best results. 

As we continue to learn more from you we intend to use this space to educate, answer questions and help clarify the process of properly implementing a safety program.   We are excited to launch a new product along with this blog called THREE SIXTY SAFETY.

Looking for a Safety Program That Comes Full Circle?

Our Three Sixty Safety™ program is a results-oriented, trademarked process focused on the goal of sending your employees home safely at the end of each day.  We researched the safety needs of the manufacturing industry and found that frequent safety education helps to prevent injuries and claims while ultimately impacting the bottom line.  

Our customized program is an easy to implement process that begins with training, provides education, establishes accountability and finally offers claim assistance when necessary.  Three Sixty Safety™ is a roadmap that directs your company to complete loss control and a healthy workforce.

To learn more about how Three Sixty Safety™ can help your business please contact us at:  586.778.9900.