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- According to a recent report from the Council of Insurance Agents and Brokers, commercial property/casualty insurance premiums have reached their lowest levels since the market peaked in 2001. Rates are continuing to decline, says the survey. The average declines for the first quarter of 2005 were 6% for small accounts, 9% for medium accounts and 11.4% for large accounts. Survey responders also reported that insurers are showing more flexibility in policy terms and conditions.
- The accounting firm Deloitte Touche Tomatsu reports that a survey conducted by the firm revealed a significant increase in businesses that have adopted continuity and recovery plans during the past five years. In the first survey only 30% had such plans. The recent survey indicates that at least 50% have such plans. The survey applied to a wide range of industries.
- According to a study from the National Highway Traffic Safety Administration, mandated safety equipment in automobiles has saved nearly 329,000 lives since 1960. The rate of lives saved is accelerating. In 2002 alone, the number of lives saved reached 25,000. The study did not consider the newest safety features such as side air bags or electronic stability controls.
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| Your work, your product - who is the insurer if something goes wrong? |
The short answer to the question above is "it depends." It might be you. Insurers do not want to issue warranties. They do not like to insure risks that are under the control of the insured - so-called "business risks." Nor do they want to "insure" poor workmanship or shoddy practices. As a result, standard commercial liability policies contain exclusions for damage to "your work" and "your product" if the loss arises out of the work or the product itself. Often, however, it is very difficult to distinguish between uninsurable business risk and accidental property damage.
To further complicate the matter, sometimes either property or liability policies could apply. For example, in the case of work such as performed by a construction contractor, loss to property during construction might be attributable to the contractor's work, and therefore excluded under the liability policy. However, the loss might result from an insured peril under the property (builder's risk) policy and be covered there. Conversely, a loss excluded under the property policy might result from accidental negligence - a covered loss under the liability policy.
As if that were not enough complication, there are the inevitable exceptions to exclusions. For example, if the part of the work that causes a loss is performed by a subcontractor, the general contractor is protected under a general liability policy. There are logical reasons for this. The general contractor cannot control everything a subcontractor does and should not be penalized unjustly. Further, since the subcontractor has the same exclusion (for one's own work) in its general liability policy, the general contractor might not be able to collect from the sub for its faulty work.
The complexity of the issue of damage to one's own work or product has plagued the insurance industry for over fifty years. The same is true for the matter of insurability of business risks. The history of these issues is full of attempts to amend policies and endorsements to get the exact intent right - if anyone really knows exactly what the intent is.
The important point for insureds is to never decide not to submit a claim because of a perceived exclusion on either of these issues. Similarly, one should not accept at face value a denial of a claim based on such defenses. On a matter as complex as this, one person's opinion usually should be questioned. On the other hand remember that the best insurance for your work or your product is your commitment to quality.
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| Workers compensation reforms yield premium reductions |
California enacted far-reaching workers compensation reforms last year. It was not the first state to do so, and probably will not be the last. In what has been a somewhat unusual result for a large insurance market like California, a number of insurers have reduced rates before seeing the actual results of the reform laws.
In other states, and previously in California, legislative changes intended to reduce costs and eliminate waste often were met with wariness by insurers. Some publicly acknowledged the position that the insurer would "wait and see" if the reforms achieved their intended results before cutting rates. Others stated that the reforms could not be considered effective until it was determined how courts would react to legal challenges.
In California this year, at least some insurers seem ready to embrace the reforms without waiting a long time. The 2004 California reforms have been subject to legal challenges already, and there are still numerous actions pending contesting the provisions of some of the legislation and interpretation by regulators. Nevertheless, one insurer that writes over 16,000 businesses, many small, has reduced its rates four times since 2004 for a total of 24%.
Other insurers have come into the market as new companies specifically formed to write workers compensation coverage. Others that have left the market are returning, according to some sources. However, given the history of California workers compensation insurer financial failures, employers would be well advised to choose their insurers carefully.
These developments may bode well for businesses with operations in California that have been affected by rising workers compensation costs in recent years. Some employers will experience rate reductions and possibly increased competition for their business. However, in some fields, such as construction, these benefits may be months or years away. In such cases, obtaining reasonably priced coverage still will require hard work and careful preparation by the organization's insurance professional.
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| New exclusions target advertising injury actions |
Most commercial liability policies include coverage for "advertising injury." Widespread backlash against unsolicited advertising has resulted in legislation protecting consumers. The legislation creates opportunities for lawsuits. As a result litigation has heated up with regard to unsolicited advertising that infringes on one's privacy.
Some of these are class actions brought under the Telephone Consumer Protection Act. A few have resulted in large judgments and settlements, including a reported $9,000,000 settlement for use of "blast faxes." Another law, the Can-SPAM ACT of 2003, effective in 2004, prohibits transmission of unsolicited e-mails. Presumably, e-mail "spammers" will be subject to similar actions, if they can be identified.
As is often the case with backlash legislation, "innocent" parties may be caught in the net. A business could be particularly vulnerable to claims if it uses a mass advertising strategy. This could be especially of concern if the business turns over its advertising function to a service provider, such as a mass mailer or other aggressive marketing entity. Fortunately, coverage should be provided under the advertising injury coverage grant in the general liability policy.
However, in March of 2005, a new exclusion, CG 00 67 03 05, Exclusion -- "Violation of Statutes that Govern E-Mails, Fax, Phone Calls, or Other Methods of Sending Material or Information," was published by the Insurance Services Office, the company that develops many standard insurance policies and related forms. Presumably, more insurers will be using this exclusion where there is a significant exposure. Other policy forms, such as those used for media companies, may already contain exclusions for unsolicited e-mails or faxes.
Any company that uses advertising should check to make sure it is not exposed to this type of claim without some form of insurance protection. The stakes are high. The activity level of claims in this arena and the size of potential losses bear careful scrutiny. It is possible to obtain coverage that does not exclude these risks. If your firm has a risk in this area you should review your liability policies, including umbrella and excess and discuss the matter with your insurance professional.
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One of the biggest problems in organizations large and small is often communications. For the person responsible for risk management or insurance in the company, this problem can be crucial. Poor communications on losses and risks can mean major problems when losses occur.
If insurance is part of your job there are two major things you need to know: what is going on in the company and what adverse things have happened from which there is a chance of recovery. In other words, you need to know what are the risks and what are the losses? Unless you train everyone to tell you about these things, you might be in the dark.
While one might be inclined to think that communication is a bigger problem in large entities, such is not always the case. Larger organizations often have better developed communication channels and reporting procedures. In small organizations there may be a tendency to assume that everyone knows everything that is happening.
In one small public agency with only a handful of staff, a major property acquisition went unreported for more than a year. The agency rented offices and had few assets, so the building it acquired for storage and other purposes represented a major part of its property. However no one ever told the insurance broker or the person responsible for arranging insurance about the acquisition. Because of turnover in one or two key positions, management that might have realized the importance of notifying the insurer did not realize that the property was never reported.
Similar problems can arise with claims. Persons not familiar with insurance may not recognize a claim situation. The more obscure the coverage, the more likely this statement will be true. In one company, operating managers made arrangements, at significant expense, to find another source of raw materials when the key supplier suffered an explosion that shut down its plant. The managers never realized that their company had arranged "contingent business interruption" insurance to help recover from just such a loss.
Aside from doing your best to stay up on what is going on in your organization, it is important to train key people on the need for passing along critical information. In addition, you should educate them on the types and uses of insurance purchased. When you are finished with the training, start over or come up with a new way to get the message across. People forget things they do not work with often, and there is always the matter of turnover.
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| Inform employees of their rights and benefits |
While on the subject of communication, we should note that lack of it can lead to other undesirable consequences and complications. Nowhere is this truer than in the subject of communicating benefits to workers.
A number of studies have shown that injured workers seek out attorneys because of uncertainty or lack of information about the workers compensation process. In fact, many still believe that an attorney is required to pursue a claim. They see the system as adversarial and as a liability issue rather than the no-fault coverage it was meant to be.
Informing the employee of their rights and benefits is important. Guiding them through the claim process is good management. They will learn what they need to know and may gain new appreciation and understanding of the system - to everyone's benefit.
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| Online security threats escalate |
In the "good old days" of the Internet (as in the 1990s), online villainy usually was motivated by mischief. Increasingly online businesses are exposed to serious crime.
A recent survey of financial institutions revealed that 83% reported that their systems had been compromised in 2004. This is more than twice the rate of attacks reported in the prior year's survey. Theft of information is the usual motive, although other intentions are possible. Forty percent of the surveyed firms acknowledged financial losses as a result of an attack.
Another crime is online identity theft by targeting companies that keep consumer databases. A spate of news articles has revealed that consumer data has been compromised in a number of attacks on companies. In most cases, this involved theft of credit card numbers, social security numbers, bank information or similar data.
A new form of security threat has appeared recently. Although earlier hacker efforts concentrated on theft of information, extortion is becoming increasingly common. Blackmailers are demanding cash (wired to overseas banks) in exchange for not bringing down e-commerce sites. If the company refuses to pay, it may be subject to barrages of data targeted at its servers in so-called "denial of service" (DOS) attacks.
The targeted businesses are those that rely heavily on the Internet such as payment processors, gambling and financial services sites. For many of these companies, even a few minutes of downtime can be disastrous because of the perception by web surfers that the problem may be persistent. In some cases, however, hackers have brought down sites for days resulting in lost millions.
One approach to dealing with this problem is to hire security specialists to develop strategies and programs to defeat the criminals. This can cost more than the initial demands, however, and some companies are reluctant to spend the money.
Standard insurance policies, such as crime insurance, may cover some of the risk. There are also a variety of insurance products designed for online business risks. Under such names as "cyber-liability insurance," "e-commerce" insurance or similar names, the policies often combine a wide range of appropriate coverage including liability, protection from theft, coverage for viruses and worms, and extortion protection.
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