Risk Report: Manufacturing

Struggling With Safety Rules

Manufacturers must comply with up to 26 different state safety plans.
By: | April 4, 2016 • 5 min read

Manufacturers that have operations in one or more states have the complex task of complying with either state or federal safety and health standards — and the provisions are not always in alignment.

Advertisement




Failure to do so means they run the risk of being hit with hefty fines totaling hundreds of thousands — or even millions — of dollars.

The U.S. Occupational Safety and Health Administration (OSHA) requires all companies to meet its regulations as a minimum. However, firms that have operations in one of the 26 states that have adopted their own occupational safety and health rules must also adhere to each state’s rules.

State-run programs are required to meet minimum federal requirements, but often they are more stringent. In many cases, companies operate in multiple states, so they have to subscribe to a range of different standards for each state.

Employers are required only to comply with the state-run program; if there is no state program, they must comply with the federal rules.

To compound this, according to industry sources, federal OSHA has just increased the maximum penalty by nearly 80 percent for failure to comply with its standards, meaning that companies that fail could be hit with a fine of $125,000 or higher for a serious violation.

And with thousands of cases of workplace injuries believed to be unreported every year, federal OSHA is now tightening the net on willful and repeat offenders.

Robert Cartwright, safety and health manager, Bridgestone Retail Operations LLC

Robert Cartwright, safety and health manager, Bridgestone Retail Operations LLC

“State plan standards are often higher or exceed those of federal OSHA,” said Robert Cartwright, safety and health manager for Bridgestone Retail Operations LLC and a board director of RIMS.

“With fire safety, for example, in states like California, where they have had a certain violation or frequency and severity of violation, the state may decide to apply their own set of standards that are tougher than the federal OSHA.

“In my experience, in those particular cases, the fines tend to be higher and the citations more detailed than they would be from the federal authority.”

State vs. Federal OSHA

David Carlson, Marsh’s U.S. manufacturing and automobile practice leader, said that state plans are often more stringent in terms of enforcement protocols and the composition of their hazard communication programs such as labeling requirements, exposure limits and types of chemical used.

For example, he said, California created a standard specifically focused on reducing and eliminating hazardous chemicals from the workplace. It has significantly tightened up exposure limits and the quantities that can be stored.

Dave Barry, senior vice president and national director of casualty risk control, Willis Towers Watson

Dave Barry, senior vice president and national director of casualty risk control, Willis Towers Watson

Dave Barry, senior vice president and national director of casualty risk control at Willis Towers Watson’s risk control and claims advocacy practice, said California’s state plan requires companies to implement a written injury and illness prevention plan, while federal OSHA does not.

Sometimes, he said, the U.S. regulations will be revised to match state rules, such as the requirement for reporting an amputation, hospitalization or loss of an eye within 24 hours, which had already been in force in states like California for several years.

“The state programs typically focus their efforts on the specific industries in their state, for example if they do a lot of agriculture, whereas federal OSHA standards are not necessarily geared toward one particular industry,” he said.

Advertisement




He said that regulations often vary widely from state to state.

On the other hand, Mike Heembrock, vice president and executive specialist, risk engineering at Chubb, said that states often fall short of federal OSHA enforcement performance in terms of inspections and fines because of staffing and resource limitations due to budget constraints.

“In general, because of the relatively low salary and operating budgets, states have struggled to recruit new inspectors and often they don’t have as much experience as federal inspectors, so it’s been difficult for them to meet federal OSHA performance criteria,” he said.

Risks for Manufacturers

Carlson said that the biggest risk for manufacturers operating in multiple states is to understand how to comply with different state and federal standards and record-keeping requirements.

“If you have operations, say, in California, Michigan, Oregon or Washington, those

David Carlson, U.S. manufacturing and automobile practice leader, Marsh

David Carlson, U.S. manufacturing and automobile practice leader, Marsh

all have their own state plan programs that you need to be aware of and comply with, not to mention the administrative burden and costs associated with complying with federal OSHA in other states where they may operate,” he said.

“That’s a challenge for not only a large manufacturer like Ford or GM, but also for smaller businesses with operations across the U.S.”

Carlson said that oftentimes companies become preoccupied with emerging risks such as cyber and overlook the broader risk of their employees’ health and safety.

“At the end of the day, the largest variable cost of risk for most manufacturers is still the workers’ compensation and employee benefits programs,” he said.

“The problem is that too many employers look at it simply as the cost of doing business; however if they focused on it, that’s the area where they could reduce claims and financially protect their balance sheet.”

Fines and Penalties

U.S. OSHA raised its penalties for the first time in 25 years, by 78 percent last November.

The maximum fine for a serious violation rose from $7,000 to $12,500, and the maximum willful or repeat violation increased from $70,000 to $125,000. State plans are expected to follow suit, taking effect from August this year.

And from now on, the penalties will be increased every year.

“I think we are going to see a lot more of these types of changes as the current administration leaves office,” said Barry.

Adele Abrams, Law Office of Adele L. Abrams

Adele Abrams, Law Office of Adele L. Abrams

“It’s been 25 years since the fee schedule has been increased and now it will be increasing every year, so I think we are going to see more additional requirements along these lines come into force.”

The maximum penalty per citation can also be higher if it is an egregious violation, said Adele Abrams, whose law practice is based in Beltsville, Md.

“If you have, for example, 10 employees working on a conveyor system in your facility and it doesn’t have adequate guards in place to protect them from injury, federal OSHA would usually issue a single citation with a maximum penalty of $70,000,” she said.

Advertisement




“However, if all of a sudden they decided it was an egregious violation, because there are 10 workers involved, you could be fined up to $700,000, and you would be put into a ‘Severe Violator Enforcement Program’ for at least three years.”

Christine Sullivan, vice president of risk control services at Lockton, said manufacturers should “avail themselves of the relevant programs that federal OSHA provides.”

“There are a lot of programs and resources out there than can help a risk manager to identify the pitfalls and build a thorough and reliable safety program.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.

Advertisement




Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.

Advertisement




This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.

 

Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.

 

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.

 

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]