|
INDEX
|
|
 |
|
- According to Liberty Mutual Insurance Company's 2002 Workplace Safety Index, most business people have come to think that repetitive motion is the most common source of workplace injury. Actually, it is number 6 according to the insurer. The number 1 cause, overexertion, accounts for more than 25% of the injuries. The survey suggests that perhaps many employers and government authorities are not putting their safety resources where they would do the most good.
- Some lines of insurance can seem more like warranties or service plans than policies. The services provided may be as important as the financial protection. Examples include equipment breakdown also called boiler and machinery (inspections), environmental liability (surveys and loss control assistance), and surety bonds (background investigations). When considering an insurance expense, consider not only the financial protection, but also the value of the insurer-provided services that come with the package.
Return to Index
| Business income revisited |
Business income claims are the most difficult claims to resolve and the costliest. Business income is generally tied to property damage to the insured's premises. However, many other sources can result in business income losses. Among these are
- Government agencies that restrict access following a loss event
- Loss of critical suppliers or customers because of accidents that befall them or just poor business practices leading to failures
- Reduced customer traffic because of a nearby property damage event or other cause
- Closing of your business for activities such as clean up following a nearby catastrophe (such as the world trade center attack)
- Loss of business because of closure of another entity (such as a stock exchange) on which your business depends
- Cancellations (such as a performer scheduled to appear, a customer's event, or commercial transportation such as a cruise ship)
Of course in addition to all of these remote sources of business income losses there are the very real immediate sources of income loss such as damage to your property, loss of a tenant, loss of a favorable lease and many more.
Because business income protection is so complex and so critical, it is important to revisit the matter every time there is any type of change to your business. Even when you perceive no change within the organization, it is still important to review business income exposures periodically simply because events and circumstances outside the company can affect the risk. Most organizations should review this matter at least annually - more often if anything changes.
Return to Index
| Failed IT projects can threaten your business |
As business becomes ever more dependent on computer systems, failure of a planned system to work as envisioned (or to be completed) can threaten the company's very existence. A classic example is the high-tech baggage handling system slated for the new Denver airport a few years ago. The technicians simply couldn't get the system to work right, delaying opening of the airport for almost a year. Reportedly, the delay cost the city over $1 million per day in operations costs and interest on bond issues.
Similar stories abound for product ordering systems, inventory control systems, reservation systems, automated teller machine systems and many others. Delays in completion, operating system crashes, and abandonment of projects are more common than most people realize. The result is business losses and, at the extreme, business failures.
What can your business do to avoid the risk of new system failures? Here are several checkpoints to consider for a new project:
- Do business with the best. Avoid startups, minor players in the field and the like, unless you have confirmed that the principals and their support personnel have the experience and track record your project deserves.
- Avoid the "bleeding edge." While it is glamorous to be an "early adopter" the shine wears off when it turns out that your project is one of the failures often required to "work out the bugs" in a product or concept.
- Have a plan. An IT project can be just as complex as any civil engineering project. Have milestones, deadlines, measurements, best practices all in place and keep them realistic.
- Check your contractor's insurance. Your IT supplier should have errors and omissions liability insurance. It should be the right kind - i.e., it should cover the risks inherent in performing your contract requirements. Limits should be adequate and the insurer should be a sound one.
- Take the project's pulse. Any project needs someone to ramrod and keep up with what is going on.
- React promptly when "glitches" arise. When an element of the project falls behind schedule or anything goes wrong, fix it immediately.
Return to Index
| Guard those Internet connections |
What employee wouldn't like a high-speed Internet connection at their computer? It sure beats the dial-up connection at home. The Internet is increasingly important for so many aspects of business from research to order fulfillment, to communication, to marketing. It is also a great source of personal entertainment. And, it is also the source of many risks.
Employees may use a high-speed connection to download music, video and other entertainment that violate copyright restrictions. Such actions can lead to lawsuits against the employer who owns the computer. One computer consulting firm had to pay a $1 million settlement with the Recording Industry Association of America over downloaded music files.
Another risk is downloading viruses while using the Internet to visit "entertainment" sites. As reported in various news sources, employees have also used corporate Internet connections to defame the employer or its competitors, to harass other parties or to conduct their own businesses on auction sites or similar places. Too many employees abusing the connection also could cut into the company's bandwidth or expose the corporate system to hackers.
What's an employer to do short of cutting the cable? One solution is Internet filtering software that restricts access to music sites and the like. Of course, a written policy prohibiting personal use of the company's Internet access, backed by a set of disciplinary procedures would help. Tracking software can also tell the IT manager who has been naughty.
Return to Index
| Mismanagement suits - not just for the big guys |
According to a recent survey of businesses purchasing management liability insurance (directors and officers, employment practices and fiduciary liability insurance), suits for mismanagement are becoming increasingly common among smaller and mid-sized companies. Privately held and not for profits are also targets. Over half the companies with claims fit one of these two categories.
Costs are higher than ever, both for defense and to satisfy judgments or reach settlements. Some interesting facts emerged about the makeup of the companies sued.
- 42% had fewer than 100 employees
- 14% had 101 to 250 employees
- 11% had 251 to 500 employees
- 31% of companies with claims had less than $400 million in assets
The survey also demonstrated that certain industries are more at risk than others. The results showed that the following percentages received claims:
|
Health Services, Banking |
30-45% |
|
Personal and Business Services, Durable and Non Durable Goods, Merchandising, Non Bank Financial Services, Utilities, Mining, Petroleum, Agriculture |
20-30% |
|
Technology, Communications, Transportation, Construction |
10-20% |
No one industry escapes unharmed, however. While Tech and Communications companies may receive fewer overall claims, the larger firms in those industries are among the most frequently sued.
Employees, customers, clients, and competitors are responsible for nearly half of all claims. Shareholder suits comprise most of the rest.
For all categories of organizations, the cost of claims went up. Some of the increases were major:
- Claim costs averaged $5.6 million per claim, an increase of 75% from the prior year
- Non-shareholder claims recoveries ranged from just under $250,000 to over $12,000,000
- Defense costs ranged from $100,000 to $2,000,000 regardless of outcome
- Once sued, defense and indemnity costs ranged from $350,000 to $14,000,000
Return to Index
| Subrogation waivers and insurance policies |
Subrogation occurs when one party asserts rights of another party when legally entitled to do so. When an insurer pays a claim for a policyholder, the insurer has a right to recover the amount if a negligent third party caused the loss. If your insurer recovers, the loss is removed from your organization's experience record.
Many contracts contain provisions waiving one or both party's rights of recovery. The waiving party gives up the right to sue. This provision is often called (erroneously) a "waiver of subrogation." It is really a waiver of the right to recover. Because the provision may also affect the insurer's right to subrogate, the term "waiver of subrogation" is common.
Different types of insurance policies treat waivers differently. Here are common treatments.
- Property - usually allows waiver of right of recovery if in writing and before loss or after loss if the other party is also an insured, an affiliated entity or a tenant.
- General Liability - states that the insured shall do nothing "after loss" to impair the insurer's right of subrogation.
- Workers compensation - most forms say that the insured shall do nothing "after the injury" to interfere with the insurer's right to recover from others. While the implication here (as for general liability) is that pre-loss waivers are permitted, many insurers will contest such waivers and courts often uphold the insurer.
- Builder's Risk (Course of Construction) - many forms prohibit the insured from waiving any rights, before or after loss.
Allocating risk in a contract through waivers can be a useful risk management technique. However, keep in mind the following:
- Mutual waivers may be the best approach when they allow each party to look to its own insurer. This is probably true more in property insurance than the other lines.
- When you really want to do a waiver, an endorsement to the relevant policy may be the best bet. Since there are forms for waiving the insurer's right, the safest approach is to use them. The implication is that if you do not use the available waiver, the insurer may not be bound by your agreement. Generally, you should consult your insurance advisor.
- Rights of recovery are best waived only to the extent that there is insurance recovery.
- Especially when dealing with waivers, review of contracts by legal professionals and those knowledgeable about insurance is strongly advised.
Return to Index
| There must be 50 ways . . . |
The U.S Chamber of Commerce estimates that employee theft costs American companies $20 billion to $40 billion a year. Employee dishonesty knows no limit to creativity. There are many ways employees can steal. Here are a few of the most common.
- Cash theft. These include cash register theft, pocketing money from customers paying in cash and similar forms of larceny.
- Expense accounts. Some employees submit claims for money never spent, dummy receipts or add personal expenses disguised as business expense.
- Forging receipts. Salespersons charge one sum for an item and ring up a receipt for less
- Phony vendors. The employee creates a dummy vendor file, sends the check to a PO Box and collects it.
- Phony employees. The employee creates a fictitious employee, pays them and cashes the check.
- Fraudulent refunds. This involves a refund slip for a more expensive item than returned by a customer. The employee pockets the difference.
- Kickbacks. The employee colludes with a vendor's employee to pay more for an item than is justified and split the difference.
- Stealing merchandise or supplies. The employee takes what he or she wants.
The best technique for dealing with fidelity exposures is to have good controls. Among these are the following:
- Use careful pre employment screening procedures
- Watch for clues - such as an unexplained rise in an employee's living standard
- Audit all financial records internally and externally (outside auditors).
- Audit inventory periodically
- Have countersignature procedures for checks
- Stamp checks "for deposit only" upon receipt
- Make sure securities are jointly handled
- Implement strict security procedures for computer operations
- Divide tasks whenever there is an opportunity to manipulate records, such as reconciliations and deposit/withdrawal from bank accounts
When loss control fails, insurance can fill the gap. Because losses often result from collusion extending over long time periods, sometimes years, the results can be catastrophic. Although the immediate financial impact on the organization of smaller losses spread over time may not be as immediately disruptive as a disaster, the financial consequences ultimately can be just as severe.
Considering the prevalence of employee theft and the disastrous consequences when losses accumulate over time, a program of loss control backed by insurance is critical.
Return to Index
| Some thoughts on fire extinguishers |
Fire extinguishers can save a building or a life if working properly and used properly. Here are a few simple tips.
- Keep them in plain sight. Don't hide them behind drapes or under counters.
- Make sure you have enough of them in as many places as they might be needed.
- Make sure they are adequate to the task. Don't get extinguishers that are too small.
- Make sure employees know how to use them. Remember the acronym PASS
- Pull the pin
- Aim the nozzle (at the base of the fire)
- Squeeze the handle
- Sweep from side to side
- Keep them charged. Inspect the gauges periodically to make sure they work
Everyone in the organization should know to call 911 first if a fire breaks out.
Return to Index
|