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INDEX
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After several years of significant increases, the cost of auto insurance is expected to rise only .5% in 2006 according to the Insurance Information Institute. This is welcome news to fleet owners. This is the lowest cost increase in the past six years in which rate increases attempted to make up for significant losses in the auto insurance market. The cost for 2006 is remaining stable despite the 674,000 auto claims for vehicles damaged in last year's storms.
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Make sure that every vehicle has accident forms in the glove compartment and that employees know how to get the necessary data to fill them out. Also, advise employee drivers never to admit liability at the scene of an accident.
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If you store goods or records offsite, verify that you have scheduled that location on your insurance for the categories of property that are located there. You may need contents, stock, or valuable papers coverage. If loss of that property could impact your business, you may even need business interruption or extra expense coverage.
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Flood insurance experts say that no place is safe from flooding. Even desert locations experience flash floods during unusual periods of heavy rain. In fact, the desert may be one of the susceptible places for flood damage because, unlike areas that experience more rain and have developed natural receptacles or channels for water, in dry areas a sudden abundance of water has no place to go.
Flood losses do not require hurricanes or severe rainstorms to occur. Burst dams or levees, tidal events or even deliberate releases of water from reservoirs have all caused major loss. Even moderate rainstorms can cause damage if drainage systems are inadequate. Sudden rise in temperatures can produce rapid snowmelts that cause flooding.
Flooding is the most common natural disaster in the United States and occurs in all states. Yet, in most areas, relatively few small businesses or individuals purchase the coverage. This appears to be an easy coverage to overlook because fortunately, in most areas, disaster events are infrequent.
An easy starting point from which to get an idea of your flood risk is the National Flood Insurance Program's (NFIP) website at www.floodsmart.gov. The site can provide information on your property's flood zone, cost estimates for flood coverage and a great deal of information about flood risks and protection in general.
Some of the site's facts and statistics include the following eye-openers:
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Floods cause more than $2 billion in property damage in the U. S. each year
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About 25% of all claims paid by the NFIP are in low- to moderate-risk areas
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Just an inch of water can cause major property damage
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A car can easily be carried away by just two feet of water
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A flash flood can bring walls of water 10 to 20 feet high
NFIP is the primary source for coverage for most individuals, but it also offers a policy form that can be used with non-residential buildings such as churches, businesses, schools, etc. Larger businesses might purchase the coverage as part of their property insurance program (there is a standard endorsement that can add the coverage) or as a stand-alone policy such as a "difference-in-conditions" (DIC) form. In either case, the starting point for evaluating coverage needs and pricing is your insurance professional.
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| Stand-alone terrorism coverage |
Insurers are required by the Terrorism Risk Insurance Act (TRIA) and its extensions to offer coverage with property and casualty policies. The coverage applies to what used to be called "international terrorism." It does not apply to "domestic terrorism." This issue, coupled with the fact that some insurers will not write insurance at all if they do not want to offer the TRIA-mandated coverage, has led to a market for coverage called "stand-alone terrorism."
According to various market sources, the cost of stand-alone terrorism coverage overall has dropped as much as 40-50 percent since 2002. Much of the initial overreaction to the events of September 11, 2001 has subsided resulting in a more mature, stable market for the coverage. Because the topic of terrorism has become a worldwide concern, there is more demand in markets outside the United States, meaning that insurers can spread their risk better and price accordingly.
As the U. S. Government, the initial backer of the coverage required under TRIA, gradually withdraws from the market, stand-alone terrorism coverage probably will become more important. Organizations that have concerns about this exposure should be aware of the availability of this coverage and consider it as an alternative to the TRIA-mandated coverage.
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| Supreme Court's decision helps directors and officers |
In a March 21, 2006 decision (8-0), the Supreme Court of the United States made it difficult for shareholders to bring class action lawsuits in state courts on the grounds that the shareholders suffered losses because they were tricked into holding onto their shares. The decision applies to class action suits only, not individual suits. As a practical matter, however, it is likely to be too costly for individuals to bring such suits.
In making its determination, the Court considered several federal laws passed in the mid- to late-nineties intended to restrict investor class action suits. What is somewhat unusual about this case is that it did not involve shareholders directly bringing suit against directors of a company for overoptimistic or misleading public information. Rather the case involved a group of stockbrokers suing their former employer because, alleged the plaintiffs, the company's appraisals of certain stocks were overly positive and caused the brokers to give bad advice to customers who eventually left. The brokers also claimed to have lost money of their own.
The Court's decision effectively cuts off attempts to get around the federal laws by filing class actions in state courts. The case is Merrill Lynch v. Dabit, 04-1371.
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Although it is tempting to think of losses covered by insurance as being cost-free or already paid for, nothing is further from the truth. Although ultimately this statement applies to every type of coverage, workers compensation is particularly sensitive to this concept. The experience modifier assures that fact.
Basically, an experience modifier (AKA "x-mod," "modifier," "EMR," or various other names) "smoothes" the cost of insurance over a period of time. For big companies, it becomes more like an expensive line of credit, which is why many larger organizations "self-insure" this particular risk.
The modifier controls how much an organization pays for workers compensation insurance, even more than rates or competition. The modifier information is maintained by state agencies and is one of the first things an insurer looks at before quoting coverage. So, even in states with so-called "open rating" where the insurer is free to set rates within certain restrictions mainly aimed at assuring insurer solvency, the modifier is a big issue in actual cost. You can't get away from the expense just by shopping coverage. The only way is to bring down the organization's loss experience.
Through safety programs, return to work programs, case management and careful provider selection (where possible) your organization can bring down the cost of one of the potentially most expensive employer obligations.
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The White House has released a document entitled "National Strategy for Pandemic Influenza." The document presents a plan for dealing with the threat of avian flu, which world health officials have noted is spreading globally among fowl.
The plan contains three "pillars:"
- Preparedness and communication
- Surveillance and detection
- Response and containment
The plan defines roles and responsibilities for various sectors of society, including Federal, State and local government, the private sector, and individuals and families. The activities outlined for the private sector include:
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Establishing an ethic of infection control in the workplace that is reinforced during the annual influenza season, to include, if possible, options for working offsite while ill, systems to reduce infection transmission, and worker education.
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Establishing contingency systems to maintain delivery of essential goods and services during times of significant and sustained worker absenteeism.
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Where possible, establishing mechanisms to allow workers to provide services from home if public health officials advise against non-essential travel outside the home.
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Establishing partnerships with other members of the sector to provide mutual support and maintenance of essential services during a pandemic.
The actual threat of "bird flu" is unknowable. So far, less than 200 people worldwide have been infected with the H5N1 strain of influenza virus.
The potential seriousness of a new flu strain should not be taken lightly. The Spanish flu pandemic of 1918 killed 40 million worldwide. Fortunately, however, medical science and particularly health care management have advanced significantly in the intervening decades. An example would be the SARS epidemic in 2002. The pandemic was halted by prompt action on the part of world health agencies. Even so, according to the Asian Development Bank, the economic impact in the area from SARS was in the vicinity of $60 billion.
There is little in the way of insurance to deal with the business loss exposures that would arise from a pandemic. Life and health coverages would help protect the individual workers, but coverage for business interruption losses or extra expense resulting from an outbreak is scarce and expensive. For some larger companies, a coverage known as "trade disruption" or other forms of special business interruption coverage might apply but these likely would concentrate on such issues as port closures due to quarantine.
While it is possible that the H5N1 virus may never infect humans on a large scale, the potential threat is a reminder of the importance of business continuity planning. It also prompts consideration of the value of workplace infection control, hygiene and other practices that make the workplace healthier.
A full copy of the National Strategy is available at the White House web site: www.whitehouse.gov/homeland/pandemic-influenza.html.
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| Check your contractor's insurance - carefully |
A Florida general contractor/home builder is dealing with the consequences of failure to adequately confirm subcontractor insurance. The result may be an expensive insurance settlement.
The builder subcontracted to a drywall company to do work on a townhome project. A worker employed by the subcontractor fell into an open elevator shaft and was seriously injured. The shaft did not have steel guards in place, as required by safety laws. The injured employee has incurred over $160,000 in medical bills and significant lost time. Authorities opened an investigation when the worker received no benefits or payment for his expenses.
The builder allegedly had verified coverage from the subcontractor by certificate of insurance prior to starting the work. After the injury, however, the state Division of Workers Compensation confirmed that the subcontractor did not have the coverage.
In many states, a "multiple-employer worksite" law, laws concerning responsibilities of general contractors for their subcontractors, or similar legislation can make a general contractor, or other company working at a site, responsible for workers compensation if the employer does not have coverage. In this case, the injured worker and his attorney are pursuing coverage from the builder/general contractor's workers compensation insurer. A criminal investigation is underway involving the subcontractor, as failure to provide workers compensation is a felony in the state.
A few lessons to take away from this situation:
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Although it may not be the case in this instance, state insurance departments report relatively high levels of fraudulent evidence of insurance, especially in the construction and trucking industries. Watch for obvious clues, such as white-out, erasures, certificates with dates more than a few days prior to your receipt, etc.
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Some contractors may let their insurance lapse, especially if faced with a large premium increase at renewal. You should follow up to assure that the coverage is renewed if the contractor is still working for you.
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If you own or control a worksite, you can become responsible financially for another party's negligence or for unsafe conditions. Make sure you are protected contractually and that you exercise reasonable efforts to make the site safe.
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Even if your company is not held responsible for workers compensation for uninsured workers of contractors, your company still may be sued for liability under tort law.
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