Prevent costly mistakes from DBA insurance
Contractors currently working or considering working overseas must contemplate insurance needs that differ from the more familiar, domestic insurance programs, i.e., Defense Base Act insurance. Each week, we receive 5 to 10 calls or email requests on DBA information. Some questions involve cost, the time needed to get a quote, coverage, is it really necessary?…just to name a few. In this article, I will discuss how to prevent costly mistakes others have made when it comes to DBA insurance.
DBA Insurance vs. Workers’ Comp – 7 Points To Consider
In it’s simplest terms, Defense Base Act (DBA) insurance is workers’ compensation insurance on steroids. In most states, workers’ compensation is a required benefit, afforded to employees to cover medical expenses and lost wages due to an injury, illness, disability, or death resulting from work-related practices. In other words, your workers are protected by law, in the United States, if they are injured while working with workers’ comp. Same holds true for workers engaged in US Government contract work overseas. DBA is there to protect those workers while participating in work on foreign soil the same way workers’ compensation would protect them if they were employed in the US. There are differences, however and here are 7…
- Reputation risk
- Trust in business practices
- Detailing the work to be performed
- The risk of policy procrastination
Benefits are more robust than domestic workers’ compensation when compared side by side. The claims are handled by insurance companies just as with workers’ compensation, but DBA claims have to be processed and approved by the US Department of Labor. DBA insurance includes acts of war and covers employees while working in more hazardous areas (zone of special danger) of the world where the risks are greater due to political tensions, civil unrest, and military action. Because the risks are different and in some cases greater, covering workers from such hazards is critical to the success of any government contract.
Reputations are oftentimes marred by a lack of insurance and/or employee well-being, for government contractors not obtaining DBA and or other coverages. With recruiting efforts difficult at best for many companies, Human Resource professionals may be challenged with the “grapevine” of information that passes within the pool of potential workers needed to work on a contract.
Being short-sighted on insurance can be a regulatory matter as well. If a company decides not to procure the necessary coverage for the satisfaction of the contract, penalties and fines may enter the picture. From an insurance professional point of view, I have declined to work with companies that will refuse the coverage although mandated by the Defense Base Act. The aspect of risk protected by insurance first, and foremost, based on trust. If the client cannot be trusted to perform the baseline requirement related to government/defense contracting, what other areas may they fall short on?
Detailing the work to be performed
Contracts are supported by a Statement of Work (SOW) that details the operation(s) and the workers necessary to perform the contract requirements. Occupations range from security, engineering, janitorial, to construction, and everything in between. Because the operations are listed, it is CRITICAL that when discussing the operations from an insurance standpoint, the descriptions are clear and easy to understand. Do not simply allow the SOW to speak for itself. Misinterpretation of work is a very common mistake made by companies when securing DBA insurance. If the work is not clear, then worse case scenarios will plague the underwriting process and potentially add additional premiums to the program.
Each occupation that is listed in the contract, will be assigned a rate for the cost of insurance. For instance, if a contract indicates IT professionals working in an office environment, the rate will reflect this level of hazard. If that same worker performs the work with a detachment of military advisors traveling throughout the region, this will be taken into consideration as well, likely increasing the rate and the overall cost of insurance. Clarity is critical when outlining with work to be performed. if subcontractors are used as part of the contract performance, be careful to obtain proof of their DBA insurance as well. Many DBA policies issued by insurance companies will NOT extend to subcontracted labor.
Subcontractors may be a critical component of your contact performance. Be aware of DBA policies that exclude subcontractors. If a contractor requires the use of subcontractors, the subcontractor may be required to have their own DBA policy. If they do not, another subcontractor may be required, or your company may have to hire direct, those workers performing the task. Consider subcontractors to prevent costly mistakes from DBA insurance.
Another potential risk involves obtaining insurance AFTER the contract has already started. As a business owner, the DBA insurance is required at the start of the contract. The contracting officer (KO) may request proof of the coverage with a certificate of insurance. The certificate must align with the start of the contract, not considered effective after. In other words, if you have not procured DBA insurance and it is required, the date the coverage started must be within the time the contract started. If not, the KO may consider your contract non-compliant. Insurance companies have strict policies on changing the date of a policy or placing a date in the past when obtaining coverage. This practice, in insurance-speak, is called back-dating and is prohibited by most insurance companies. If you have a contract without the necessary insurance in place, the contract could potentially be canceled and payment for services performed may not be made. Furthermore, past performance records may be impacted preventing future contracts from being won.
Complacency is your worst enemy in DBA insurance compliance. First of all, secure the necessary insurance so your contract is good-to-go. Second, don’t sit on your hands for years to come after the insurance is in place. Consider other insurance markets, expertise, and premium savings by selecting the right insurance partner. If you had to teach your current insurance professional about DBA insurance or if they only write a few DBA policies, be aware of potential shortcomings. First and foremost is the general lack of experience many insurance professionals have when it comes to DBA insurance. If your insurance professional routinely represents apartment complexes, dry cleaners, and restaurants, what could they really know about foreign liability exposures and underwriter guidelines for DBA insurance? Putting it another way, would you trust a family doctor to perform brain surgery? Not to compare DBA insurance with brain surgery in a literal context, this type of program is not in every agent’s wheelhouse. Consider working with an expert to obtain the right rates, the understanding needed for claims, and providing the rates needed when seeking additional contracts.