Litigation management and loss control help keep losses down
By Dennis Pillsbury
(From left) Michael Leamanczyk, executive vice president and chief underwriting officer for Special Risk Services Group, and Kevin Cunningham, president and CEO, stand in front of a site where one of their insured's cranes is being used.
How would you like to specialize in a niche that traditionally has produced terrible results?
On the plus side, you wouldn't have much competition.
On the minus side, you wouldn't have many insurance companies chomping at the bit to take on the business. And, unless you could change the results, you probably wouldn't have any company support in a very short period of time.
Kevin Cunningham decided to try his hand at turning the proverbial sow's ear into a silk purse by taking "a contrarian approach" to managing the risks involved in the heavy equipment and crane rental industry. And, along the way, he had help from a lot of people both inside and outside the industry who shared his vision that the risks could be managed through an effective litigation control and loss control program. The evidence of their conviction was the fact that they all remained committed to the idea through the five-year period it took to bring it to fruition.
Kevin, who today is president and CEO of Special Risk Services Group, LLC, a managing general agency based in Chicago, did not start out as your prototypical insurance guy. In fact, he was quite the opposite--fully convinced that he would never have to wear a suit or carry a briefcase. After graduating with a degree in journalism from Iowa State University, which he attended thanks to a football scholarship, Kevin signed a two-year contract to play for the New England Patriots as an offensive lineman. "That experience got me into insurance. I spent two years getting beat up and decided that the suit and briefcase didn't look so bad. I responded to an ad and got a job with Lumbermen's Underwriting Alliance, where I spent the next six years basically doing loss control work." Lumbermen's is a reciprocal exchange based in Kansas City, Missouri. It specializes in providing insurance coverages to the forest products and lumber-related industries.
After six years, Kevin started producing deals for the company and learned underwriting and sales, in addition to loss control. He left Lumbermen's a few years later to join a brokerage where he designed a construction industry program using loss control and retrospective rating. "I stayed there until the hard market of the mid '80s hit," Kevin says. "I decided at that point to go out on my own and set up a TPA--Alternative Insurance Services--that sold large deductible workers comp with loss control inside the deductible. I found a niche--industrial plant maintenance and machinery moving--that no one else was focusing on and got the backing of AIG, which liked the loss control approach."
Kevin Cunningham, SRS president & CEO, surrounded by mementos of his past, including his New England Patriots helmet--a reminder of the two years he spent in the pros as an offensive lineman.
Over the years, Kevin developed many contacts in the construction and related industries, many of whom appreciated his loss control approach and its resultant cost savings. One of them was John Bohne, owner of Imperial Crane in Chicago. "John was a very astute insurance buyer who understood the need for loss control," Kevin notes. "He also understood crane coverages inside and out." At the time, John was serving as chairman of the Insurance Committee for the Specialized Carriers & Rigging Association (SC&RA) and asked Kevin to design a special workers comp program for the association. "I worked with Mark Willis at AIG to develop a bid and was awarded the contract to handle workers comp for the association in October of 1995. By then, my company had evolved into Howden Special Risk Services. We had merged with Alexander Howden, a subsidiary of Alexander & Alexander, but had an agreement where we could buy back the company if the ownership of Howden changed. The MGA that handled the other lines for the association wasn't happy about our taking over the workers comp program and canceled its relationship with SC&RA. The business was put up for bid and we decided to submit a proposal for an all-lines initiative. Again, Mark Willis/AIG backed us. In January 1996, we won the bid. Meanwhile, as expected, Alexander Howden became part of Aon. I took back ownership with the support of AIG and changed the name to Special Risk Services Group, (SRS) which became a program administrator specializing in the heavy equipment industry, with a particular focus on crane and rigging contractors."
Stranger than fiction
By mid-year 1998, SRS had evolved into a true MGA and, in the process, moved away from the line of business that had gotten them involved with SC&RA in the first place--workers compensation. As Lord Byron observed in his epic poem Don Juan:
'Tis strange--but true; for truth is always strange;
Stranger than fiction.
"Our agents didn't need us for workers comp--they had markets for that--so we focused on the liability and inland marine concerns where our agents needed the most help because the losses were the heaviest and most companies were reluctant to write the business. However, our risk management approach made all the difference, allowing our insurers to write the business profitably," Kevin explains. "In fact, the efficacy of our approach led to the Carvill/Lloyd's program for small and mid-market crane liability. Andy Carvill, the son of the owner of the R.K. Carvill Co., Ltd., a leading London intermediary and reinsurance broker, recognized the value of our approach and awarded us with underwriting and claims service authority for crane liability in the midst of the most difficult market conditions in history."
The addition of Lloyd's meshed perfectly with AIG, which principally was interested in the larger accounts. The SRS/Carvill program with Lloyd's, however, has an appetite for the small and middle-market crane liability sector.
"The heavy equipment and crane rental business is intensively contractual by nature," Kevin continues. "The majority of the crane rental business is unmanned, where the crane is delivered and set up at the construction site and operated by the contractor who leases the equipment. Crane rental companies' typical liability should arise out of maintenance and upkeep problems, but they were being dragged in on every lawsuit (and losing) if their contracts weren't properly drafted, particularly when their insurers utilized conventional claims administration methods. This is especially serious in this business because it is severity driven. There is a lack of claim frequency in the crane industry; however, when they do occur they are often catastrophic, with multi-million dollar verdicts being awarded to claimants," he says.
Litigation management
"We made our mark in the field by focusing our initial efforts on attacking claims in similar fashion to plaintiff attorneys, with full-scale investigations by experts in heavy equipment and by helping the insureds tighten up their contracts," Kevin continues. "In this effort, we were greatly assisted by the leading counsel and legal expert in the crane industry, Bob Moore of Stone & Moore Chartered (SMC) in Chicago. Bob helped me realize that this was the loss control niche we needed to provide to the SC&RA membership. He and I formed Risk and Contract Management, Inc., and worked with SC&RA through their risk management task force, which was formed to help implement some of our suggestions." At the request of SC&RA, Kevin serves as chairman of the risk management task force, and Bob Moore provides legal/contractual liability and unique claims defense strategies to the SC&RA through the risk management task force. Bob Moore also is an Insurance Committee member at the request of the SC&RA.
Some of the people who make SRS the leader in the crane field (from left): Frederick H. Wezeman, underwriter; Valerie Walton, senior rating analyst; Cathy Callaghan, director of operations; Robert R. Olszewski, senior casualty underwriter; Kevin Cunningham; Michael Leamanczyk; John P. Brotsos, senior inland marine underwriter; and William T. Deuel, senior underwriter.
Under the litigation management program, equipment rental agreements are analyzed in the SRS underwriting process as a unique service to agents. They then are scanned into the SMC-Risk & Contract Management database that includes the most advantageous contract language for contractual risk transfer, indemnification, and additional insured status from all 50 states, based on the operating jurisdictions of the Insured account. The database is maintained by Stone & Moore, and the contract language recommendations are electronically transferred to SRS underwriters in the quoting process. The contracts are reviewed by SMC attorneys and changes are suggested to reflect the most appropriate risk management language--"language that has proven court case studies as legal precedent," Kevin explains. "We ask our agents' clients to change the language when they can." Bob Moore is now the national coordinating defense counsel for SRS working on behalf of AIG and Lloyd's on cases involving SC&RA members, and is nationally renowned for his unique methods for rapid dismissal of contractual liability related cases. Cunningham says: "Bob Moore has proven to be a very effective partner in protecting our insureds' loss records and resulting insurance costs."
Certification program
"Another important risk management tool was the development of a certification program for crane operators by the SC&RA, when it originally established the National Commission for the Certification of Crane Operators (NCCCO," Kevin says. "The majority of claims are perceived as operator error for which the operator's employer would be liable. Our principal risk management concern, therefore, is the qualification of the operator behind the levers of the crane." SC&RA formed NCCCO (coincidently at the same time SRS came into the association) to develop quality control education standards for the industry. Over time, the association evolved in its relationship with SRS, from being principally concerned with marketing the insurance program to an educational organization that taught the importance of certification as effective loss and litigation control. A few years after its formation, the National Commission was spun off from the association to assure independence and gained OSHA recognition. "We are extremely fortunate to have established our relationship with SC&RA at the same time they were building the NCCCO, and now we are able to take advantage of this great risk management tool through the 10% premium credit that we provide to accounts that certify their operators through the NCCCO program." Kevin Cunningham was recently appointed as a commissioner of NCCCO by their board of directors.
SRS also has partnered with the Construction Safety Council, a nonprofit research and training organization funded by grants from NIOSH and OSHA, to develop and provide to all insureds a safety package. The package includes several videos on mobile crane safety management, a CD-ROM that provides tools for internal safety management and other materials to establish safety accountability, including an automatic membership in the Construction Safety Council. Kevin says, "Tom Broderick, the Council's executive director, helped us build this customized kit; and considering that Tom is one of the best construction industry safety professionals in the world, we are very fortunate to have this working relationship connect to our agents and their clients."
He continues, "This is a true, high-end safety package that goes to our agents' clients. It's yet another way that SRS has differentiated itself and continues to survive and prosper in this difficult market."
He adds, "Everything we do is designed to help our agents' clients better manage their risk and keep their insurance costs at an affordable level. Recently, we convinced AI Transport (an AIG unit) to change the rating structure for the trucks that are used to haul the cranes to a construction site. The largest trucks (around 45,000 pounds) have to be used and these normally are rated as long-haul vehicles because that is their primary function in the trucking industry based on gross vehicle weight. However, we found that the crane owners were only putting an average of 10,000 to 15,000 miles a year on the truck, compared to the 100,000 or more that long-haul truckers register."
SRS has grown to become almost "a mini-insurance company," Kevin notes. "For 2003 we'll have 20 employees and premium sales in the $40 million to $50 million range, where we handle the program development, marketing, quoting, binding, policy issuance, claims management and loss control. It's turned into a wonderful situation being in the specialty insurance program business, and I have to admit that I don't miss getting my a-- kicked in pro football anymore; but the one thing I do miss about playing football is that feeling you get when you first go out onto the field and the crowd is cheering. When we won our first underwriting authority with AIG and Carvill/Lloyd's, it was that feeling all over again of playing big time ball again."
He concludes, "I couldn't have done any of this without the extraordinary help that I received from people in the industry and from the great staff of people we have at SRS. We have great people here--people with unmatched expertise and a desire to help our agents and their clients in the crane and rigging industry. Mike Leamanczyk, our executive vice president and chief underwriting officer, was formerly an underwriting manager with AIG and CIGNA. He's really an expert in this field and knows how to provide real life value to our agent/brokers. Cathy Callaghan came to us from AIG and is a consummate professional in managing insurance company operations; and without establishing a sound working relationship based on mutual trust and respect with Mark Willis and his staff at AIG, we wouldn't even be in business today." *
For more information:
Special Risk Services Group, LLC
Web site: www.specialriskservices.com