|
INDEX
|
|
 |
|
-
According to Swiss Reinsurance Co., insured property losses from catastrophes in 2005 reached $80 billion. Total financial losses were about $225 billion from the catastrophes, and the death toll exceeded 112,000. Of the total insured losses, 90% came from storms. This was the worst year on record in terms of cost.
-
The fastest way to reduce your workers compensation costs may be to teach employees how to lift. Back injuries are the biggest source of loss for most employers.
-
Have you analyzed your transit risk lately? Changes in shipping contracts, truck size, and mix of products can drastically increase your risk. Remember to analyze values of your own in-process goods in transit between facilities.
Return to Index
| Catastrophes begin to impact insurance cost |
The effects of the disastrous windstorm losses of 2005 have begun to make their way into insurance markets. Property owners can generally expect to see rate increases for many types of property coverage. Owners in those areas most likely to be affected by natural catastrophes (e.g., the Gulf Coast) will see the greatest increases and in some cases may find coverage unavailable or available only with undesirable terms. Those who need to insure against other types of catastrophes, such as owners in earthquake zones and buyers of terrorism coverage, also will feel the effects of this market change.
This development is caused by that portion of the insurance market most affected by catastrophic loss - the "reinsurance" market. Reinsurers take a part of the risk (usually the higher end part) underwritten by a primary insurer in exchange for part of the premium. This transaction is not normally revealed to the insurance buyer, but is a way for the primary insurer to spread its risk.
Reinsurance is often used to cover the catastrophic part of a loss. Reinsurers use catastrophe "models" to predict the probability and severity of large losses in a given insurance situation. According to major industry sources, existing models proved inadequate in predicting the extent of the damage caused by last season's storms. (See related article, "Hurricanes vs. Insurers"). As a result, many reinsurers were caught without adequate reserves and will need to make up for those inadequacies.
The way they will catch up is by charging more for reinsurance, by forcing the primary insurers to take a higher level of the risk and by moving their capital to insure risks with less catastrophic loss potential. All of these measures affect the pricing of insurance to the buyer.
What can your company do to minimize the costs and availability problems for property insurance at next renewal? Here are a few suggestions.
- Begin early. Meet with your insurance professional as much as several months earlier than you normally would for a renewal.
- Work as a team. Provide full cooperation with your insurance professional and make sure that all the key persons in your company know the importance of cooperation and teamwork in this endeavor.
- Be prepared to spend some time. In order to find the best price and coverage, your insurance professional may be forced to look harder than usual to find markets. You should be prepared to respond by providing whatever information the markets request, even if unusual. You should also respond promptly to such requests.
- Review your company's disaster response plan and prepare to update it. If you don't have one in writing, get one. Consider an outside review.
The above recommendations are especially important if your company has property in disaster-prone areas or any other exposure to catastrophic loss.
Return to Index
| Congress extends terrorism backstop |
After significant debate and negotiation, Congress has passed a bill that extends the federal backstop to terrorism insurance coverage. The bill, known as the Terrorism Risk Insurance Extension Act extends the federal provisions through 2007. According to analysts, however, the extension bill is scaled back from the original Terrorism Risk and Insurance Act, and does not address long-term needs for a solution to the coverage and pricing issues.
Certain members of Congress have stated that they believe a solution to the "backstop" problem should come from the insurance market. However, many insurers, brokers and risk managers believe that the risk is too great for the market to handle. They argue that, like flood insurance, a federally subsidized program is necessary to cover the catastrophic exposure. Many believe that without such a program, terrorism insurance will become unavailable or prohibitively costly when the extension act expires.
The National Association of Insurance Commissioners, an organization composed of insurance regulators from the various states, supports the position that without a federal backstop, coverage will become scarce and costly - in some cases unavailable. A paper expressing the NAIC's position is available at www.naic.org/topics/topic_tria.htm.
Return to Index
| Insuring the owner's car in a small company |
Owners of small companies have certain decisions to make about vehicles that may be used all or in part for business. A major question revolves around ownership of the vehicle. Shall it be owned in the name of the company, or in the company owner's name? A related question has to do with insuring the vehicle. Actually these two questions are intertwined. Unfortunately, many business owners fail to consider these questions together, which can lead to some serious insurance gaps.
Generally, an auto policy should be issued to the party that owns the vehicle. Therefore, if the vehicle is owned by a corporate officer, owner or partner, that person should have a personal auto policy to cover the vehicle and their personal liability. If the company owns the vehicle, a business auto coverage policy should cover the vehicle and the company.
What happens if you mix the two issues, i.e., insure the vehicle under the company policy when it is the owner's personal auto? Answer: possibly severe coverage gaps. Under the business auto coverage policy for example, an employee of the company is not an insured while using an auto owned by that employee or a member of his or her household. Since owners/officers are employees, an accident could result in personal liability that the insurer would not cover, at least as far as the individual is concerned. If a claim were brought against the company, however, the policy would respond, barring some other exclusion or limitation.
There also would be a problem if the vehicle were damaged. Some insurers have denied coverage for damage to the vehicle in similar situations on the basis that the policyholder (the company) had no insurable interest in the vehicle. Insurable interest belongs to the owner.
Still another problem has to do with rental or borrowed vehicles. If the individual in question does not have their own auto policy and instead relies on the corporate policy, they could be without coverage when using a rental car on vacation or borrowing a neighbor's pickup. While there are technical solutions to this particular problem, they are somewhat problematic and not substitutes for direct coverage.
If a company owner/officer owns a vehicle that is used in the company's business it is generally best either to take out a personal policy in the owner's name or to title the vehicle over to the company and purchase business auto coverage. If the vehicle is owned by the individual but is financed, the latter solution may not be possible.
Since vehicle operation creates significant exposure to relatively frequent and potentially severe accidents, the matter of insurance coverage and ownership of autos is an important one for small businesses. Your insurance professional can provide guidance.
Return to Index
According to data compiled by the Insurance Information Institute, last year's hurricanes in Louisiana will result in losses paid that exceed all premiums collected in the last 25 years. The losses also will exceed every dollar of insurance profit ever earned in the state's history.
These data apply to homeowners insurance, although costly results may be expected for business insurance as well. Since the worldwide insurance market is interrelated, such losses likely will impact insurance premiums in many lines of insurance, both business and personal.
Because these losses are associated with a particular peril (storms) coverage that may be affected by similar occurrences in the future is likely to become scarce. This is true because of a tendency of underwriters to react aversely to sources of catastrophic losses and because of predictions by meteorologists that global conditions point toward more frequent and intense hurricanes in the next 15 to 20 years.
Business managers should take such information into consideration when making decisions about future courses of action for their companies. Availability and pricing of insurance is not easy to predict, but their impact can be significant enough to influence the direction of certain major business decisions.
Return to Index
| Equipment theft and what you can do about it |
The National Equipment Register is a New York-based database that tracks equipment theft. According to the Register, from August 29, 2005 (the date Hurricane Katrina made landfall) until the end of the year, construction equipment thefts were up 22% in the region over same period in the prior year.
Police know that site equipment thefts increase over holidays and long weekends. Equipment theft is a major problem. Thieves are bold enough to don hardhat and safety vests to case worksites during work hours and then return after hours or on weekends to perpetrate their crimes. Many are using the thefts to support drug habits.
Here are some things you can do to thwart equipment thieves:
-
Make equipment hard to move by parking in tight quarters, against fences and with wheels removed from trailers. Lock everything that can be locked.
-
Spread your tools among several production boxes if you must leave them at the site and secure the boxes together.
-
Mounted equipment (on trailers, pickups) should have mounting nuts "peened" or welded in place.
-
Remove welding equipment lest it be used in a theft (to cut open boxes, etc.)
-
Leave fuel tanks as close to empty as possible, both to prevent fuel theft and to make it harder to drive away in the stolen property.
-
Mark your equipment, preferably in an area not easily seen. Use a marking system approved by law enforcement authorities.
-
Use area lighting.
-
Take home small valuables, such as laptop computers, hand-held radios, etc.
-
Consider site video surveillance (do an Internet search on "construction video surveillance services").
A good resource on this subject is the Construction Industry Crime Prevention Program at www.cicpp.com. While this organization focuses on equipment loss prevention and recovery of stolen property principally in the Pacific Northwest, much of the information is valuable no matter where your property may be located.
Return to Index
| Common errors in experience modifier calculations can cost you |
Workers compensation experience modifiers are very important to your company. In many industries, such as construction, manufacturing, and education, workers compensation may be the biggest casualty insurance expense. Aside from the premium costs, a high modifier can hurt competitive chances. Some industries consider modifiers in making contracting decisions. This is common, for example, in construction.
The development of the modifier is a complicated process carried out by rating bureaus in 12 states or by the National Council on Compensation Insurance in the others. As with any complicated process it is subject to a variety of errors. In this case, however, the errors can come from multiple sources and can compound each other. The result, for your company can be an inappropriately high modifier that can cost premium dollars and hurt your competitive position.
Here are some of the common errors that you should be looking for if workers compensation is a big expense for your organization:
Payroll errors. If reported payroll is lower than it should be, it affects the modifier adversely. Pay periods may be omitted or clerical errors could be a problem.
Loss reporting errors. If reported losses are higher than they should be due to a reporting error, the modifier will be higher than it should.
Failure to include subrogation recoveries. Typically, when a third party causes an injury to your worker, the workers compensation insurer will attempt to recover from that party. Sometimes, this takes awhile. Meantime, the entire cost of the loss is charged to your experience and goes into your modifier calculation. You should follow up when recoveries are made to assure that credit is immediately provided to your account. In most instances, the modifier can be adjusted immediately.
Inclusion of non-compensable claims. Compensability of a claim can take months or even years to resolve. In the meantime, insurers often reserve the claim under a worst-case scenario. You should follow up to see 1) that the compensability investigation continues conscientiously, and 2) that full credit is given to the experience if resolved in the employer's favor.
Duplication of claims. Duplicate claims occur for a variety of reasons, including filing in multiple jurisdictions and reporting reserves and settlement amount of a claim separately (the settlement amount should replace the reserve).
Entry errors. Insurers and rating bureaus process mountains of data. Need we say more?
Improper loss limitation. An input operator may neglect to limit a loss according to the modifier formula. Even if the limitation is done electronically, it may not be applied correctly, especially when more than one employee is involved in an accident (there are both per claim and per occurrence limits in the formula).
Some insureds are capable of reviewing the information available from the insurer and rating bureau and finding errors in calculations. Some may need help from their insurance professionals and advisors. Either way, review of experience modification calculations is an important potential cost saver.
Return to Index
|