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INDEX
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A good way to conduct an impromptu, abbreviated risk analysis is to review your own annual reports. These documents provide a snapshot of the organization and also tell stakeholders where the organization may be heading in the near future. Both are important elements of risk analysis, i.e., where you are and where you are going.
One of the suggestions for policy improvement in an article in this issue is to endorse the form to require reporting only when the persons responsible for reporting losses know of the loss. Make sure you advise your employees whom they need to notify when losses occur.
When your company does something well, your PR people want to let the world know. You should take the same attitude when it comes to insurance. If you have a good safety program, state-of-the-art security or fire prevention, award-winning financial controls or any such achievement, put it in your insurance applications.
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| Workers compensation insurance modifiers |
It is important to keep track of your organization's workers compensation insurance modifier and to know how it works. The modifier can affect your workers compensation costs even more than insurance market changes. If large it can make your company undesirable to an insurance company at renewal time. In some industries, such as construction, a high modifier could lead to missing out on jobs. Here are some important tips about modifiers.
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Get your loss runs and review them carefully. Make sure the employees listed on the reports are yours, not someone else's. If an employee has been released and returned to work, make sure the claim is closed and any reserves are released.
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Check reported payrolls. If someone along the process has left off any payroll it could have a disastrous effect on the modifier.
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Check for duplicate claims.
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Make sure subrogation recoveries are included. When the insurer recovers money from a liable third party who caused the employee injury, it should offset the loss resulting from payment of medical and indemnity.
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When merging or acquiring companies, consider the effects on your modifier. One drilling company that did only testing and sampling had a modifier of .50. The company acquired an oilfield driller solely to acquire the technology, equipment and personnel, but immediately ceased all oilfield drilling and converted to testing. However, the management didn't consider the effect the oilfield company's 1.70 modifier would have on its overall operations - until it got the $600,000 premium increase above what it expected to pay with the new employees.
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If your organization is large enough, consider retaining the risk for a portion of your workers compensation program. If properly managed, a retention program can provide more control of the program, and more incentive to reduce losses.
Workers compensation experience rating is a complex subject. Failure to address it, however, can be dangerous to your organization's finances. Your insurance professional can help you analyze your program and can suggest more ways to keep costs as low as possible.
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| Watch those lease provisions |
As Shakespeare and others have noted, a signed contract can have dire consequences if you are not fully aware of what you are signing. A lease is a contract that can have great impact.
Some of the most important considerations in a lease are the indemnity provision, return of premises provisions, and requirements to insure.
The indemnity provision usually obligates the lessee to take on the responsibility to pay for losses and defend the landlord from claims. If the losses are a direct result of the tenant's operations, this may be appropriate. However some indemnity clauses go way beyond that. Some could even require the tenant to pay for losses caused by the landlord's failure to maintain the property. You should examine indemnity provisions carefully and seek help from your attorney and insurance professional as appropriate.
Return of premises provisions can turn your company into an insurer. Some provisions require return of premises regardless of conditions affecting the premises. For example, if strictly enforced, some clauses could require your organization to repair the property after a natural disaster.
Although in most situations the landlord insures the property and the tenant insures the contents, any number of variations are possible. A tenant might be required to insure improvements, for example, including those that modify the property extensively such as the addition of storefront windows to a blank wall. In such cases, it is important to know how this obligation can be covered. If the object of the insurance requirement does not fall into the category of "business personal property" of the tenant, special coverage arrangements may be necessary. Better yet, it may be possible to negotiate the lease in a manner that makes it easier and more cost efficient for all to assure that coverage is in place.
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| A short checklist for business income coverage |
Business income is a confusing subject for many. The concept that a stream of payments to compensate for lost revenues is appropriate and desirable after a property loss is fairly easy to grasp. However, many get lost in the details of the coverage and can overlook important coverage elements or become confused about the intent. Here are a few of the things you may need to consider beyond just income replacement when thinking about business income coverage:
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Extra expenses to keep the business running or attend to its recovery
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Rental value or loss of rental income depending on your position
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Extended income after resuming operations to cover the difference between where the company's income would have been and the reduced income during recovery
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Costs associated with ordinance or law with regard to demolition, repair or replacement
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Contingent income losses due to damage to a supplier or customer
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Costs resulting from off-premises interruption of power, communications, etc.
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Expediting costs for extraordinary measures to keep the business running
These are some of the issues to think about when considering how to structure your business income coverage. Keep in mind that you will be required to produce credible records to justify some of these expenses and to prove the impact of a loss on your revenues. This is an area where some time spent with your insurance professional can be of great value.
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| A few good policy improvements |
Here are a few suggestions to consider for most of your property/casualty policies. Depending on the market conditions, history with the insurer and other factors, your insurers may be willing to add these improvements to the policy. It never hurts to ask.
Broad Named Insured. Try to make sure that any affiliated or related companies that should be insured under the corporate policy are included. There may be some that should be insured separately. You and your insurance professional can develop wording that automatically includes those that need to be included, but excludes those that should not, such as those with other insurance or for which ownership is more tenuous.
Errors and Omissions Clause. Many insurers will consider adding wording that forgives the insured's error when, for example, someone fails to list a particular property location or inadvertently gives the wrong address.
Knowledge of Occurrence Clause. It may be possible to add a clause that forgives late reporting because the party responsible for reporting the loss did not know of it, even though someone else in the organization did. The clause could require knowledge by a specific person, or by position in the organization, such as VP of Finance.
Cancellation Clauses. Depending on the regulatory requirements in your jurisdiction, insurers may be willing to liberalize cancellation clauses, except in cases of non payment of premium, to provide longer lead times to the insured to replace coverage that is being cancelled or non-renewed.
Late Reporting Clauses. Some insurers will allow late reporting clauses. For example, a claim may be submitted to a workers compensation insurer only to find out later that it really should have been a general liability or auto liability claim (for example if there is a question of employment). In such a case, late reporting to the appropriate insurer should be forgiven if inadvertent.
These are a few examples of ways to improve coverage, usually at no cost. Consult your insurance professional for advice.
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| Employment practices liability |
To many, the concept of employment practices liability is vague. Partly because of the use of similar terminology, many confuse this exposure with employee benefits administration liability, employer's liability, or other forms of coverage including workers compensation.
Some of the occurrences that would be covered by separate employment practices liability insurance could be covered under some other types of liability protection. However, most organizations probably should consider separate "stand alone" employment practices liability coverage. Here is a partial listing of some of the types of offenses that could give rise to an employment practices liability claim.
- Wrongful termination
- Wrongful hiring, promotion, evaluation, etc.
- Wrongful discipline
- Failure to employ or promote
- Deprivation of career opportunity
- Violation of various statutes that protect employees
- Reduction in work force
- Facility closure
- Breach of employment contract
- Retaliation
- Humiliation
- Negligent supervision
In addition to these clearly employment-related offenses, there are other types of claims that might be covered by general liability insurance or directors and officers liability insurance except that the policy may exclude claims from employees. Some of these could include:
- Defamation
- Libel, slander
- False arrest or false imprisonment
- Emotional distress
- Discrimination
- Mental anguish
- Assault and battery
For some of these offenses, employment practices liability may remove the "gray" areas in which a claim could be doubtful under other types of policies. For this and other reasons, including separate policy limits, protection of experience on other business insurance policies, and more, employment practices liability insurance is a coverage worth considering.
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| Insurance requirements compliance - down with paper |
One of the major headaches of modern business is complying with contractual requirements for evidence of insurance. Some sources claim that the standard certificate of insurance form used most frequently in the United States is issued several million times weekly. Included with many certificates are endorsement forms adding as additional insureds one of the parties to the agreement. Whether or not the estimate is correct, one thing is certain, many trees have been sacrificed in the pursuit of assuring compliance with contract requirements.
Some things are changing, however, hopefully for the better. Increasingly the insurance industry is using "automatic" additional insured provisions. Some call these "blanket" provisions but that is actually a misnomer. These provisions automatically include as an insured under a general liability policy anyone whom the named insured is required to add as an insured by a provision of a written contract requiring such addition. In other words, if Roofing Subcontractor Inc. (RCI) is required by contract with Amalgamated General Contracting (AGC) to add AGC to its policy as an additional insured, that happens automatically as soon as the contract is signed.
These automatic additional insured provisions can be incorporated into the policy, as some insurers do, or can be added by endorsement. The Insurance Services Office, an industry organization that, among other services, provides standard forms for insurer usage, has developed several endorsements to accomplish this automatic additional insured status. Three such forms are sometimes referred to by their numbers 20 33 (for owners, lessees or contractors in construction agreements), 20 34 (for lessors of leased equipment) and 20 35 (for grantors of licenses). Each of these forms accomplishes the same purpose, to automatically add as insureds the parties in the specific type of contract identified by the form.
Another encouraging development is the increasing use of online "bulletin boards" where parties to a contractual arrangement and their insurance professionals can go to post information relative to insurance compliance, or retrieve it. For example, the insurance agent for RCI in the example above could go online and enter information about RCI's insurance program. AGC, or AGC's insurance agent, could then go to the same site and retrieve information showing that RCI has complied. If necessary, AGC could print a copy of a form (possibly including the most widely used certificate form) for its files.
There are various approaches to managing this information and different degrees of sophistication and security. A simple Internet search on "certificates of insurance" will reveal many sources offering various forms of electronic compliance - especially in the paid advertising column.
A more recent development is the potential for use of "interactive" systems in which an insurance agent will be able to link directly to large organizations' databases for electronic "form free" provision of evidence of compliance. Updates, including policies renewals, also could be managed electronically. The ideal system would save data input at both ends and could eliminate bulky paper storage.
While progress is underway to end some of the paper blizzard, the biggest obstacle may be acceptance. Organizations may need to be retrained on the objectives and needs of an insurance compliance system and may have to learn to abandon old practices of insisting on forms that only provide evidence of what is already confirmed.
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