|
INDEX
|
|
 |
|
| Upending of the D&O market |
The economic crisis has begun to upend the market for directors and officers insurance. This is especially true if your company is in any way associated with the financial sector. Avon Corp. reported that the cost of D&O insurance increased by a staggering 50 percent in the fourth quarter of 2008 compared to that of 2007 for the S&P Financials Sector. Overall, the cost of buying $1 million in coverage jumped 3.15 percent, the first time in 21 consecutive quarters that prices have increased year over year, Avon reported.
Avon pointed to many factors that are likely behind this change including the massive number of jobs lost in the last six months, the drop in the stock market and the Bernard L. Madoff scandal. A separate report from Advisen blamed changes in litigation strategies partly for the upending of the D&O insurance market.
"The plaintiffs bar outdid itself in creativity and resourcefulness in 2008," said Dave Bradford, Advisen's executive vice president and author of the report.. "Complaints often put forward novel theories of liability, and many suits were crafted to avoid the higher pleading standards of federal securities class action suits. One outcome has been higher defense costs for defendants and their D&O insurers."
Traditional securities class action suits still are the most significant type of securities litigation for public companies, according to Advisen's report. But the company pointed to a growing number of suits, filed in state courts, that allege common law torts and breach of fiduciary duty. Advisen also said that regulatory changes are likely under the Obama administration could bring a whole new set of challenges to the D&O market.
But not all the news is bad. Those companies outside of the financial sector are still largely seeing favorable prices for D&O coverage. Avon's analysis found that rates for D&O liability insurance in non-financial sectors actually declined by 6.3 percent in the fourth quarter of 2008 compared to the fourth quarter of 2007. Whether this trend continues isn't clear.
D&O insurance provides protection for companies, and the directors and officers themselves, in the event they are sued for negligent acts committed while they are working with the company.. For specific questions about the coverage, contact your insurance representative.
Return to Index
| Older workforce can be an asset |
As more and more older Americans remain in the workforce after the traditional age of retirement, you might expect to see a decrease in productivity and an increase in the rate of accidents. But this stereotypical view of older workers simply isn't supported by the evidence, according to the PMA Insurance Group. In fact, the opposite appears to be true: Older workers appear to increase productivity and workplace safety.
"Not surprisingly, as people age, their skills and faculties, including strength, range of motion, motor skills, sensory acuity and ability to heal, diminish," wrote Ken Nogan, Risk Control Consultant at PMA Insurance Group. "While this may suggest that older workers would have a negative effect on workplace productivity and safety, statistics prove otherwise."
There is a significant downside to employing older workers, however. While overall they increase workplace safety, when they do get injured on the job the injuries tend to be more severe.. The top concerns identified by PMA are "increased falls, increased fatality rates, longer healing times, greater overall severity of injuries and more severe musculoskeletal disorders." But these problems can be mitigated through workplace modifications. Among those recommended by PMA:
- Slip and fall prevention - Falls alone account for more than one-third of all injuries sustained by workers 65 and older, and it takes an older worker two to three times longer to recover from an injury than a younger counterpart.
- Ergonomics - Ergonomic evaluations of workstations and workspaces can identify causes of fatigue and strain for older workers.
- Safe driving - Death rates for work-related roadway crashes increase steadily beginning at around age 55, and older drivers (55 and above) are more likely than other drivers to have a crash at an intersection or when merging or changing lanes on a highway.
- Return to work - Because claim statistics reflect a connection between increased healing time and age, there is a need for highly responsive return to work efforts for older workers.
And this issue isn't going away. PMA reports that estimates show that workers 65 and older will grow more dramatically in coming years, more than 80 percent. If employers recognize the potential problems and modify their workplaces accordingly, they might also benefit from an increase in productivity and safety.
Return to Index
| Terrorism insurance still unavailable |
It has been almost eight years since the terrorist attacks in Washington D.C. and New York. Those attacks were carried out without the use of nuclear or biological weapons but still managed to kill more than 3,000 people and cause more than $30 billion in insured losses. An attack using weapons of mass destruction are likely to be far more deadly and expensive and there is still no good way to insure against such an attack. And a recent report from the Government Accountability Office shows that an insurance solution might still be a long way off.
Since the Sept. 11 attacks, the U.S. government has passed and renewed the Terrorism Risk Insurance Act. The act requires property insurers to offer coverage for terrorist attacks using conventional weapons and puts the government on the hook for a significant portion of the losses. But during the last eight years, the government has not found a way to ensure that insurers are able to offer protection from nuclear, biological, chemical or radiological attacks.
The GAO laid out the problems involved in offering this kind of insurance and the two most common proposed solutions. The biggest two problems remain the inability of the private sector or the government to accurately evaluate the risk and the potential for massive losses that could render almost any private insurer insolvent. And the losses could be truly massive. The GAO cited a Rand Corp. study that estimated that a nuclear attack on the Port of Long Beach could result in more than 60,000 deaths and that losses could reach $1 trillion. Losses on that scale would bankrupt even the most highly capitalized insurer.
The GAO evaluated two proposals for fixing the problem. The first involves requiring insurers to offer the insurance and then providing a federal financial backstop in case the losses become too high. The problem with this idea is that the GAO found that many insurers would likely get out of the property insurance business if they were required to offer this coverage, even with the federal financial backstop. The other idea that has been floated is that the government could offer the insurance on its own, much like it does with the National Flood Insurance Program. But some worry that such a program would open up the government itself to too much risk. It would also be difficult for the government to properly analyze the risk and set premium rates.
This problem is bound to be around for a while, as the GAO report shows there is little consensus on what is the best solution. In the meantime, businesses should simply make sure they have all the other insurance they need. Call your insurance representative if you have any specific questions.
Return to Index
| Danger of exposing employment info |
Keeping personnel decisions confidential is almost always a good idea, and a recent case out of Massachusetts reinforces that idea. The First Circuit Court of Appeals held that even truthful statements about why someone was fired can open up a company to libel lawsuits.
In the Massachusetts case, an employee was fired after the company he worked for found that he had been overstating travel expenses to the tune of many thousands of dollars. The company had recently fired another employee for a similar offense and apparently wanted to make an example of the employee. The company sent an e-mail out to about 1,500 employees naming the employee and saying that he had violated the company's travel and expense policies. In response to the e-mail the employee filed a libel lawsuit.
The trial court dismissed the suit, but the appeals court reinstated the case holding that under Massachusetts law even truthful statements can be libelous if the statement is made with "actual malice." The law appears to be unique to Massachusetts but in an age of e-mail and national companies, employers that even have a tangential relationship with Massachusetts might be ensnared.
But even without this law, companies are almost always better off keeping personnel information to themselves. This comes up most often when a company provides an employment reference to a former employee but, as the Massachusetts case illustrates, it can be a problem in other areas, too. While defamation lawsuits brought by employees and former employees often fail, just getting involved in a lawsuit is something best avoided. In the Massachusetts case, the company could have easily avoided a lawsuit by simply not naming the employee.
Employment laws vary drastically from state to state, so it is important to get professional legal advice if you have any specific questions. It is equally important to make sure your company has the proper liability coverage in case of a lawsuit.
Return to Index
| Business Briefs: Flood reprieve |
The National Flood Insurance Program dodged a bit of a bullet in March. Just hours before the government program was set to expire, the U.S. Senate passed a temporary extension of the program until Sept. 30. If the program had expired it would have been impossible to write new policies or extend existing ones. The last-minute reprieve comes as Congress is debating reform of the program. These reforms include ideas to make the program more financially sound and expanding the program to include things such as wind insurance. David A. Sampson, president and CEO of the Property Casualty Insurers Association of America, said his organization "applauds Congress for acting to keep the National Flood Insurance Program in place. Allowing the program to expire would have very negative consequences for policyholders and also for the nation's economy." However, Sampson cautioned Congress on being too aggressive in its reform program.
Return to Index
| Business Briefs: Tasty policy |
Continuing its tradition of insuring just about anyone, Lloyd's of London recently insured the tongue of Gennaro Pelliccia, Costa Coffee's Italian Master of Coffee, for almost $14 million dollars. According to Lloyd's, Pelliccia tastes every batch of raw coffee beans before they are roasted. "In my profession, my taste buds are crucial. My 18 years of experience enable me to distinguish between thousands of flavors. My taste buds also allow me to search out any defects, which help guarantee Costa's unique Mocha Italia blend," Pelliccia said. Lloyd's says this isn't the first tongue it has insured, saying it has insured the tongues of those in the wine business in the past.
Return to Index
| Business Briefs: Jail time |
A retired Pennsylvania judge, who was featured in the Coalition Against Insurance Fraud's annual Fraud Hall of Shame, has been sentenced to 46 months in jail after collecting $440,000 from insurance companies after a slow-speed car crash, according to The Associated Press. Michael Joyce insists he did nothing illegal. But prosecutors say that he claimed to be severely disabled while scuba diving, piloting a plane and in-line skating. They also say Joyce tried to use his position as a judge to get the insurance company to settle his claim. The AP reported that he sent a letter to insurers where he referred to himself as a judge 115 times.
Return to Index
|