Thinking about hiring an outside safety and health service provider? Here's a look at the advantages of going outside, and how to pick the right provider for your company. Next week in Part 2 of this series, I'll show you how to negotiate a favorable service contract.

Three Advantages of Contracting Out

Stephan Shiffman, author of The Consultant's Handbook , lists three primary reasons that companies look outside for loss services:

1.  To Resolve Short-Term Problems Quickly

Hiring an outside provider makes sense for companies without the resources to resolve problems internally. It's a way for companies to get a time-sensitive analysis of problems along with recommended solutions leveraging the provider's expertise. Perhaps most importantly, contracting out enables the company to avoid having to put other projects on hold. It also minimizes distractions to front-line management and allows companies to focus on production.

2.  To Obtain Objective Guidance and Analysis

Outside providers are more likely than internal staff to look at problems objectively and tell you what you need to hear, not simply what you want to hear. In addition, their recommendations are more likely to be rooted in technical expertise, sound business principles and independent thinking than in internal politics and turf battles.

3.  To Gain Flexibility

Hiring a full-time service provider isn't always feasible, especially when that person is expected to oversee operations that involve a static work environment, climate limitations or small production windows. Using a regional service provider who knows the business cycle can help you meet your safety and health objectives and free up capital.

Sizing Up Service Provider Options

If you want to use an outside service provider the first thing you need to decide is which kind to hire. Here are the choices and a checklist of the advantages and disadvantages each one offers:

Choice One: Insurance Carrier

Advantages:

• They have centralized distribution of personnel;
• They can offer collateral products, such as claims services;
• They generally have large distribution networks that can cut travel expenses included in a service contract (although consulting fees may remain the same);
• They usually have low turnover in personnel and a stable staff of dedicated individuals; and
• They have a stable business environment.

Disadvantages:

• They often have limited specialized industry expertise;
• The end product dictated by the insurance policy language, the errors and omissions concerns or the corporate underwriting charter;
• Training programs provided to personnel may be "on the job" and at your expense, which can limit return on investment over a short period of time;
• Actual charges for their services may be bundled with the overall insurance program, making it difficult to evaluate expenses and return on investment;
• Loss control fees include overhead for layers of management not directly related to your needs; and
• They may not negotiate directly with the party responsible for getting the results you're after.

Choice Two: Unbundled Third Party Administrator (TPA)

Advantages:

• They have nationally dispersed personnel;
• If the TPA is associated with a carrier, personnel may be shared between bundled and unbundled products. Pricing is more accurate when services are separate from the insurance program;
• If they're not a carrier, policy and procedures for providing services may be more consistent;
• They're more likely to have individuals who have skills that closely match your needs on a regional basis; and
• They can provide collateral products.

Disadvantages:

• If the TPA is part of an insurance carrier, use of shared resources may create communication errors, costing you time and money;
• Administrative costs included in the contract fees aren't as likely to contribute to your bottom line (depending on the individuals assigned to monitor your service needs); and
• If with a carrier, negotiations could be with someone more administrative and sales-oriented, and therefore less technically qualified to discuss loss reduction strategies up-front.

Choice Three: Insurance Broker

Advantages:

• They're closely related to the insurance product;
• They're strong customer advocates since long-term relationships are critical to their success. Thus, you're more likely to get what you want when you need it;
• They make their professional image a high priority;
• It's easy to track and control costs associated with a project; and
• They have a stable business environment.

Disadvantages:

• National distribution and communications may be decentralized;
• Quality of personnel and depth of technical expertise may be inconsistent from region to region;
• They may rely heavily on insurance carriers to provide bulk of services and technical expertise; and
• There's a possibility of high consulting fees or fees bundled into the insurance product.

Choice Four: Regional Independent Consultant

Advantages:

• Their autonomous activities may not be tied to corporate policies;
• They have greater affinity toward innovation and creative problem solving;
• They usually establish a one-on-one relationship with the person doing the work and who's responsible for getting the results;
• Their fees are based on technical expertise and experience, not corporate overhead;
• They can develop regional/ national relationships with other independents, providing depth and distribution to meet most needs;
• They have the ability to provide independent expert witnesses in the event of a claim or lawsuit; and
• They're easy to track and this makes it easier to control costs associated with a project.

Disadvantages:

• Their distribution network and depth of services may be limiting and not meet a large corporate network need;
• They often use a few individuals nationally which provides consistency but raises travel expenses and contract pricing;
• They have an increased need for confidentiality agreements; and
• The quality of individuals they use tends to vary depending on background and expertise.

Conclusion

Next week, in Part 2 of this series, we'll discuss how to negotiate a service contract and implement loss control services.

$AFETY & THE BOTTOM LINE

THE INJURY THAT COSTS THE MOST

Among the countries of the world that compensate employees who suffer work-related injuries, which kind of injury costs the most?

Answer: Musculo-skeletal disorders. According to an International Labor Organization report, 40 percent of payments for injuries and illness go to victims of MSDs. Although based on statistics from Finland, this finding is consistent with the experience of other nations. MSDs "cause relatively long absences from work, for example in the case of lower back pain, and become a major financial burden on society," the ILO report explains.

Source: Safety in Numbers, International Labor Organization (2003).

Musculoskeletal disorders: The injury that represents the biggest drain on financial resources.

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