In today’s business world, “9 to 5” is
rapidly giving way to “24/7.”
In place of “Mom and Pop” grocery stores
run by proprietors who closed around 6 p.m., underwriters now
encounter 24-hour mini-marts run by low-wage hired help that turns
over quickly, especially on the late-night shifts.
One can give countless other examples of how
commercial operations are operating longer and later into the
evening. Should the underwriting and pricing of commercial
property and liability insurance be changed to reflect the growth
of “extended hours” operations?
To date, there is little evidence that it has.
Commercial property underwriting and rating is still based
primarily on the well-known “COPE” factors--construction,
occupancy, (fire) protection, and external exposures.
Similarly, commercial liability underwriting
and rating is based on established factors like square footage,
number of employees, and revenue, all considered reflections of
the size and scope of an enterprise.
Is it time, however, to start asking: How long
is an enterprise in operation during the day? How long are
employees expected to work?
Along the same line: What hours, daytime or
nighttime, is an enterprise in operation? What hours are employees
required to work?
It is not yet clear that such a change is
needed.
Experts claim that “extended hours”
operations pose greater risk for damage and injury, and intuition
would suggest that fatigue, darkness, and disruption of body
rhythms would increase the level of risk.
But data collection for extended hours risk is
in its infancy. For now, insurers will have to draw inferences
from employment data not directly related to property or
third-party risk.
According to data from the U.S. Bureau of
Labor Statistics, approximately 24 million U.S. workers, one-fifth
of the work force, work outside the hours of 7 a.m. to 7 p.m. That
number is more than double the total a decade ago.
“Half of these [workers] are in white-collar
occupations, including health care, technology, customer service,
retail, and media,” reports Circadian Technologies, Lexington,
Mass., a research and consulting firm that specializes in extended
hours operations (see www.circadian.com).
“This number is expected to grow as more corporations and
institutions move to round-the-clock operations.”
Overtime hours in manufacturing increased by a
record 48% in the 1990s, according to a February 2000 report in
the Monthly Labor Review, published by the Bureau of Labor
Statistics (BLS).
|
 Are
any of your commercial insureds one of those firms that
expect employees to work long and late? Do any of them
encourage employees who are eager to work long shifts,
either for financial gain or to prove themselves?
If so, you should know that employers
are increasingly finding themselves liable for substantial
judgments in cases where fatigued employees kill or injure
other people in auto accidents.
McDonald’s Corporation was found
liable in one such case that occurred when one of its
restaurant employees killed another motorist while driving
home after three consecutive shifts.
In such cases, employers have been found
at least partly at fault when the circumstances of an
employee’s work contribute to fatigue that causes an
accident.
In effect, decisions to run “lean and
mean” on staff can create new premises and operations
exposures. In most cases, employers are uninsured for this
new exposure.
Coverage under commercial auto policies
typically does not extend to employees driving their own
cars, and commercial general liability insurers have been
protected by the standard auto exclusion.
So far, that exclusion has withstood
court tests in such cases.
“Several states have examined whether
the auto exclusion contained in a CGL policy applies to a
claim for ‘negligent supervision’ against an employer
for an auto accident involving its employee,” says
attorney Randy Maniloff, a nationally recognized expert in
commercial liability coverage.
“This is analogous to the situation of
an employer that is sued for injuries that ensued after it
allowed an employee to drive home fatigued after a long
shift,” he continues. “Most, but not all, cases conclude
that the auto exclusion applies to preclude coverage.” |
“Historically, both employment and overtime
increased as the U.S. economy emerged from recessions,” reads
the report. “Since March 1991, employers appeared to rely more
heavily on overtime than on hiring new employees.”
“If employers had hired new workers instead
of increasing overtime, nearly twice as many production workers
would have been hired.”
Similar trends are evident among white-collar
and service workers, although not as precisely detailed.
Two trends, in particular, are increasing the
fixed cost of labor and giving employers powerful incentive to
rely on overtime rather than new hires:
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The increased skill levels required for
most jobs. “Training highly skilled workers is costly,”
reads the BLS report, “especially if many of them may be
laid off during the next recession.”
-
The escalating cost of health insurance.
Many employers have been forced to scale back health coverage
in the face of recent double-digit premium increases.
The trend toward increased overtime appears to
have accelerated during the so-called “jobless recovery” of
2003, according to Circadian Technologies.
The firm reports that overtime levels among
workers in extended hours operations rose to an average of 12.6%
over 40 hours per week in the first eight months of 2003, up from
11.9% a year earlier.
According to Circadian’s survey of 550
employers, overtime rates were above average in utilities,
processing operations, services, and manufacturing. Overtime rates
were above average in Pacific and Southwestern states, and below
average elsewhere.
A work week 10-12% beyond 40 hours is a “reasonable”
level of overtime, says Alex Kerin, a Circadian consultant.
“Many operations have employees whose work
hours far exceed this limit,” Kerin says. According to Kerin,
20% of workers often put in 60% of
overtime.
Among other things, he says, “Excessive overtime can ultimately
result in more fatigue-related accidents and injuries.”
The connection between risk and fatigue would
seem to be intuitive, as would the connection between risk and two
other characteristics of extended hours operations: high rates of
absenteeism and turnover.
Absenteeism among shift workers is twice the
rate for workers during a standard work day, Circadian reports,
and late-shift turnover is about three times the rate for day
workers. Late shifts often operate short-handed with
less-experienced personnel especially in newer shift work
industries such as service and retail.
Besides these commonly recognized factors,
other experts say that disruption of the body’s natural rhythms,
regardless of how long a person has been working, impedes a person’s
ability to function.
Lancet, the leading British medical journal,
reported in 1998 that there was “clear evidence that safety is
reduced during night work,” and that “it seems likely that
increased injury rates at night reflect workers’ circadian
rhythms.”
The report added that an increase in late
shift accident rates toward the end of the week indicated that
workers could not adjust their “body clocks.”
Reacting to these trends, a growing number of
experts are calling sleep deprivation a public danger, and calling
for employers to ensure that employees get adequate, regular
sleep.
“Inadequate sleep is a major factor in human
error, at least as important as drugs, alcohol, and equipment
failure,” writes David Dinges, author of Sleep to Survive: How
to Manage Sleep Deprivation.
Commercial trucking is an area of commerce
where hours of work and time of accidents are most carefully
monitored, and the correlation has clearly been established
between the length and lateness of driving and the frequency and
severity of trucking accidents.
According to the Federal Motor Carrier Safety
Administration (FMCSA), fatigue is a factor in 15% of fatal
crashes involving trucks; inattention and mental lapses contribute
to half of all such crashes.
With an eye toward reducing those accidents,
the FMCSA in January 2004 implemented the first fundamental
changes to hours-of-service regulations in more than 40 years.
The new rules increase the on-duty/off-duty
work cycle from 18 hours to a normal 24-hour work cycle. They also
increase the number of hours provided for sleep, mandate
sufficient “weekends” (wherever they actually fall in the
calendar), and include special provisions to address the effect of
operations between midnight and 6 a.m.
When asked by Viewpoint if there is a
connection between extended hours and injuries to third parties
(e.g., customers) or first-party property loss, Kerin responded,
“There certainly is. At night there’s not only an increased
risk of an accident, there’s also an increased risk of a severe
accident. [The person involved] is less likely to take the
appropriate action.”
Kerin relates that some of the best-known
manmade disasters--Bhopal, Chernobyl, the Exxon Valdez, and the
Challenger explosion--involved decisions made at non-traditional
working hours by people working long hours.
Circadian’s own research indicates that the
number of accidents for shift workers is 1.2 times greater than
that for traditional day workers. Among the most severe types of
extended hours accidents cited by Kerin are releases of chemicals
and pollutants, and improper mixing of pharmaceuticals.
There is little other research to demonstrate
that extended hours increase the risk for commercial property and
liability insurers, however. What research there is tends to focus
on workers and come from outside the United States.
A 1999 report by the Alberta provincial bureau
of human resources and employment considered the effects of
12-hour shifts as an alternative to 8-hour shifts.
“Of the studies examining extended 12-hour
work shifts,” the report reads, “none have conclusively shown
that such extended work hours compromise safety from the point of
view of increased incident rates, reductions in job performance,
or increases in error rates.
“Providing that adequate measures are taken,
it seems that 12-hour work periods do not automatically create an
unsafe workplace.”
Regarding work at night, however, the Alberta
report found that “the poorest job performance consistently
occurs on the night shift and the highest rate of industrial
incidents (accidents) is usually found among shift workers.
“Catastrophic incidents do not happen at
random throughout the day; they are more likely at times when
workers are most prone to sleep, between midnight and 6 a.m. and
between 1 and 3 p.m.”
Similarly, a Scandinavian journal reported in
1998 that the accident rate for workers on a night shift was
nearly double that for the day shift.
It is significant that spokesmen for Liberty
Mutual, the nation’s leading writer of workers compensation
insurance, were not aware of any particular research or data
related to extended hours risk for either its workers comp or
other property/casualty lines.
It is also significant that the Bureau of
Labor Statistics, responding to a 2002 directive from the
Occupational Safety and Health Administration (OSHA), is just
beginning to collect data on the time of day an accident occurred,
and the time of day the workers involved started working.
“People are seeking to determine if there’s
a fatigue factor,” says Jim Barnhardt, acting division chief for
safety and health statistics for the BLS. “There just hasn’t
been any hard data out there. Now we’re going to collect it.”
As anyone familiar with statistical reporting
knows, changes in data gathering are complex and costly. It helps
to know beforehand whether the effort will pay off in meaningful
distinctions.
As it is, most insurers record the time of day
that a loss occurred when taking a claim, says Kerin, but few
analyze that data. “Even in workers comp there’s no allowance
[in rating] for increased hours for night versus day workers,”
he says.
Nor is there any allowance under most workers
comp rating plans for a company’s reliance on overtime work,
according to Bob Conger, a principal and consulting actuary with
Tillinghast-Towers Perrin, the international actuarial consulting
firm.
Workers comp rating plans are usually based on
payroll, Conger says, but no distinction is made for the “time
and a half” typically paid for overtime work. “The exposure
base typically assumes that every hour is equally risky,” he
says.
Conger adds that he knows of no efforts to
incorporate extended hours as a rating factor in other commercial
lines.
Given that the surge in extended hours
operation is quite recent, “there may not be enough of a track
record in claims” to establish the necessary correlation between
hours and losses, he says.
Still, Conger says he is intrigued by the idea
of rating for extended hours. “Employers are looking to get 120%
of the output from 80% of the workforce,” he says, “and
insurers are always looking for ways to differentiate their rating
[from competitors].”
For now, however, insurers will have to rely
on underwriting assessments to determine if extended hours
utilized by commercial insureds cause them to become qualitatively
different risks.
To that end, it will help underwriters to know
what Circadian Technologies advises employers:
Extended hours, 
