Case Study in How to Integrate a RRG Into a Larger Enterprise With Positive Results
Featuring Michael O'Neill, President & CEO
American Contractors Insurance Group Ltd.
Reprinted from the October 2012 Risk Retention Reporter — Volume 26, Number 10
American Contractors Insurance Company Risk Retention Group (ACIC) is not your typical, stand-alone RRG. In fact, it’s a case study in how to integrate the RRG mechanism into a larger enterprise with outstanding results. Just ask Michael O’Neill, President and CEO.
The RRG is a subsidiary of American Contractors Insurance Group (ACIG), which provides a comprehensive package of insurance products and services to the construction industry, including workers compensation, general liability, and auto liability. “We formed ACIC, the RRG, in 1986 right after the Liability Risk Retention Act was signed into law,” said O’Neill. He and William McIntyre, the founder of ACIG saw the RRG as a way to achieve rate and form flexibility in designing contractors’ policies without having to answer to every state insurance department across the country.
The formula worked. In 2011, the parent company ACIG reported approximately $130 million premium with pre-tax profit of more than $36 million. The group has a track record of profitability through ups and downs in the volatile construction industry and has held an “A” rating from A.M. Best since 1990.
After graduating from the University of Nebraska-Carney, O’Neill spent a few years with Aetna and Alexander & Alexander where he learned the tough business of insuring construction companies. In 1984—just three years after it was launched—he joined ACIG’s predecessor and has been there ever since. “The group came into being out of contractors’ frustration with the ups and downs of the traditional insurance markets and dependence on fronting companies,” O’Neill recounted. It began as a reinsurance company domiciled in Bermuda and gradually morphed into a direct insurer, reinsurer, and risk retention group all wrapped into one. O’Neill is president and CEO of the group and the RRG—which operates as an integral part of the overall organization.
From the beginning, the group’s mission was, “To save lives, prevent injuries, and reduce the overall cost of risk and insurance for our members by effectively reducing costs; providing a stable market with quality services; utilizing our group purchasing power; and creating equity.” O’Neill proudly states that, “we answered the call with safety education and risk management programs that cut losses, consistent underwriting, and prices that don’t gyrate up and down, applying the group’s purchasing power to cut the expense of reinsurance and other services; and creating equity for individual members who receive substantial dividends based on their performance and industry data.”
ACIG is composed of 40 large industrial construction companies. They are a tightly knit group that looks to their insurer, ACIG, for a package of services that goes far beyond insurance. Safety education and risk management are top priorities. The group follows a yearly calendar of educational sessions, workshops, and conferences to help members save lives and reduce losses. “These meetings and workshops enable attendees to engage in meaningful discussions and dialogue regarding pressing issues that confront risk, safety, and claims managers,” said O’Neill.
In fact, ACIG’s education program is one of the most comprehensive in the insurance industry. It includes a Builders Quality Summit, where safety education is linked to quality improvement; ACIG University, where future leaders become immersed in risk management principles; Best Practices Annual Meeting, where senior management from member companies learn from each other; In-House Legal Counsel Forum, where attorneys for contractor-members exchange experiences on risk and claims management; Professional/Pollution Liability Educational Forum, a venue for educating members on pollution liability exposures; Risk Management Workshop, a yearly gathering of members to share ideas on how they handle risk management within their organizations; and Safety/Claims Management Workshop, a networking session held twice a year for safety, claims, and risk management pros to focus on best practices.
ACIG even has a SWAT TEAM for emergency response to catastrophic losses. The company has identified 10 categories of accidents that call the SWAT TEAM into action. Within 24 hours of an accident that qualifies, a team of claims consultants is on-site to determine the facts and circumstances that led to the event. Team members have crash bags, hazard gear, cameras, and video recording devices ready at any time to respond. O’Neill says important lessons have been learned as a result of quick action by their SWAT TEAMS.
What’s the bottom-line result of all this safety, risk management, and claims handling education? Is the expenditure worth the effort? “Our contractors, as a group, achieved a 71% improvement in general liability loss rates over the eight years from 2002 to 2010,” O’Neill declared. “Overall, our education programs have gotten contractor execs to buy into hazard recognition and control programs.”
Another key to success in the operation of the ACIG and its RRG is a highly specialized underwriting and reward system. General liability combined single limits of $2 million with a general aggregate of $4 million per project are available through the RRG with excess coverage up to $248 million, excess of $2 million, available through other markets. Contractors are underwritten individually with each member responsible for the first $250,000 of loss. Premiums are determined by a loss-rating methodology based on the contractor’s individual experience blended with industry data. Factors considered include the states where the contractor does business and the type of construction in which the contractor is engaged. “It’s risk-based pricing predicated on the individual experience of each insured,” O’Neill explained.
Profits are attributed to individual contractors and dividends paid based on that contractor’s record, rather than a uniform standard for all policyholders. A profit/loss summary is maintained for each member based on premiums paid in, program expenses, and losses incurred. The individual contractor’s profits are accumulated. When a pre-established level is reached, policyholder dividends are distributed—again based on individual results.
O’Neill is committed to in-house management. ACIG’s staff is composed of experienced underwriters, risk management and claims experts, safety and quality professionals, and administrators. “We believe in the total value proposition. Our members expect more than insurance. A major reason why we have such a stable membership is that our safety education and risk management programs help members do a better job, which contributes to their success,” O’Neill said. He recognizes that startup and early stage RRGs can’t afford to provide such comprehensive programs, but, if asked, he would advise them to plan for professional, in-house management when they grow.
What does it take to join the club? O’Neill points out that the executive committee sets a standard of keeping the number of members at 40 contractors. Membership over the years has remained stable. Openings occur primarily when contractors retire or sell their businesses. Candidates must be privately owned—publicly traded or foreign owned companies are not eligible. Candidates must have a minimum net worth of $20 million and generate more than $2 million annual premium. A candidate must be sponsored by two ACIG members. “We don’t consider candidates who want to take a tire-kicking approach—joining the group is a long-term commitment,” he stated. ACIG only insures its member companies.
ACIG can be a model for insurance entities that offer multiple lines but do not want to be hamstrung by dealing with 50 state regulatory bodies in providing their members liability coverage. With a 25-year track record, O’Neill and his team have proved the effectiveness of integrating a RRG into a broader insurance enterprise.
RISK RETENTION REPORTER — Published by INSURANCE COMMUNICATIONS, P.O. Box 50147, Pasadena, California 91115. (626)796-4972, fax: (626) 796-2363; e-mail: firstname.lastname@example.org; URL - http://www.rrr.com © Copyright 2012 Risk Retention Reporter. The Risk Retention Reporter is published 12 times a year. Subscription Rates: One year: $495.