TITLE OF YOUR - UW-Stout · 2 The Graduate School University of Wisconsin-Stout Menomonie, WI Author: Smith, Joshua J. Title: An Analysis of an Owner Controlled Insurance Program

An Analysis of an Owner Controlled Insurance Program Utilized by

Wisconsin for State Funded TranspOliation Project

by

Joshua Smith

A Research Paper Submitted in Partial Fulfillment of the

Requirements for the Master of Science Degree

III

Risk Control

ApRroved: 2 Semester Credits

((UW,1~~AJJi( Dr. EI ert Sorrell

The Graduate School

University of Wisconsin-Stout

May, 2011

1

2

The Graduate School

University of Wisconsin-Stout

Menomonie, WI

Author: Smith, Joshua J.

Title: An Analysis of an Owner Controlled Insurance Program Utilized by

Wisconsin for State Funded Transportation Projects

Graduate Degree/ Major: MS Risk Control

Research Adviser: Elbert Sorrell Ed.D.

Month/Year: May/2011

Number of Pages: 74

Style Manual Used: American Psychological Association, 6th

edition

Abstract

The purpose of this study was to evaluate owner controlled insurance program (OCIP)

versus a traditional program by Wisconsin, for state funded transportation projects to see if it’s

more effective at preventing loss. The literature indicates that OCIPs have been used for many

different kinds of construction for years but rarely used for transportation construction.

Wisconsin has used it for the Marquette Interchange and is in progress with two more projects, I-

94 and US-41. This may become a regular way to provide insurance on Wisconsin’s large

transportation projects that are over $100 million dollars. This includes the Zoo Interchange that

is an upcoming project for the state of Wisconsin. The results indicate that the Marquette

Interchange performed below the national average, the I-94 is performing at national average and

the US-41 well below national average. The data also indicated that the state is good at

continually improving its OCIPs within the project cycle and from project to project at

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preventing loss. The conclusion of the research is that small adjustments to their management

process should be made especially in clearly defining communication lines. Also the Safety

Directors need to know the industry well and be effective communicators. The overall controller

of the OCIP needs to be highly involved in the insurance process. The overall recommendation

for the state of Wisconsin is to use OCIPs on their large transportation projects. Over the time of

their projects and from project to project the projects show vast improvements and indicate that

they have learned how to refine the OCIPs to make them effective at controlling loss.

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Table of Contents .................................................................................................................................................... Page

Abstract ............................................................................................................................................2

List of Tables ...................................................................................................................................7

List of Figures ..................................................................................................................................8

Chapter I: Introduction ....................................................................................................................9

Statement of Opportunity ...................................................................................................12

Purpose of the Study ..........................................................................................................12

Goals of the Study ..............................................................................................................12

Background and Significance ............................................................................................13

Assumptions of the Study ..................................................................................................13

Definition of Terms............................................................................................................13

Chapter II: Literature Review ........................................................................................................15

Insurance in Construction ..................................................................................................15

Traditional Insurance .........................................................................................................17

Owner Controlled Insurance Program ...............................................................................18

Difference between Traditional and Owner Controlled Insurance Programs ....................21

Comparison of Loss Data...................................................................................................24

OSHA Recordable Incident Rate ...........................................................................25

DART Rate ............................................................................................................26

DAFWII Rate .........................................................................................................26

Lost Workday Rate ................................................................................................27

Fatality Rate ...........................................................................................................27

National Average ...................................................................................................27

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Traditional Management of Safety Process .......................................................................30

Centralized Management of Safety Process ......................................................................31

Difference Between Traditional and Centralized Management of Safety Process ............34

Potential Cost Savings .......................................................................................................35

Summary ............................................................................................................................42

Chapter III: Methodology ..............................................................................................................44

Subject Selection and Description .....................................................................................44

Instrumentation ..................................................................................................................45

Data Collection Procedures ................................................................................................46

Data Analysis .....................................................................................................................47

Limitations .........................................................................................................................47

Chapter IV: Results ........................................................................................................................49

Presentation of Collected Data..........................................................................................49

Goal One ................................................................................................................49

Goal Two ...............................................................................................................51

Goal Three .............................................................................................................52

Discussion .........................................................................................................................61

Chapter V: Summary, Conclusion and Recommendations............................................................63

Major Findings ...................................................................................................................63

Conclusions ........................................................................................................................64

Recommendations ..............................................................................................................65

Management Process .............................................................................................65

Overall Recommendation ......................................................................................68

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Areas of Further Research .................................................................................................69

References ......................................................................................................................................70

Appendix A: Interview .................................................................................................................74

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List of Tables

Table 2-1: Incident or Exposure Resulting in an Injury or Illness .................................................17

Table 2-2: Cost Savings Realized on OCIP Projects .....................................................................23

Table 2-3: Transportation Project Cost Savings Using OCIPs ......................................................28

Table 2-4: Loss Rates for All Industries – Private .........................................................................29

Table 2-5: Loss Rates for All Industries Including State and Local Government .........................29

Table 2-6 Loss Rates for Construction Industry ............................................................................29

Table 2-7 Loss Rates for Heavy and Civil Engineering Construction...........................................37

Table 2-8 Fatality Rate...................................................................................................................39

Table 2-9 Marquette Interchange Extra Loss Statistics .................................................................42

Table 4-1Wisconsin OCIP Projects DAFWII Rate and Fatality Rate ...........................................49

Table 4-2 National Averages for DAFWII Rate ............................................................................50

Table 4-3 Fatality Rate...................................................................................................................50

Table 4-4 Wisconsin Transportation OCIP Projects Loss Data.....................................................51

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List of Figures

Figure 2-1: Incident or Exposure Resulting in an Injury or Illness ...............................................25

Figure 4-2: Safety Structure ...........................................................................................................52

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Chapter I: Introduction

The construction industry is a fast moving, fast changing, and complex business where

coordination and cooperation lead to jobs completed on time and within budget. In order to

create a successful project many participants need to work together including the owner, design

professional, prime contractor, subcontractors, and suppliers. Excluding the amount of

participants on a construction project there can be a wide variety of construction specialties

including concrete, asphalt, steel, excavation, electrical, etc. These construction specialties can

cause confusion between one another since they do not have a complete understanding of the

processes and associated risks associated with other contractors that may be on a project. This

complex industry is a time and money business that when working well can bring large profits,

but when it not working well can cause great losses.

In transportation, construction projects can be as small as a couple mile stretches and as

large as hundreds of miles running across a state. A project from start to finish can have up to

hundreds of companies involved from excavators breaking first ground, to a steel erector forming

a bridge, to the asphalt and concrete companies completing the process. Trying to control

exposures to the inherent risks of any construction project can be difficult due to the work not

being contained in a single area. Transportation can be difficult to schedule because one process

normally has to be fully completed before another one can start.

The construction industry provides unique risks that have to be controlled. Risk

management is a concern for all parties involved. Risk management is preformed through a

combination of risk financing and risk control. Risk financing is providing funds to cover the

financial effect of unexpected losses. This is performed through risk transfer such as insurance

where the insurer pays for the actual loss. Risk control is performed by stopping the loss from

occurring. This can be performed by avoiding the risk, preventing the loss before it happens,

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reducing the loss, or through the use of contractual transfer. Construction risk management will

use multiple risk control and risk financing tools to treat risk. When projects involve many

participants, the lines of responsibility for construction site safety have become blurry especially

when participants are working in the same physical areas (Donovan, 1999). All participating

parties assume risk when taking on projects that have to be controlled and or financed.

Construction risk management can contribute to the overall success of the project. There

are many areas where construction projects can save money when viewed from a risk

management perspective. One area of savings is reducing losses due to injuries that occur on the

project. Fewer injuries provide for larger profits and better production. Another area of savings

is the insurance policy taken out on a project. Insurance policies help owners and contractors in

their overall risk financing program (International Risk Management Institute 2005). Selecting

the correct policy that covers all the project risks, has no overlaps, and is at an affordable price

can be a key from a profitability standpoint.

There are three main areas of concern on a construction project which include property,

liability, and personnel. Property is anything that is owned by the companies involved.

Construction projects have machinery, equipment, tools, vehicles and other personally owned

items that need to be covered if damaged or stolen. Property can be covered from a risk control

or a risk financing standpoint. Liability is a large concern in construction which is mostly

covered from risk financing. Liabilities that are seen on construction projects include

commercial general liability, builder risk, professional liability, pollution liability, excess

liability and contractual liability. Personnel is anyone who is employed by any company

working on a project. The personnel are covered from injuries under workers compensation.

Workers compensation is one of the largest areas where money can be saved from a risk

financing standpoint and is where companies can win or lose projects. The companies with the

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best safety performance are able to have lower worker compensation cost. This in turn allows

the company to reduce their insurance rates, allowing them to bid a project lower than the

average construction company. For a larger company this could be thousands of dollars to

millions of dollars depending on the project size and company size.

Construction projects have used many different types of insurance through the years.

There are two main ways projects are financed, these include traditional insurance and owner

controlled insurance programs. Traditionally project owners, contractors and subcontractors

have to purchase insurance independently to protect themselves from financial losses (USGAO

Reports, 1999). With each individual participant purchasing their own insurance caused both

overlaps and gaps in insurance on projects allowing for exposure to liability and overpaying for

insurance. These individual participants will then place an extra percentage on the contract price

causing the profit for that company to shrink while driving up the cost of a project. In traditional

safety programs each contractor will have their own safety program along with the risk

management provided by the insurance broker. This can result in confusion and disagreements

based on individual safety programs based on how activities should be run and what are the best

practices for certain activities. (USGAO Report, 1999) To reduce these exposures, confusion,

and costs owners have used owner controlled insurance programs also known as OCIP or wrap-

up insurance.

OCIP is an insurance program that is purchased by the owner to cover all participants in a

construction project. The owner then requires the contractors to lower their bids by removing the

cost of self-provided insurance in exchange for the owner-provided coverage. The owner then

expects savings through the bulk purchase of insurance and avoids markups on insurance costs

by contractors. OCIP’s then have one insurance carrier which streamlines the risk claims and

can result in more efficient and less expensive claim resolution (Howrey, 2003). OCIP’s have

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potential savings not only from insurance but a well managed centralized safety program that can

result in fewer injuries. They can also improve safety by using one safety team that can oversee

all aspects of safety at a job site, providing consistency (USGAO Report, 1999).

Wisconsin has preformed and is performing three major transportation projects reaching

costs of over $4 billion including the Marquette Interchange, US-41 corridor and the I-94. For

these three projects, OCIPs are being used as the major form of insurance. OCIP’s have been

mainly used in large commercial construction projects that are usually over $50 million. In these

commercial construction projects OCIP’s have been very successful in controlling losses, saving

in insurance cost and driving the cost of the total project down compared to similar traditionally

run projects. Wisconsin has taken the OCIP concept and is trying to apply it to the transportation

construction industry for the first time. Thus, the owner controlled insurance program utilized by

Wisconsin may not necessarily be the most efficient loss control strategy versus traditional

approach for large construction projects.

Statement of the Opportunity

An owner controlled insurance program utilized by Wisconsin, for state funded

transportation project may be the most effective strategy for prevent loss compared to more

traditional methods.

Purpose of the Study

The purpose of this study was to analyze the owner controlled insurance program for

Wisconsin’s state funded transportation projects to determine if it is more effective way to

prevent loss compared to more traditional methods.

Goals of the Study

1. Compare the loss data for the state projects to the national averages.

2. Compare the loss data of the first completed project to the two ongoing projects.

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3. Conduct an analysis of management processes utilized on OCIP project and traditional

projects.

Background and Significance

Since the introduction of OCIP’s in construction, many owners have saved money on

insurance costs on large projects mainly in commercial construction. More importantly the

management style of OCIP’s has reduced the injuries that have occurred on these projects. This

study has the potential to indicate if OCIP’s are effective at reducing loss in transportation

construction compared to a traditional approach. Through the reduction of injuries it will lower

the workers compensation cost associated with these projects which will help lower cost of

insurance for future projects. The effects of lower injuries may boost productivity and quality

which may also be noticed through the improvement of the worksite and overall employee

safety.

Assumptions of the Study

1. Records that have been maintained on employee injuries are accurate and up-to-date.

2. Information given in the interviews is accurate.

Definition of Terms

Commercial general liability. Insurance policy that covers claims arising from an

insured’s liability due to damage or injury during performance of his or her duties or business.

Dividend plan. A guaranteed cost plan where the insurance company may share

dividends declared by them to their policyholders (ISU 2009).

Guaranteed cost insurance plan. An insurance policy where a set premium is paid and

insurance company pays (ISU 2009).

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Inland marine insurance, Insurance that covers specified types of property related to a

business or occupation (mobile equipment, property under bailment, electronic data processing,

and more) (Harrington 2004).

Owner controlled insurance program. (also known as wrap-up insurance) a single

insurance program that insures risks of the owner and all contractors and subcontractors for a

particular project (Aon, 2004).

Retrospective rating plan. An insurance plan where the premium is determined after

the policy has expired and the premium is generated by lost history of that policy (ISU 2009).

Workers compensation. Financial support system established under law to provide

income, medical care, and rehabilitation to employees for illness, injury, or death arising out of,

and in the course of, their employment.

Wrap-up insurance. A single insurance program that insures risks of the owner and all

contractors and subcontractors for a particular project (Aon, 2004)

Limitations of the Study

The limitations of this study include:

1. The employee’s willingness to participate with the interview.

2. The employee’s answers for the interview are not hindered

3. The analysis of objective data by the researcher

.

.

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Chapter II: Literature Review



prevent loss compared to more traditional methods. In this chapter, the researcher will present a

review of literature that involves the explanation of the difference in management of safety

processes for OCIPs and traditional insurance programs, review of loss data for transportation

projects, and the potential cost savings.

Insurance in Construction

Owners in the construction industry are finding ways to improve transportation project

delivery including reducing costs, controlling risks, and streamlining processes (Schexayder,

2004). The typical construction insurance programs today cover general liability, excess liability

builders’ risk, workers’ compensation, automotive, and any specialty insurance. With

construction projects getting larger and more complex, so does construction insurance. Under

any project of any size the insurance program requires extremely careful management (NCHRP,

2002, USGAO Report, 1999, AON, 2010).

Commercial general liability insurance provides three basic kinds of coverage which

include bodily injury and property damage liability, personal and advertising injury liability and

medical payments. The policy that is agreed upon will cover medical expenses by any member of

the public who are injured on a contractor’s premises or because the injury was caused by the

contractor’s operation. Injuries that are included are sickness, disease and death (NCHRP,

2002).

Excess or umbrella liability insurance is designed to pay for whatever standard

coverage’s end. A standard coverage could be insufficient if a catastrophic loss would occur. If

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excess insurance would not be purchased the loss would go back on the party that would be

responsible for paying it. Excess liability does not cover builders risk excess (NCHRP, 2002).

Builders risk insurance covers losses to material and equipment that are ready for

installation, work-in-place, and existing structures damages or destroyed during the construction

process. It also can cover losses caused by acts of god like hurricanes, tornados or fires.

Builders risk insurance can be designed and negotiated for each project to fit the needs of that

project. Policies usually do not cover faulty materials or workmanship, or faulty design

(NCHRP, 2002).

Workers’ compensation is required by all states for contractors. Workers’ compensation

covers all medical cost for an injured worker regardless if employer or employees are at fault. It

also covers 2/3 of pay to injured employees for days away from work. Workers’ compensation

also provides benefits for impairment that are predetermined. In return for the benefits that

employees receive from workers compensation they cannot sue the contractor (NCHRP, 2002).

All major construction projects include contractual insurance requirements which are

included in the table below. Large construction projects are complex and have many participants

working on them including owner representatives, private design professionals, prime contractor,

subcontractors and suppliers (Schexayder, 2004). The typical construction project will have

many problems with the redundancy and gaps in coverage (USGAO Report, 1999).

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Table 2-1 Responsibility for Insurance Coverage

(Schexayder, 2004)

Traditional Insurance

Traditionally project owners, designers, contractors, and subcontractors have purchased

insurance independently to protect themselves from financial loss (USGAO, 1999). Depending

on the risks for each participant in the project and based on the requirements of the contract

documents builder’s risk, workers compensation, and general liability will be purchased by each

participant at different limits (AON, 2010). ). Traditionally the owner accepts financial risks of

the entire project and through contracts place that risk onto the contractors (Howrey, 2003). The

owner will specify a minimum acceptable insurance converge, term and limits in the bid

documents for the construction risks. Then the project’s participants will obtain insurance

separately from different insurance companies to reduce their risks that are involved with the job

(Davis, 2000, Wiening, 2002, USGAO Report, 1999).

The traditional insurance approach may not be as cost effective because of insurance

coverage gaps, overlapping insurance, claim disputes, cross litigation between insurance

companies, markups of insurance by contractors, and individual participants paying for their own

insurance instead of pursuing the bulk purchase of insurance (USGAO Report, 1999). If any

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contractor or subcontractor has a loss, their insurance company would respond accordingly. If

limits are not able to cover the loss, liability will be passed to other insurance companies or even

to the owner if limits are too low or gaps of insurance exist. Usually in large losses, several

insurance companies would be involved causing cross litigation to occur between companies

(Lavet, 1991, USGAO Report, 1999, Borja, 2005). Traditional insurance have many problems

that stem from contractors and owners not working together to make sure that everything is

covered for the project with the right limits.

Owner Controlled Insurance Programs

OCIPs are different from traditional insurance in that the owner of the project purchases

insurance to cover all the parties involved throughout the project. By using an OCIP it allows for

an injury or accident to be reported to only one insurer which is responsible for all of the entities

on the project for the duration of the project (Borja, 2005). The principle behind an OCIP is

that the owner will provide insurance coverage as presented in the contract documents for the

entire construction project (IRMI, 2005). OCIPs are designed on an individual construction

project basis in order to protect the owner, contractor and subcontractors involved in that specific

project. Depending on how an OCIP is structured, the owner is responsible for making insurance

premium payments directly to the insurance carrier providing the insurance (NCHRP, 2002).

With the owner covering all parties under the insurance plan for an OCIP, owners then require

the contractors to lower their bids by removing the cost of self-provided insurance in exchange

for the owner-provided coverage (Howrey, 2003).

An owner controlled insurance program (OCIP) is an integrated program designed to

address a construction project’s insurance, claims service and risk management needs (Collier,

1998). An OCIP is obtained by the owner of the project and its intended use is to provide

insurance for the owner, construction manager, general contractor, and subcontractors working

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on the construction project. OCIPs provide builder’s risk, workers’ compensation, general

liability, umbrella or excess liability, architects and engineers professional liability. The OCIP

may also provide contractors pollution legal liability, railroad protective liability,

longshoremen’s and harbor worker’s insurance. Automobile liability and inland marine

insurance and tools are not covered under an OCIP (USGAO Report, 1999, AON, 2008). OCIPs

will cover all insurance cost for a project with the right limits but does not cover some important

aspects of insurance for contractors. This makes it hard for the contractors to bid because they

have to split their insurance policies and there are still some administrative responsibilities even

though they are not obtaining the insurance themselves.

An OCIP can provide the desired insurance that the owner wants from one insurance

company. This is beneficial because it prevents the contractors and subcontractors from

purchasing separate policies and adding their mark ups to their bids due to the cost of insurance

which is the traditional process. The final product is participants that can be covered through the

OCIP at a lower cost to the owner (Howrey, 2003). The owner purchases the insurance based on

a number of factors including safety records and number of workers on the project. These

factors are used to determine the rates that the insurance carrier will provide for the OCIP

(Schexnayder, 2004). OCIPs can use one of several different plans including guaranteed cost

insurance plan, retrospective rating plan, dividend plan and a cash flow plan. With a

commitment to safety control and loss control, loss sensitive insurance plans can be very

favorable in long term savings (NCHRP, 2002). Overall a project can choose what kind of plan

they want to set up but the overall goal is to keep loss to a minimum. For the greatest saving on

a project, loss sensitive plans are ideal if loss can be kept down otherwise if loss is expected

guaranteed plans are better suited for a project.

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OCIPs have been used since the 1940’s and were used in World War II based on

economies of scale. It was not until the mid 1990’s where OCIPs had become widely used. Due

to the combination of complex projects with management role changes it created uncertainty in

responsibilities, especially those in safety. This caused the owner, who is ultimately responsible

for the construction work, to enhance his control for the overall projects safety and risk

management. The owner can directly purchase all of the insurance for a construction project

from one insurance company with one policy eliminating gaps in coverage and stopping over

coverage for the project. When construction projects get larger and more complex, so does the

construction insurance. Under any project of any size the insurance program requires extremely

careful management, which the owner can best coordinate and manage through an OCIP

(NCHRP, 2002, USGAO Report, 1999, AON, 2010). The construction industry and insurance

go hand in hand. The more complex construction gets the more complex insurance will get. If

the owner wants to have total control of the project the best way is to undergo an OCIP because

ultimately they are responsible for the project.

The purpose of an OCIP is to have the proper and adequate insurance coverage for all

participants involved in the project and to reduce the total cost of insurance for a construction

project (NCHRP, 2002). Because the insurance is provided by the owner in the form of a single

insurance policy by a single insurance carrier, the owner makes all of the participants reduce

their total bid by eliminating all of their insurance costs. Using traditional methods of

construction insurance, each participant includes the cost of insurance coverage and adds a

markup in their bid. To eliminate this markup and insurance cost owners have been using OCIPs

(Howery, 2003). This is where an owner can receive the largest savings because of bulk buying

and saving on markups. It also allows the owner to make sure all insurance needs are met for a

project without relying on contractors with multiple insurance policies.

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OCIPs have been used in both public and private construction projects including airports,

buildings, schools, power plants, industrial facilities, highways, bridges, train stations, subways

and railroads. OCIPs are typically best when project is over $100 million. When projects reach

the $100 million size, there is usually a great deal of labor cost. This is good for OCIPs because

workers’ compensation is where most money is saved when buying bulk insurance. Any large

construction project can benefit from using an OCIP from a safety standpoint and a money

saving standpoint (NCHRP, 2002, USGAO Report, 1999).

Differences Between Traditional and Owner Controlled Insurance Programs

The major differences with traditional and OCIPs is that OCIPs have major cost savings

from buying insurance in bulk, cost savings from reducing or eliminating contractor markups,

eliminating duplications and gaps in coverage, increase small and minority subcontractor

participation, handling claims efficiently, reducing potential litigation, eliminating disputes

between insurance companies, enhancing workplace safety, and cost saving on premiums for

favorable loss experience (USGAO Report, 1999, NCHRP, 2002, Grenier, 2001, Howrey, 2003,

AGC, 2001).

OCIPs are purchased by the owner as one policy for the project including all companies

working on the project. This allows the owner to receive a discount because of the economy of

scale which allows for leverage with the insurance company. The owner makes a volume

purchase of insurance which results in lower insurance premiums that the contractors could not

obtain by themselves. OCIPs also eliminate contractor markups on insurance cost because the

owner purchase the insurance then requires the contractors to lower their total bids by making

the contractors remove the cost of insurance in exchange for the owner-provided insurance

(USGAO Report, 1999, NCHRP, 2002, Borja, 2005). This is the biggest reason why OCIPs are

used because the savings in insurance cost and usually the larger the project the larger the

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savings. Whereas traditional insurance every participant buys insurance individually and add

markups on insurance driving up the total cost of the project.

OCIPs provide the project with the most adequate insurance coverage. This is because

the owner acquires the insurance directly from the insurance company for all parties. The owner

knows exactly what is going on with the project and can acquire the insurance with no gaps or

duplications of insurance coverage which would come if the individual participants would obtain

their own insurance (USGAO Report, 1999, Grenier, 2001, Howrey, 2003). The OCIP can also

provide higher limits on insurance which the contractors could not obtain because of the

economy of scale. This makes the OCIP more favorable when more is at risk because limits can

be set at a higher limit that would not be achieved by the general contractor or subcontractors

(Schexayder, 2004). Thus it can be concluded that owners can cover all the gaps with one policy

where traditional insurance usually falls short. It also can get insurance limits far higher then

what a individual contractor could receive on a project. But it is best if owners talk to general

contractors before the insurance is purchased to make sure all gaps will be covered. The owners

may know the project but contractors know their profession and where gaps may occur.

One difference is that OCIPs can be perfect projects for small and minority

subcontractors to obtain work. This is because minority and small contractors often experience

difficulty in acquiring project insurance. These contractors often lack the ability that is required

to obtain insurance coverage’s that is are necessary for participation for large projects. OCIPs

eliminate this problem because it does not require them to have insurance due to the owner fully

insuring the project (NCHRP, 2002). Whereas traditional projects most minority and small

contractors would not be able to receive the insurance limits to be able to bid on the project.

Another difference between traditional insurance and OCIPs are there is one insurance

carrier for an OCIP. An OCIP eliminates disputes between insurance companies because there is

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only one insurer. The more participants the better chance for lawsuits (Airport Construction,

1998, USGAO Report, 1999). OCIPs eliminate the possibility of the contractors and

subcontractors bringing litigation against each other or the owner over an injured employee. All

of the parties that participate in the OCIP have the same insurance carrier, so there is only one

defense lawyer and one pot of money being defended (Schexnayder, 2004). One of the great

factors with an OCIP is that it totally eliminates disputes between insurance companies because

of one insurance policy which eliminates a lot of potential litigation cost.

Another difference is that an OCIP that has close bidding, a contractor with a better

safety record may lose out when competing against less safety conscious contractor (Grenier,

2001). Contractors with good safety records can receive discounts and rebates an insurance

which drive down the cost of their total bid because they would have lower insurance premiums.

The contractor with the lower bid would win over the contractor that was less safety conscious

(USGAO Report, 1999). Traditionally safer contractors can win bids because there insurance

bid will be lower because insurance companies use their safety records to determine their

insurance. The better the safety record the lower the insurance.

OCIPs have a very difficult bidding process requiring the delineation of bid credits

because the bids must be provide with and without insurance (Grenier, 2004). Contractors can’t

totally remove all insurance cost because some of the insurance overhead cost for processes like

reporting claims, workers compensation audits, reporting payrolls, and monthly safety

documentation would be included in the insurance part of the bid. Although all other insurance

is excluded from the bid automotive needs to be included because contractor vehicles move

between other jobs or locations with substantial frequency so the OCIP will usually not cover

this liability. Also it is hard to control because the vehicles are frequently operated away from

the worksite. Contractors’ also do not receive inland marine insurance or insurance on tools

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because they can be moved jobsite to jobsite (NCHRP, 2002). Contractors have to be careful

before entering into an OCIP and make sure they have all their bases covered before entering

their bids. Whereas traditional bidding process is familiar to contractors and they are use to the

process which makes it easier for them.

Comparison of Loss Data

There are several tools that can be used for the assessment of the transportation project

and they include the OSHA recordable incident rate, DART rate, DAFWII rate, and lost workday

rate. The assessment methods are essentially analytical processes that measure the injury on the

project against the total work hours on the project. In essence, these assessment methods involve

measuring the safety performance by the project from hindsight prospective. Rates are

considered lagging indicators due to the losses having already occurred. Lagging indicators does

not indicate what will happen in the future but it can help us look at how projects have preformed

compared to national averages or other companies (RIT, OSHA, 2010).

Incident rates are used for OSHA and other agencies to compare companies against each

other. The data can help OSHA determine which industries may need help. When the incident

rates are calculated OSHA then can compare industries against one another to see how different

industries perform. The data also helps OSHA find common types of injuries in certain

industries and what programs might be needed in the future (RIT, OSHA, 2010).

One key point is that the injury has to occur at work. If the employee was not injured at

work then it is not considered a recordable. A recordable is an injury or illness resulting from an

event or exposure at work or work environment. Work or work environment can be either at the

place of business or a location that is because of the condition of employment for example a

construction worksite. Driving is only considered work-related if transportation is a part of

business (RIT, OSHA, 2010)

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Figure 2-1 Incident or Exposure Resulting in an Injury or Illness

(RIT)

OSHA Recordable Incident Rate

The OSHA recordable incident rate is a rate that is reported to occupation safety and

health administration (OSHA) by a company every year if they have more than ten employees.

The rate is determined by the number of recordable cases over the number of employee hours

worked. It simply describes how many recordable incidents occur per 100 full time employees.

The calculation also has a base rate in the equation of 200,000 which are simply 100 employees

working 40 hours per week, and who work 50 weeks per year. A recordable incident includes all

work related deaths, illnesses, and injuries which result in a loss of consciousness, restriction of

work or motion, permanent transfer to another job within the company, or require some type of

medical treatment or first aid. This rate only tells how frequent recordable incident happen. It

does not indicate how severe the injuries are.

Number of OSHA Recordable Cases X 200,000

IR = -----------------------------------------------------------

Number of Employee labor hours worked

(RIT, OSHA, 2010)

26

DART rate

The DART rate is a rate that calculates incidents that have one or more lost days, one or

more restricted day or an incident that resulted in an employee transferring to a different job with

the company. The rate also has a base rate of 200,000 which is 100 employees working 40 hour

weeks for 50 weeks a year. The dart rate describes the number of recordable injuries and illness

per 100 full-time employees. The DART rate is a newer rate used by the industry. The rate does

account a little more for severity than the OSHA recordable incident rate because it is calculating

when an employee can’t perform their original job.

Total Number of DART incidents x 200,000

DART Rate = -----------------------------------------------------

Number of Employee Labor Hours Worked

(RIT, OSHA, 2010)

DAFWII rate

The DAFWII rate is a rate that calculates the number of cases that involve days away

from work per 100 full-time equivalent employees. The rate also has a base rate of 200,000

which is 100 employees working 40 hour weeks for 50 weeks a year. The DAFWII rate is

different from the DART rate because it does not included transfer or restricted duty work in its

calculation. The DART rate and DAFWII rate are used by OSHA for determining what

companies need to be inspected and what companies do not.

Total Number of DAFWII incidents x 200,000

DAFWII Rate = -----------------------------------------------------


(RIT, OSHA, 2010)

27

Lost Workday Rate

The lost workday rate (LWD) is a rate that calculates the number of days away from

work per 100 full-time equivalent employees. The rate also has a base rate of 200,000 which is

100 employees working 40 hour weeks for 50 weeks a year.

Total Number of days away from work x 200,000

LWD Rate = -----------------------------------------------------


(RIT, OSHA, 2010)

Fatality Rate

The fatality rate is a rate that calculates the number of fatal occupational injuries per

100,000 employed workers. The rate has a base rate of 100,000 which is equal to 100,000

employed workers. The fatality rate is simply the number of fatal work injuries over the number

of employed workers.

Number of Fatal Work Injuries

Fatality Rate = --------------------------------------- x 100,000

The number of employed workers

(Bureau of Labor Statistics)

National Averages

The Bureau of Labor Statistics started in the 1930’s when injury recordkeeping was

sufficiently uniform to permit the collection of nationwide work injury data. A survey of work

injuries that resulted in death, permanent impairment, or disability was performed by The Bureau

of Labor Statistics. These surveys provide meaningful measures and monitoring injury

frequency and severity. This data had flaws because it was on a voluntary basis and only

disabling injuries were counted. It wasn’t until the 1970’s when OSHA was created when

employers have to maintain records on workplace injuries and illnesses. This created sufficient

data for the Bureau of Labor Statistics to collect. While OSHA implements the laws of record

28

keeping the Bureau of Labor Statistics is in charge of collecting the data. The Bureau of Labor

Statistics is responsible for accurate statistics on work injuries and illnesses. The statistics

include all disabling, serious or significant injuries and illnesses which include medical

treatment, loss of consciousness, restriction of work or motion, or transfer to another job. The

only injuries they do not keep track of are other minor injuries requiring only first aid treatment

(Bureau of Labor Statistics).

Table 2-2 Loss Rates for All Industries - Private

OSHA RECORDABLE

INCIDENT RATE DART Rate

DAFWII Rate

2002 5.3 2.8 1.6

2003 5 2.6 1.5

2004 4.8 2.5 1.4

2005 4.6 2.4 1.4

2006 4.4 2.3 1.3

2007 4.2 2.1 1.2

2008 3.9 2 1.1

2009 3.6 1.8 1.2


Table 2-3 Loss Rates for All Industries Including State and Local Government

OSHA RECORDABLE


DAFWII Rate

2007 5.4 2.1 1.2

2008 4.2 2.1 1.2

2009 3.9 1.9 1.2


29

Table 2-4 Loss Rates for Construction Industry

OSHA RECORDABLE


DAFWII Rate

2002 7.1 3.8 2.8

2003 6.8 3.6 2.6

2004 6.4 3.4 2.4

2005 6.3 3.4 2.4

2006 5.9 3.2 2.2

2007 5.4 2.8 1.9

2008 4.7 2.5 1.7

2009 4.3 2.3 1.6


Table 2-5 Loss Rates for Heavy and Civil Engineering Construction

OSHA RECORDABLE


DAFWII Rate

2002 6.4 3.7 2.4

2003 6.5 3.5 2.4

2004 5.9 3.2 2.1

2005 5.6 3.1 2.1

2006 5.3 3 2

2007 4.9 2.6 1.6

2008 4.2 2.2 1.4

2009 3.8 2.2 1.4


Table 2-6 Fatality Rate

Private Industry

Construction Industry

2002 4.2 12.2

2003 4.2 11.7

2004 4.4 12

2005 4.3 11.1

2006 4.3 10.9

2007 4.1 10.5


30

Traditional Management of Safety Process

Risk management is a crucial part or any successful construction project or contractor.

The risk management process has five main steps.

1. Risk identification

2. Risk analysis

3. Selection of appropriate treatment techniques

4. Implementation of the selected techniques

5. Measurement of the results.

Contractors use this process to treat risk on their projects or within the company (NCHRP,

2002). The process can be carried out in many different ways and companies can be as involved

into safety as much as they want to be which can leave inconsistencies on a project. Some

companies can be fully engaged while others may not care about safety and think of loss as just a

part of doing business.

Traditionally there is no single coordinated safety program. Each contractor and their

insurance broker and insurance company are only concerned about that contractors safety. The

traditional safety can be hard to coordinate because there are several insurance companies and

contractors with their own specific safety program. It also becomes a struggle because each

contractor and subcontractor are only worried about their segment of the work (USGAO Report,

1999). This causes another big inconsistency because safety programs don’t line up and there

are many different programs running on a project at one time. Also this means that contractors

with less safety conscious are not monitored which can cause harm to the contractor or

surrounding contractors. To summarize traditional safety is on the basis of the contractor. If a

contractor wants to implement a safe company they will and if they don’t they will not. This

31

means a contractor could be safer than an OCIP. But it does not insure all the contractors they

are working around will be safe making them exposed to hazards on the project.

Centralized Management of Safety Process

When owners assume responsibility for a construction site, they are also taking

responsibility for safety of that site (Donovan, 1999). A key element of an OCIP and the

element that makes such programs attractive to the insurance market is the opportunity to reduce

risk through the mandated provision of a professionally developed and managed centralized

safety and loss control program (NCHRP, 2002). All participants have financial interest to keep

claims to a minimum. Contractors and insurance companies can pay less if claims are kept at a

minimal and in conjunction the owner will pay less in overall deductibles (USGAO Report,

1999).

A uniform risk management program is an essential part of an OCIP. The administrator

of the OCIP will have the responsibility for the overall safety and loss control for the project this

includes the handling of claims. This centralized safety management can result in cost savings

from increased loss control, improved safety and more efficient claims handling. If claims are

not handled well, it can result in the loss of savings (Howrey, 2003). A safety representative

should be chosen to oversee the project and the procedures outlined in the comprehensive safety

plan. The representative can provide ongoing on-site presence to improve safety and can provide

innovative safety improvements (USGAO Report, 1999). Thus it can be concluded that there

should be one representative that can oversee the program for the duration of the project to have

a consistent safety program.

The main feature of an OCIP is the implementation of a centralized safety program for

the entire project. The fewer injuries that resulted from the centralized safety program resulted

in savings from a worker’s compensation stand point (USGAO Report, 1999, NCHRP, 2002,

32

Howery, 2003). Labor cost is very important, as most of the OCIP insurance cost savings comes

from reduced workers compensation premiums (Schexayder, 2004). Under an OCIP, the owner

pays the premium for the insurance program that covers all participants. This allows the owner

to save in premiums if the project ends with few losses. Through the use of an OCIP, the owner

can expect a safer work site with uniform standards and safety procedures, a reduction in cross

litigation, and less claim disputes (USGAO Report, 1999, NCHRP, 2002, Howery, 2003). The

centralized safety program is one key component of why OCIPs are considered more safe then

traditional projects.

A centralized safety program is important in the overall cost savings of an OCIP

(USGAO Report, 1999). A professionally developed safety program reduces risk to the owner

and allows them to reduce the premiums for insurance (NCHRP, 2002). Safety programs should

cover the entire workforce and improve safety through education, the promotion of safety

working practices, increased awareness of factors that create dangerous situations, better use of

safety equipment, monitoring for compliance, monitoring for contractual safety regulations and

better inspections and enforcement actions (Collier, 1998, Strayhorn, 2003). Each of the

contractors at the site and all of the tier subcontractors are required to develop a loss control

program, accident reporting procedures, and other information relating to the operation of the

program (Borja, 2005). OCIPs can have more accurate risk assessments and can ensure uniform

safety standards, coordinated safety programs, onsite safety monitoring, immediate attention to

onsite injuries, and early return to work programs. These programs can reduce the total workers’

compensation and general liability premiums on a project (Bell, 1998, Donovan, 1999, NCHRP,

2002). Thus it can be concluded that centralized safety programs that are proactive and

aggressively can reduce the cost of the project.

33

An OCIP gives the owner control over safety which is carried out by either the insurance

carrier or contracted out to a company (NCHRP, 2002). The safety team can provide training,

education, investigation audits and inspection for the project. The owner can require each

contractor and subcontractor to develop or perform a loss control program, accident reporting

procedures, and other information relating to the operation of the program (Borja, 2005). The

program involves the entire workforce in moving towards accident and loss reduction by

education, promotion of safe work attitudes, awareness of factors that crate accident situations,

training use of PPE, monitoring of compliance with statutory and contractual regulation, and

inspection and enforcement actions (Schexnayder, 2004).

OCIPs require the owner to have a uniform risk management program which includes a

centralized handling of claims. This centralized handling of claims can increase loss control and

have a more efficient claims handling (Howrey, 2003). Having a single insurer is the control

point for reporting claims, conducting investigation, and making payments (USGAO Report,

1999). OCIPs can play an active role in the claims management process through receiving loss

runs and involving periodic claim reviews with the carrier and broker (AGC, 2001). OCIPs

make it possible for a proactive claims management which allows for return to work programs

and light-duty work (NCHRP, 2002). It can also help because the insurer can prepare the loss

data for the owner to identify current claims and cost. With the one insurer, claims settlement

procedures are more consistent (USGAO Repot, 1999). Thus it can be concluded that a uniform

risk management system which includes centralized handling of claims can be more efficient and

cost effective than traditional forms of claim management.

In order to receive the full potential of an OCIP, it depends on how the owner manages

the program, especially regarding safety. To achieve saving with an OCIP requires that the

owner and all project contractors work closely together to implement and enforce an aggressive

34

safety program. OCIPs can be structured in many different ways, but the most effective period

of involvement with safety is before construction begins. An owner needs to establish clear

incentives that are communicated and enforceable, develop a psychological climate that sets the

tone for a safe job and that spreads to all members of the project team, and initiates clear

measures and practices that anticipate potential problems, detail contingency actions and provide

needed resource support dedicated to the tasks. The owners should share cost savings with

contractors through incentive programs (NCHRP, 2002). Some projects use an OCIP even when

savings from the insurance are minimal. The owner likes to have control of the safety program,

coverage limits, claims process, and insurance program (USGAO Report, 1999, NCHRP, 2002).

Thus it can be concluded that the success of failure of the safety program lies on the owner and

how he structures the program.

Difference Between Traditional and Centralized Management of Safety Process

Traditionally safety can be difficult to coordinate because there are many insurance

companies and contractors, each with its own safety program. OCIPs can provide a greater

emphasis on and level of control over safety because the project owner controls the safety

program in place (USGAO Report, 1999). Thus it can be concluded that OCIP can provide a

more streamline safety program that can provide a greater emphasis on and level of safety than

traditional insurance can perform.

One difference between the two processes is the administration of an OCIP will impose

new, additional cost on the owner. With the OCIP the owner becomes responsible for safety and

claims management on the project (Howrey, 2003). OCIPs emphasize job site safety, controlling

losses, and effective claims management that all require additional resources (USGAO Report,

1999). Many owners chose to outsource some of the administrative functions to insurance

brokers or to an outside firm, while other performs some or all the functions with internal staff.

35

In most cases the broker handles most of the added burden of the safety program. The general

contractor is usually required to have one safety manager employed for the duration of the

project (Schexnayder, 2004). The major administration burden for the owner is more of a cost

because of the outsourcing. The major administration burden for the contractor is extra

paperwork resulting from having to file workers’ compensation coverage labor hour reports on a

timely basis plus any other programs that are included in the OCIP. It is clear that the

administration burden of an OCIP requires extra effort from the project management staffs of

both the contractor and owner (NCHRP, 2002). The administration cost is increased but the goal

is to reduce the loss which will ultimately save the project money (USGAO Report, 1999).

There is an additional administrative burden for an OCIP but traditional insurance program also

has administrative cost and the reason it is considered a burden is because most contractors are

not use to the amount of emphasis on safety which has a lot of paperwork and resources

involved.

Potential Cost Savings

When project owners use a OCIP it can save them up to 50% on a single project

compared to the cost of traditional insurance. This also can be looked at as 1% to 3% of a

projects total cost (USGAO Report, 1999). Projects that receive the most savings are ones that

have a large labor cost. This is because most of the cost savings comes from reduced workers

compensation premiums (Schexayder, 2004). OCIP’s cost savings are dependent on a lot of

things including type of project, size, location, and legal environment (NCHRP, 2002).

OCIPs cost savings are from an aggressive safety and loss control, reducing disputes

between contractors over loss, a reduction in litigation between insurers, and by buying a bulk

insurance policy which creates economies of scale and generates volume discounts with greater

leverage (USGAO Report, 1999, NCHRP, 2002, Grenier, 2001, Howrey, 2003, AGC, 2001). By

36

the owner buying insurance in bulk instead of all the individual contractors purchasing their own

insurance, the owner can create leverage. This causes the owner to receive the insurance at a

lower rate than the individual contractor could obtain. The other place where an OCIP can save

money is eliminating the markups on insurance because the insurance are removed from the bid

in place of the OCIP (USGAO Report, 1999, NCHRP, 2002).

OCIPs can prevent coverage gaps and overlapping which will reduce the cost to the

owner because they will not be exposed to loss or be paying double for coverage (Howrey, 2003,

USGAO Report, 1999). Ultimately the owner pays for the loss, if the owner can have all the

participants under an OCIP, claims will be resolved faster with fewer appeals. Much of the cost

savings comes from significant reduction in attorney fees and reduced litigation cost as a result

of one insurance carrier providing all the insurance (NCHRP, 2002).

OCIPs cost savings can be realize if the projects loss experience is bellow what the

insurance program was set for (NCHRP, 2002). Because the greatest savings of an OCIP is

realized under the savings from workers compensation premiums, if safety and loss control can

be ran aggressively a large amount of savings can be obtained (USGAO Report, 1999,

Schexayder, 2004). Especially in a loss sensitive insurance plan a commitment to safety and loss

control, the long-term cost impact of such programs on workers’ compensation insurance can be

favorable (NCHRP, 2002). Thus it can be concluded if a company can run an aggressive safety

program where loss is brought down to a minimum, loss sensitive insurance plans create the

greatest amount of savings for a project.

When reviewing an OCIP compared to other studies a wide range of savings have been

reported. The United States General Accounting Office did a study on six different

transportation infrastructures that used an owner controlled insurance program. The insurance

programs included workers compensation, general liability, builders risk, excess liability,

37

pollution liability, professional liability, railroad protective, longshoremen, automobile liability,

tools, and inland marine insurance (USGAO Report, 1999) Two studies performed on 50

construction projects using CIP’s of which 89% were OCIPs. These studies revealed 86% of

CIP’s had a full time safety director. These two studies concluded that 27 out of 30 CIPs saved

money, with average saving being 4.2 million per project (Brady, 2000).

Table 2-7 Cost Savings Realized on OCIP Projects

Project Name Total Project Cost Cost Savings Comments

City of Memphis,

Cook Convention

Center

(Scott 1999)

$68 million

$300,000 +

Additional Safety

Incentives.

City of Grand Rapids,

Grand Center

Convention Center

(Czurak 2001)

$219.5 million

$350,000 +

Increased Coverage

Limits.

$900,000 Dedicated to

Job Safety

Iowa Events Center

(Dalbey 2001) $200 million

$1.3 million

City of Dallas

Convention Center

(Scott 1999)

$1 million

Walt Disney Company

1% of Construction

Costs

Loss Control Programs

for All Contractors.

Pennsylvania School

Board Association

$935 million

$12 million

Austin Independent

School District

( Bradley and Stuckey

2001, Strayhorn 2003)

3% of Construction

Costs

Savings of $3.6 million

in 1996 Alone.

Fort Bend Independent

School District

(Strayhorn 2003)

$265 million

$3.1 million

38

Sacramento DGS East

End State Complex

(“The State” 2003)

$3 million

Fidelity’s Boston

Seaport Hotel and

Convention Center

(Lenkus 1997)

$100 million

$3 million

Fidelity’s Smithfield,

Rhode Island Office

Building Complex

(Lenkus 1997)

$100 million

$800,000

Three Arizona State

Prisons

(Collier 1998)

$3.4 million

Orlando Utilities

Commission Coal

Plant

(Atkinson 2002)

$550 million

millions Project Came in Safe,

On Time, Under

Budget.

Austin-Bergstrom

International Airport

in Texas (“Airport

Construction” 1997)

$300 million Significant Savings 2%-4% OCIP Cost

Compared to 6%-12%


Cost

Washington

Metropolitan Airports

Authority

(“Airport

Construction” 1997)

$2.1 billion $8 million 4% OCIP Cost

Compared to 10%-12%


Cost

San Francisco

International Airport

(Strayhorn 2003)

$2.4 billion

$60 million

Increased Coverage

Limits

California, Santa Clara

Valley Transportation

Authority

(American Public

Transportation

Authority 2003)

$2.8 million

OCIPs Cost 30%-60%

Less Than Traditional

Insurance Policies

Dallas Rapid Area

Transit Light Rail

Project

(Bell 1998, Scott 1999)

$870 million

$11 million

Washington

Metropolitan Area

Transit Authority

33% on Insurance

Costs

39

(Scott 1999)

New York

Metropolitan

Transportation

Authority

(Hofmann 2002)

$8 billion

$55 million

Florida Suncoast

Parkway

(Schexnayder et al.

2004)

2% of Total

Construction Costs

Table 2-8 Transportation Projects Using Owner-Controlled Insurance (Dollars in Millions)

Project Name and

Location

Total

Project Cost

Traditional

Insurance

OCIP

Insurance Savings

Savings as

Percent of

Project

Blue Water Bridge,

Michigan $97.20 $10.00 $7.10 $2.90 2.98%

Boston Central Artery

Tunnel, Massachusetts $10,800.00 $1,030.00 $765.00 $265.00 2.45%

I-15, Salt Lake City,

Utah $1,600.00 $52.20 $22.30 $29.90 1.87%

CTA Green Line

Rehabilitation,

Chicago, Illinois

$408.70 $32.50 $21.00 $11.50 2.81%

Hudson-Bergen Light

Rail (Initial Segment) $992.00 $20.00 $11.00 $9.00 0.91%

Tri-Met, Westside

Light Rail, Portland,

Oregon

$952.00 $27.10 $17.20 $9.90 1.04%

The Tri-Met Westside Light Rail Line project was a $952 million project that was

completed in September 1998. The project included a 3-mile double tunnel and 20 stations

going through populated areas including Portland, Oregon. The reason for Oregon to use an

OCIP was to increase their control over the project, enhance safety, and improve efficiency

which claims are settled. Oregon laws are designed so deductibles could not be purchased for

workers compensation, otherwise even more money could have been saved on this project

40

according to the insurance broker for this project. The overall safety goal for this project was to

be completed with a target loss ratio of 40% which they met and finished with a 36.7%. The

project did include three fatalities which increased the ratio. Contractors were provided $1.3

million with safety incentives to contractors. In total the project estimated savings was $9.9

million (USGAO Report, 1999).

The New Jersey Transit Corporation Hudson-Bergen Rail Line was a $992 million

project that started in 1996 and was scheduled to be completed in March 2000. The project was

20 miles long with 16 stations running along the Hudson River from Hoboken to Bayonne. New

Jersey Transit used an OCIP for cost saving and improved safety. They also wanted minority

contractors to bid on the job which when used in an OCIP helps because under tradition

insurance, high insurance cost or requirements might preclude them. New Jersey Transit

estimated savings was $9 million (USGAO Report, 1999).

Chicago Transit Authority Green Line rehabilitation project was a $409 million project

that started in 1994 and was completed in April of 1999. The project was to fix the deterioration

of the rail and increase the rails travel time. An OCIP was used due to the size of the project,

potential for large losses, to enhance safety, streamline effective claims management, minimize

disputes among insurance carriers, and help minority and disadvantage business enterprises. The

Chicago Transit believed that through an OCIP that it would be able to avoid gaps in coverage

and help with inadequate levels of coverage among the contractors. When using the OCIP on

this project 30% of the workforce was minorities on the project. When the project was

completed, it saved a total of an estimated $8.9 million (USGAO Report, 1999).

Utah Department of Transportation (DOT) Interstate 15 reconstruction project was a $1.6

billion project that started in 1997 and was scheduled to finish in July 2001. The construction

was on a 17 mile stretch of interstate in and around Salt Lake City, Utah. It was 6 to 12 lanes

41

and replacing 140 bridges and structures. The use of an OCIP was used for the potential savings

for general liability and workers’ compensation. After the project was completed the loss-time

accident rate was a 0.8 which was below the national avg. of 5.0 that year (Bureau of Labor

Statistics). The project had one fatality in the four years it took to complete the project. Overall

Utah DOT saved $29.9 million on the project (USGAO Report, 1999).

The Boston Central Artery/Tunnel project was a $10.8 billion dollar job that began in

1991 and was scheduled for completion in 2004. The project was to reduce traffic congestion in

downtown Boston by an 8 to 10 lane underground highway with four lane underwater tunnel that

crosses Boston Harbor and a commercial traffic bypass road through South Boston. The reason

for use of an OCIP was to facilitate coordinated claims processing, improve administration,

centralized data collection, and financial reporting/audits of the program. The project estimated

a 50% loss ratio and was running at 15% for general liability and 23% for workers compensation

in 1999, which were well below what was projected. Overall the estimated savings for the

project was $265.1 million which was the largest savings from all the studied projects (USGAO

Report, 1999).

Michigan DOT Blue Water Bridge project was a $97.2 million project that was started in

1997 and completed in August 1999. The bridge connected Ontario to Michigan crossing over

the St. Clair River. An OCIP was used because the project was confined to one area that could

easily be controlled. Blue Water Bridge paid out less than 10% of workers’ compensation

premiums which is well under the industry average. The industry average for premiums paid out

for claims in Michigan is typically 50% to 65%. The national average of workers compensation

premiums paid out in claims for a project using OCIPs is 35%. The total estimated saving were

$2.9 million (USGAO Report, 1999).

42

When reviewing all six projects savings were from $2.9 million to $265.1 million. This

was a savings from one to three percent of total project cost (USGAO Report, 1999). The major

factor of saving for an OCIP is the total cost of labor. Workers compensation premiums are

related to the project person hours, labor classification, and state set rates (NCHRP, 2002).

When reviewing these six projects this held true. The projects that had more labor involved the

more the savings were (Schexayder, 2004). Thus it can be concluded that all the transportation

project that were analyzed by the USGAO report were successful at saving the owner money.

Marquette Interchange data for future study.

2-9 Marquette Interchange Extra Loss Statistics

Hours (approximate) 2,707,246 hours

Incident Rate 22.47

Cost per Man Hour $1.23

Summary

Traditional insurance programs are the most widely used programs for construction

projects. As these projects have grown more complex and more expensive to owners the

integration of OCIPs have immerged. OCIPs bring safety and cost savings to owners with many

advantages that cannot be achieved with the traditional style of insurance. Many of the major

drawbacks including increased administrative cost, large upfront cost, and having a lesser safe

company win a bid over a more safety conscious company were all deemed not as much of a

factor to the owner because of the savings most of the project received. As seen in the literature

review almost all projects saved money and most had better safety statistics then the national

averages. OCIPs seem to be more of a problem to contractors but most of that seems to come

from the unfamiliarity from using them. Many contractors had problems bidding the

43

administrative cost because usually it was included in their insurance bids. The contractors also

had some gaps in insurance coverage that they did not realize because they were not included in

the OCIP. The two major parts that are not included in OCIPs are automotive insurance and

inland marine insurance. Contractors also seemed to be upset over the lost profit that they

usually obtained with the markup of insurance. Overall OCIPs bring more to the table then

traditional insurance does especially for the owner. The centralized safety program streamlines

safety for the entire project which brought more efficient claims management, eliminate cross

litigation between insurance companies, and improve safety performance for a project. Also the

single insurance policy brought lower cost of insurance because of the economy of scales,

savings from markups from contractors, and reduced gaps and duplications in insurance. For the

owner who is ultimately responsible for the project OCIPs provide the most control for an owner

to make sure a project is successful.

44

Chapter III: Methodology



prevent loss compared to more traditional methods. In order to assess the effectiveness of an

OCIP for the state funded projects, several tools will be used to determine the extent of loss,

safety performance, and potential cost savings. The OCIP was analyzed while keeping these

goals in mind:




projects.

The methods and procedures used in the analysis of the OCIP for state funded projects

are explained under the following heading subjects studied, the research design, the

instrumentation used, data collection, and data analysis.

Subject Selection and Description

Subjects will not be used for the comparison of loss. Subjects will be used to analyze the

management processes utilized on the OCIP projects and traditional projects. The subjects of

this study were selected by the author and safety director of the state funded project. The OCIPs

for the Marquette Interchange, I-94 and US-41 all have one lead safety director with several

safety managers underneath. The individuals are being interviewed about the implemented

OCIPs and safety programs that were directly related to their project. This includes one public

worker, one safety directors, and one safety manager that worked with the OCIP. Before

conducting any interview, the researcher will clearly notify all participants of the study. The

researcher will explain all of the necessary documentation to inform the subject within the study.

45

Instrumentation

For the comparison of loss data a review of literature was conducted to identify key

components, advantages, and disadvantages of OCIPs. From the key components found in the

review of literature it was possible to determine the tools to use in order to obtain the data needed

to effectively analyze the OCIPs for the state funded projects. The specific tools used in the

study include a comparison between the state funded projects against national averages with

statistical data, and interviews with key personnel who oversaw the OCIPs for the projects.

The comparison of loss data between the projects and the national averages helps

determine how successful the OCIP was compared to the national average which are mainly

traditionally ran projects. The comparison of loss data between the Marquette Interchange an

already completed project in Wisconsin and the I-94 and US-41 are ongoing projects in

Wisconsin, can help determine how the state is performing on continuous improvement. By

using the DAFWII rate, lost workday rate and fatality rate we can determine how the OCIPs

performed in lost time incidents and fatalities. The DAFWII rate can indicate if the projects

were successful at keeping lost time incident from occurring on the project. The lost workday

rate will help indicate how many days away from work that the project has. It also can indicate

the severity of the injuries. The fatality rate will indicate if they were able to keep their

employees alive on the projects. Each of these rates will provide a different score which will be

compared to the national average that was derived from the Bureau of Labor Statistics and how

they perform against each other.

To determine the management processes utilized on OCIP project and traditional

projects. An interview process will be utilized in order to determine the effectiveness of the

management process utilized by an OCIP. The interview process allows for key individuals in

the OCIP projects to express their experiences and thoughts about the OCIP. The interview will

46

be assessed by the researcher to determine the effectiveness of the management process utilized

for the projects. The questions that are administered are designed to look at the effectiveness of

the management process compared to traditional insurance methods from key individuals in the

projects. The results from these interviews will help the researcher determine the effectiveness

of the management process utilized by an OCIP for state funded transportation projects.

Data Collection Procedures

The procedures below are to determine the rates that will be compared to the national

averages and similar projects. All the national averages can be obtained from the Bureau of

Labor Statistics.

DAFWII Rate

1. Receive total days away from work cases for project

2. Receive total number of labor hours

3. Place totals in equation

Number of DAFWII cases X 200,000

DAFWII = -----------------------------------------------------------

Number of Employee labor hours worked

4. Compare project totals to national average from literature review and from a

similar project

Lost Workday Rate

1. Receive total number days away from work

2. Receive total number of labor hours

3. Place totals in equation for each year

Total Number of lost time workdays x 200,000

LWD Rate = -----------------------------------------------------


47

4. Compare project totals to national average from literature review and from a similar

project

Fatality rate

1. Receive loss data and employee labor hours worked from projects

2. Organize incidents by the year they occurred

3. Add up all incidents that resulted in fatalities

4. Organize employee labor hours by the year they occurred

5. Place totals in equation for each year

Number of Fatal Work Injuries

Fatality Rate = --------------------------------------- x 100,000

The number of employed workers

6. Compare project totals to national average from literature review and from a similar

project

Data Analysis

Through a review of the data collected during the comparison of loss data, the researcher

will be able to identify if the projects had a better loss record than the national average. The loss

data comparison of the Marquette Interchange, I-94 and US-41 will identify if Wisconsin is

moving in the right direction with safety for their ongoing OCIPs. The data from the interview

will be used to determine the effectiveness of the management process. The data will be

analyzed to determine cost effectiveness, safety performance realized, safety program

performance, safety process steps, advantages, disadvantages, common mistakes, and keys for a

successful OCIP.

Limitations

The limitations of this study include:

1. The employee’s willingness to participate with the interview.

2. The employee’s answers for the interview are not hindered

48

3. The analysis of objective data by the researcher

49

Chapter IV: Results



prevent loss compared to more traditional methods. The goals of the study were to:




projects.

The methodology used to collect data consisted of researching loss data and calculate rates for

the three projects, researching the national averages, and interviewing safety professionals

related to the three projects.

Presentation of Collected Data

Goal One

The first goal of the study was to compare the loss data from the state projects to the

national averages. The data collected from the projects are the totals from the entire projects life.

The Marquette Interchange is the only completed project of the three as the I-94 and the US-41

are still in progress. The projects DAFWII Rate are listed in Table 4-1.

Table 4-1 Wisconsin OCIP Projects DAFWII Rate and Fatality Rate

In Table 4-2 the national averages for the DAFWII rate are provided. These average

industry rates are from all different industry categories that would include these projects in there

Project DAFWII Rate Fatality Rate

I-94 1.82 0

US-41 .49 0

Marquette Interchange 9.83 0

50

rate. The national average fatality rate is provided in table 4-3. These rates were all obtained

from the Bureau of Labor Statistics. These are reactive loss or lagging indicators which are

after-the-fact measurements that helps determine a projects performance.

Table 4-2 National Averages for DAFWII Rate

Year All Private Industry

All Industry Including State and Local Gov.


Heavy and Civil

Engineering Construction

2002 1.6 N/A 2.8 2.4

2003 1.5 N/A 2.6 2.4

2004 1.4 N/A 2.4 2.1

2005 1.4 N/A 2.4 2.1

2006 1.3 N/A 2.2 2

2007 1.2 1.2 1.9 1.6

2008 1.1 1.2 1.7 1.4

2009 1.2 1.2 1.6 1.4


Table 4-3 Fatality Rate

Private Industry


2002 4.2 12.2

2003 4.2 11.7

2004 4.4 12

2005 4.3 11.1

2006 4.3 10.9

2007 4.1 10.5


When comparing the numbers it can be seen that the Marquette Interchange DAFWII rate

has a higher rate than the national average. Whereas the I-94 is comparable to the national

average and the US-41 is well under any of the national averages. All projects perform well

below the nation average in the fatality rate. There were no recorded fatalities on any project.

51

Goal Two

The second goal of the study was to compare the loss data from the state project to a

similar project. Wisconsin is one of only a few states that have used OCIPs on transportation

project. The first project they did was the Marquette Interchange that went from 2004 to 2008.

The I-94 and US-41 started construction in 2009 and are still in progress through an estimated

finishing date of 2016 and 2015 respectively. Since the Wisconsin DOT is in charge of all three

projects the comparison is of the finished Marquette Interchange to the two ongoing projects.

Table 4-4 shows the comparison of the three projects.

Table 4-4 Wisconsin Transportation OCIP Projects Loss Data

As seen in table 4-4 the I-94 and US-41 perform better in the DAFWII rate then the

Marquette Interchange. The US-41 also has a lower LWD rate then both the I-94 and Marquette

Interchange. It is seen in the data that the I-94 sustained some more severe injuries because there

DAFWII rate is low and there lost workdays rate is high meaning the injuries that were sustained

were leaving them out of work for a good period of time. The fatality rate for all projects is at

zero which is very comparable. When reviewing the loss cases more than 60% of all the lost

workday cases happened in the first half of the project for the Marquette Interchange. The

Marquette Interchange project trends downward showing as the project went on the better it

performed in loss. Both the I-94 and US-41 are early in construction and they are starting to

come in to the phase of construction where a lot more man hours will be logged and if the trend

stays true it can be expected that the rates will come down even lower than they are now.

Project DAFWII Rate Lost Workday

Rate Fatality Rate

I-94 1.82 278.2 0

US-41 0.49 31.2 0

Marquette Interchange 9.83 243.6 0

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Goal Three

The third goal of this study was to perform an analysis of management processes utilized

on the OCIP projects. An interview was conducted on how these management processes were

used on all three projects. The following are the 41 questions with the responses with the

summary of their responses.

1. How is the OCIP safety program structured?

Figure 4-1 Safety Structure

For all three projects (Marquette, US-41 and I-94) the same structure was used. The

Department of Transportation (DOT) ran the projects. The Safety Directors were in charge of

managing, enforcing, and running the projects safety programs and procedures. The Safety

Directors and Safety Crew have the most face to face contact with the contractors on site. The

Safety Crew was utilized by the Safety Directors. The difference between the Marquette and the

other two projects was that the Marquette Safety Crew was made up of the contractor’s safety

personal. Also the Marquette had Insurance Administration on the project. Where the US-41

and the I-94 the Safety Director has safety crew that are hired for the project along with safety

personal from contractors. The prime contractor and sub-contractor must provide one safety

personal for every 30 of their employees. One of the hired staff members is an OCIP

Administrator to handle all claims before they go to the insurance company.

2. How are incident/accidents reported?

For the US-41 and the I-94 once an incident or accident has occurred the contractor is

required to contact by phone the Safety Director and the Safety Administrator. For the

53

Marquette the Safety Crew is already on-site to start the process. The contractor would call in

the claim or for medical the employee would be brought to the paramedic and the paramedic

would do the First Report.

3. What is the process for contractors to communicate incidents to the claim

mangers/Administrator?

For the US-41 and the I-94 a phone call is needed to be made in the first 24 hours. Also

an incident/mitigation report must be performed and for a medical case a First Report need to be

performed. For the Marquette the Safety Crew would write up an incident report and if it was a

medical the injured employee would go to the on-site paramedic and the paramedic would write

up a First Report that was sent to the insurance company. The Marquette had some trouble

because there was Insurance Administration on the project that would get to a claim before the

safety team would or even without the safety team knowing about it. When this happened claims

were being filed with the insurance company and being charged to the project without any

investigation or knowledge by safety team.

4. How many claims managers/administrators are there on the project?

For all three projects the claims managers/administrators were contracted out to a

company that received all the calls. There was not a set amount of administrators but the Safety

Directors and DOT usually went through one administrator from the company about claims that

occurred on the site.

5. How are claims communicated to the safety management?

For the US-41 and I-94 the Safety Directors would receive calls from contractors on the

incident/accident that occurred. Safety Directors also receive the incident/mitigation report from

the contractors which describes the incident/accident. For the Marquette the Safety Crew was

on-site so they knew about most accidents.

54

6. Are there accident investigations conducted?

All of the projects conducted accident investigations.

7. Are accidents analyzed for root cause?

For the US-41 and the I-94 the root cause is conducted by the safety staff in the

incident/mitigation report there is a narrative section that breaks down every accident to the root

cause. For the Marquette the root cause was created in the incident report.

8. Are accident analyzed for trends?

The I-94 and the US-41 safety staff both used trending techniques for the projects. The

Marquette the Safety Crew did the trending analysis. On all three projects the insurance carrier

did run trending analysis on the projects.

9. Are cost calculated for each accident?

On all three projects the insurance carrier does calculate total cost of accidents. Also cost

per man hour is also calculated for the US-41 and the I-94. The Marquette the safety team did

not use cost calculations for each accident.

10. Are near misses required to be reported?

For all of the projects near misses were required by contract to be reported. But it is very

unlikely that the contractors report all of their near misses.

11. Are near misses analyzed for root cause?

Near misses for all projects were supposed to be conducted just like an accident/incident

with the incident/mitigation report being filled out. The root cause was under the narrative

section of the incident report for the US-41 and the I-94. The Marquette the root cause was

calculated under the incident report.

12. How are accident claims handled?

55

For the US-41 and the I-94 once the claim was called in an incident/mitigation report

must be filled out by the contractor. The Safety Director will review what he found in his

incident/mitigation report with the claim against the incident/mitigation report of the contractors.

There are two levels of incidents major and minor. Minor is recorded through the

incident/mitigation report. The major incident report needs to have photos, narrative and

recommendations of fines or not of the contractor. For the Marquette there was always on-site

contractor safety personal on the project. Once the accident/incident occurred the safety staff

would do an incident report. If the claim involved an injured employee, the employee would be

sent to the on-site paramedic. The paramedic would fill out a First Report and send it in to the

insurance company.

13. How are claims handled for incidents not involving injury?

For claims not involving injury the same procedure is performed.

14. How are clams handled for incident involving injury?

For claims involving injury the same procedure is performed but a First Report has to be

sent to the insurance carrier.

15. How is injury claims managed?

For the I-94 and the US-41 injury claims are managed aggressively. In most cases one of

the safety team goes with the injured employee to receive medical treatment. Cases are regularly

reviewed and contractors have restricted duty programs set up for employees. The DOT set up a

management system so they can be actively involved with the insurance process and help

manage claims. The Safety Directors also have procedures set up to make sure all of the details

in the incident/mitigation report are accurate to help manage the claims aggressively. That along

with all claims going through their own Safety Administrator before they are sent off to the

insurance company helps to keep claim cost down. The Marquette had a more relaxed program

56

compared to the other two projects. They did have an on-site paramedic but in some cases an

injured employee would talk to one of the Insurance Administrators that were on-site. If this

occurred the safety team would have no knowledge of the injury until after it was processed

through the insurance company. This made handling claims difficult. Also with injuries, the

safety staff could only recommend things like Independent Medical Examinations (IME’s) or

Surveillance. The Safety team did attend most if not all of the doctor visits of the injured

employees.

16. Are injury reports created for each accident?

Yes for all projects.

17. Is there light duty work available for injured employees?

Contractors were required to provide work opportunities for injured employees on all

projects.

18. Are programs created after incidents occurred?

Yes if a program is needed.

19. How are these programs communicated?

For I-94 and US-41 safety alerts meetings were held between contractors and safety staff.

Orders were sent out to contractors informing them of any changes. Pre-task meetings were held

and safety changes could be announced during. For the Marquette a safety alert was written and

distributed to the supervisors and foreman. They then were required to tell their employees.

20. What safety programs are in place?

The insurance company helped with the safety manual for all of the projects and helped

set the standards and legal requirements along with the Safety Team. Some other unique safety

policies in the US-41 were power line minimum distances, PPE minimums, and 6 feet fall

protection need no matter occupation. They also did walk around with contractors, pre task

57

planning and some behavior based safety. The Marquette had material storage, heavy

equipment, and spotter requirements. They also had wind speed minimums when picking

material with cranes.

21. How are the safety programs selected?

After the safety manual was written any programs or policies that were selected were a

conglomeration of safety staff, DOT, and the contractors.

22. How are the safety programs commutated to the contractors?

For the US-41 and the I-94 bi-weekly meetings, safety manual, weekly project/progress

meetings and orders were the main communication of safety programs and policies. For the

Marquette safety was a topic in the 9 am meetings, safety alerts, and the weekly toolbox talks.

23. Are these specific safety programs helping?

There were mixed answers between the individual interviewed some of the answers

included:

-95% of programs and policies do well and 5% do not.

-Safety performance is good but not satisfied yet.

-More involvement is needed by the safety staff

24. Which safety programs are effective and which ones were not?

Power line minimum distance there was 98% compliance on US-41. Helmet lights for

night time work helped keep employees safe from each other, equipment and live traffic. It also

helped keep jobsite well lit. The Marquette had a 100% PPE requirement that had flaws because

crane operators were having troubles looking up with them on, especially on very high picks.

The mandatory light duty was sometimes difficult because there are not many jobs for injured

employees to do.

25. What programs would you have implemented looking back now?

58

One program was to have a certified operator program for all cranes not just for cranes

over 75 tons.

26. Are there audits on the project?

Audits were done every day via email for US-41. There was also a monthly prime audit

that was a very intense audit going through the project site. Every contractor foreman had to do

audits on their worksites. The insurance carrier also did audits on a routine basis. The

Marquette did weekly audit rotation by a safety crew member. The project manager and

supervisor did a weekly walkthrough of the worksite. During the busier times weekly

housekeeping audits were done. Also a monthly audit of electrical tools and power cords was

performed.

27. What training is required for contractors?

For the US-41 and the I-94 contractors must go through OCIP Orientation and any OSHA

training. Flaggers must go through flagger training. There are four hour mandatory supervisor

training. For the Marquette everyone went through OCIP Orientation training, areal lift training

and new hire training. On an annual basis Safe Start training was provided to employees.

Foreman and Supervisors did safety training (it was more of a meeting). There was site specific

training which means anyone involved with this specific hazard need to be trained in it. This

included: confined space, lead, respirators, or any other specific hazards.

28. Is the training effective?

All projects believed the training was effective.

29. What should change about the current training?

US-41 thought supervisors should go through pre task planning training. The Marquette

thought the new hire training could have been longer.

30. What training should have been added?

59

None of the interviewers thought anything should have been changed.

31. Is there regular safety meetings?

All three projects had safety meetings.

32. Who is required to attend safety meetings?

The US-41 and I-94 had every contractor and safety team attend the pre task planning

that occurred every day. The bi-weekly meetings were usually attended by the prime contractor

and safety team. Contractor safety meetings happen bi-weekly. There are quarterly Stewardship

meeting between state representatives, contractor, carrier, and safety team. The last meeting is a

bi-weekly meeting between the DOT, insurance company and the Safety Directors from the US-

41 and the I-94. The Marquette had a 9am meeting every day, toolbox talks once a week and

safety alert meetings.

33. What is the focus for these meetings?

Safety, trends, open claims, changes, praise and concerns were brought up at meetings.

34. Is there disciplinary system?

The safety team had many options for disciplinary: verbal warnings, written warnings,

assessed fines, and employee or supervisor removals of jobsite were all options.

35. Is there an incentive system?

For the US-41 and the I-94 any fines that were paid into the system were pooled into an

account that could be used for promoting jobsite safety like pizza or some other reward. But

there is no true incentive program in place. The Marquette had no incentive program.

36. What are the advantages for safety under an OCIP?

A range of answers were given for the projects including:

Structure

Consistency

60

Opportunity for contractors to raise awareness for safety in future projects

because the OCIP structure required them to abide by the safety program

Public safety

Emergency services

Economics

One safety program

Group effort

No cross litigation

Broader coverage

Higher limits

More power

Smaller contractors have chance to bid on project

Cost savings

Contractors did not have to pay doctor bills

Builder Risk Program was good

37. What are the disadvantages for safety under an OCIP?

The answers varied for disadvantages including:

Too much structure

Lack of qualified safety people

Contractors do not like the excessive oversight

High deductibles on General Liability claims

Marquette had a hard time aggressively managing claims

38. What are some common mistakes under OCIP’s?

61

If the administration is weak, an OCIP can fall apart especially when there is a lack of

structure, safety, and claims management. A lack of communication between insurance, safety

team, DOT, and contractors can cause tons of problems.

39. What is the key to success for an OCIP?

There were a lot of answers including:

a. Involve everyone in pre-bid especially contractors about associated safety cost.

b. Safety staff needs to be experienced in the type of construction that is being

performed.

c. Understand the Big Picture

d. Structure needs to be solid

e. Partnership between all level of project

f. Culture needs to be safety oriented

g. Communication

h. Agreement on safety rules and enforcement

i. Teamwork

40. How large does the project have to be to make an OCIP worthwhile?

$100 million construction cost.

Discussion

The results of the methodology used in this study indicate that the US-41 and I-94 are

performing at or better than the national average. The data also indicates that there is

improvement from project to project. The loss data for the most part is improving from the first

OCIP project being the Marquette Interchange to the I-94 and US-41. Only the I-94 has a larger

LWD rate. The Marquette Interchange also started out with higher rates and they decreased as

project went forward. If the I-94 and US-41 stay on the same trending path as the Marquette

62

Interchange, they will finish well below the national average and the Marquette Interchange in

loss. The change in loss seems to be stemming from the continuous improvement of the

management process. Also both the I-94 and US-41 seem to have a better overall management

system setup with the insurance company and how the lines of communications are arranged

then that of the Marquette Interchange.

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Chapter V: Summary, Conclusion and Recommendations



prevent loss compared to more traditional methods. In order to achieve this purpose, three

goals were developed:

1. Compare the loss data for OCIP projects to national averages of loss for similar

construction projects.


projects.

3. Determine the potential cost saving between the two different insurance programs.

The methodology used to collect data consisted of a loss analysis of the three projects

compared to the national averages and themselves. Performing a literature review on OCIPs and

traditional management processes and comparing them to the management process used on the

three transportation OCIPs.

For the collection of loss data, detailed research for all three projects was needed. The loss

data of the three projects were then compared to the national averages received from the Bureau

of Labor Statistics. After that the loss data from the three projects were compared to themselves.

Since the Marquette Interchange was already finished and the I-94 and US-41 are in progress

they could be compared against each other. Then three interviews were performed for the

comparing of the management processes. This includes one public worker, one safety director,

and one safety manager that worked with the OCIP. This was compared to what was discovered

in the literature review.

Major Findings

64

The comparison of loss data in the study indicated the projects in progress either meet or

are lower than the national average. It also indicated that there was major improvement from the

Marquette Interchange. This with the combination of the management process review indicates

that the Wisconsin DOT is showing that they can continuously improve under the OCIP

structure. If the projects keep continuously improving they could see even more of a decrease in

loss which in the long run will save the state of Wisconsin more money.

Conclusions

Based on the data collected in this study, the following conclusions can be made about

the owner controlled insurance programs used for the state of Wisconsin funded transpiration

project:

The comparison of loss data to the national averages of the DAFWII rate identified

that the OCIPs used on the three projects had different results. The Marquette

Interchange had a higher DAFWII rate than the national averages. The I-94 was right

in the same area of the national average in the DAFWII rate and the US-41 was well

below the national average. All three projects should be further investigated in order

to determine the full extent of loss on the projects. This conclusion was drawn due to

the overall loss data that was collected from the projects.

The comparison of loss data to the national averages of the fatality rate identified that

the OCIPs used on all of the projects were good at eliminating the fatal hazards. All

three projects managed to have zero fatal incidents which were far less than the

national average.

The comparisons of loss data between the projects help determine that the projects

have been improving project to project. The Marquette Interchange shows higher

loss rates than the I-94 and US-41. The decrease in injury occurrence between

65

projects can be attributed to the improvements from the Marquette Interchange OCIP

management processes to the one they are using now on the I-94 and US-41.

Based on the loss data of the Marquette Interchange they had over 60% of its lost

workday cases in the first half of the project and there rates came down as the project

moved forward. This can be expected for the other two projects due to the continuous

improvements the Wisconsin DOT and the Safety Directors make on their project

sites.

Based on the management process interviews the structure that is currently used for

the OCIPs is setup well. The small changes from what was used on the Marquette

Interchange to what is used on the I-94 and US-41 has made a difference in

communication and control which in turn helps drive safety and keeps loss down.

Based on the management process interviews, the Safety Administrator makes a big

difference on keeping loss down. Having the Safety Administrator receive the call

they can have a full safety investigation done and then report it to the insurance

company. This helps aggressively manage claims and helps keep worker

compensation cost down.

Recommendations

Based on the conclusions of this study the following control measures are recommended

for owner controlled insurance programs utilized by state funded transportation projects:

Management Process

Department of Transportation should be fully involved with the insurance process. It

is in the best interest if the DOT if the insurance company includes the DOT in

decision making processes. This has to be setup through contract at the start of the

project. This is consistent with the USGAO report (1999) that the owner being the

66

DOT has a financial interest to keep claims at a minimum. One of the best ways to

control the financial part is to be in the financial decision making process with claims.

The Marquette Interchange lacked this which caused some work compensation

payouts that should have been contested.

Safety Directors should have knowledge in the field of construction that is being

performed on the job. As stated in the literature review from the USGAO report

(1999) and in the interviews. The better performing projects are the ones with the

Safety Directors who understand the risk of the job that is being performed and is a

constant presence on the job providing a constant influence of safety. Insurance

companies should not be on the premise as a primary safety member. If the insurance

company is a main stay on the project like the Marquette Interchange was. The

incident needs to go through the lines of communication like any other incident

would and not straight to the insurance company.

Safety Administrator should be hired for every project and all injuries should go

through them. All injuries should be reported first to the hired Safety Administrator

who will communicate out to the Safety Director and contractor that an incident

occurred. This way an investigation can be performed and there is a clear line of

communication. When an incident needs to be submitted to the insurance company it

should go through the Safety Administrator. This will keep communication lines

defined. Indicated by Howrey (2003) centralized handling of claims can increase loss

control and have a more efficient claims handling. Also the USGAO report indicated

that a single point of control is need for reporting claims, conducting investigations

and making payments. Although the Safety Administrator will not do all three they

can appoint them to be performed or determine if the claim should go to the insurance

67

company. This did not happen at the Marquette Interchange and caused incidents to

be reported that shouldn’t have. The US-41 has this in place and it is working; this

can be indicated through the DAFWII and LWD rates being less than the Marquette

Interchange.

Contractors should provide safety personnel for the part of the job their employees

are on. An OCIP does not have enough safety personnel to cover the whole site,

especially sites like the US-41 and I-94 that run for miles. All linear projects should

have at least 1 safety member from the contractor to every 40 workers in the field and

even bigger ratio if the project is really linear. The Marquette Interchange lacked this

in the heavy construction times but the US-41 and I-94 have this in place and are

running 1 safety member for every 30 workers.

Communication lines need to be set for reporting incident. If communication lines

are set before hand there will be less mistakes made. From the interviews, the

projects seem to have a system set but there seems to be too many variables in all of

the systems. Once the incident occurs it should be determined if emergency medical

care should be given and call for the immediate emergency. Then it should be

reported to the Safety Administrator. The Safety Administrator will contact the

Safety Director and anyone else who needs to be involved. One of the biggest

reasons for why an OCIP fails was because lack of communication.

Meetings for communication on safety:

o Pre task planning meeting – every morning with Safety Director, Safety Team,

and all foreman/supervisors from the contractor working on that project that day.

Any policy changes should be announced here and all serious safety hazards in

that specific days work.

68

o Bi-weekly safety meeting – Prime contractor and safety team to discuss safety

issues that have appeared on the job and any policy changes should be discussed.

o Weekly DOT and Safety Director meetings.

o Monthly DOT, Safety Directors, and insurance company meeting. This should be

about any open claims that need further explanation and any plan of action that

needs to be performed.

Pre-bid involvement and partnership from all sides (contractors, safety team, DOT,

and insurance company) especially on the safety side. As indicated in the literature

review and the interviews if all parties understand what is needed, it can be planned

for. One of the biggest complaints from contractors in OCIPs, is not understanding

what their responsibilities are.

Continuous improvement needs to be sustained through the life of the project. The

Marquette achieved this as the life of the project went on the incidents were less.

60% of all the lost time case incidents were in the first half of the project. It is too

early in the US-41 and I-94 to see if there improving. All indications show the US-41

and I-94 are going to finish far under the Marquette Interchange and possibly even

under national averages.

Overall Recommendation

Wisconsin should still use owner controlled insurance programs for future state

funded transportation projects. It gives them the best chance to streamline safety for

the entire project which brings more efficient claims management, eliminate cross

litigation between insurance companies, and improve safety performance for the

projects. Also outside just safety the single insurance policy brings lower cost of

insurance because of the economy of scales, savings from markups from contractors,

69

and reduced gaps and duplications in insurance. For Wisconsin who is ultimately

responsible for the project, OCIPs provide the most control for them to make sure a

project is successful.

Areas for Further Research

The following areas should be considered for further research:

Perform a comparative investigation when all three projects are completed.

o Trend all loss ratios year by year

o Compare management processes once all projects were completed

o Research work compensation totals

Perform loss analysis research to determine the true costs of lost time away from

work.

o These numbers have to be received from the insurance company or the DOT has

to release them.

Perform loss analysis research to determine the true loss.

o OSHA Recordable rate and DART rate, numbers have to be received by each

individual contractor working on the project. The project does not keep this

number.

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References

AGC. (2001) Look before you leap! a contractor’s guide to owner controlled insurance

programs. Associated General Contractors of America. Retrieved from

WilsonWeb database.

American Public Transportation Association. (2003). VTA saves $2.8 million with owner-

controlled insurance program. Retrieved from http://www.apta.com/passenger

_transport/thisweek/040209_4.cfm

AON. (2010). Owner-controlled insurance program feasibility study: high speed passenger rail

Madison-Watertown infrastructure improvements. Internal Document.

AON. (2008). Owner-controlled insurance program feasibility I-94 north-south coridor/US 41

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Appendix A: Interview

1. How is the OCIP safety program structured?

2. How are incident/accidents reported?

3. What is the process for contractors to communicate incidents to the claim mangers?

4. How many claims managers are there on the project?

5. How are claims communicated to the safety management?

6. Is there accident investigations conducted?

7. Are accidents analyzed for root cause?

8. Are accident analyzed for trends?

9. Are cost calculated for each accident?

10. Are near misses required to be reported?

11. Are near misses analyzed for root cause?

12. How are accident claims handled?

13. How are claims handled for incidents not involving injury?

14. How are clams handled for incident involving injury?

15. How is injury claims managed?

16. Are injury reports created for each accident?

17. Is there light duty work available for injured employees?

18. Are programs created after incidents occurred?

19. How are these programs communicated?

20. What safety programs are in place?

21. How are the safety programs selected?

22. How are the safety programs commutated to the contractors?

23. How do these specific safety programs help?

24. Which safety programs are effective and which ones were not?

25. What programs would you have implemented looking back now?

26. Are there audits on the project?

27. What training is required for contractors?

28. Is the training effective?

29. What should change about the current training?

30. What training should have been added?

31. Is there regular safety meetings?

32. Who is required to attend safety meetings?

33. How often do safety meetings happen?

34. What is the focus for these meetings?

35. Is there disciplinary system?

36. Is there an incentive system?

37. What are the advantages for safety under an OCIP?

38. What are the disadvantages for safety under an OCIP?

39. What are some common mistakes under the OCIP?

40. What is the key to success for an OCIP?

Documents

TITLE OF YOUR - UW-Stout · 2 The Graduate School University of Wisconsin-Stout Menomonie, WI Author: Smith, Joshua J. Title: An Analysis of an Owner Controlled Insurance Program