Rule #1: Have a Gameplan

Since I am a big fan of college basketball and the madness of the NCAA mens' basketball tournament that is upon us, I was thinking about the best college coaches in the tournament this year: Stevens (Butler), Smart (VCU), Pitino (Louisville), Krzyzewski (Duke), Izzo (Michigan State), and Self (Kansas)... In my opinion, what separates these coaches from their peers is their ability to have a gameplan (and many back up gameplans) and be willing to alter those plans in the middle of a game. In a weird way, the same holds true in the property & casualty insurane marketplace. If you have a plan you will oftentimes pay less for your commerical insurance over the long run...

As a property & casualty insurance buyer for your organization I am sure you are aware of the rate increases that are slowly driving up the costs of insurance. The end of the fourth quarter in 2012 marked the seventh straight quarter of property & asualty rate increases. According to Towers Watson's most recent Commercial Lines Insurance Pricing Survey, commercial insurance prices in aggregate increased by almost 7% during the fourth quarter of 2012. The largest increases are being seen in the following lines of coverages: Worker's Compensation, Employment Practices, Director's & Officer's, and Property (especially coastal properties).

What are the five industry factors that drive rates up?

1. Noncastastrophic Losses - Individual and industry peer losses (from a trend and frequency standpoint)

2. Interest Rate Changes - When investment returns fall, pressure on underwriting results to produce the required returns increases.

3. Industry Capacity Levels - How much capacity does an insurance carrier have for new and existing business?

4. Catastrophic Losses - This becomes a powerful factor in the affected region, but has a small impact on the industry as a whole unless multiple catastrophic events happen in the same calendar year.

5. Momentum - Pricing based on rate trends of recent quarters. If rates are up 5% last quarter, the market will be biased toward increasing rates again this quarter and next, until some other factor changes or until calendar-year profitability increase so far as to make the rates flatten.

What are Underwriters doing to drive rate increases?

- Predictive Modeling: Rates are being based upon "date mining" / actuarial studies.

- "Re-Underwriting": During the renewal process underwriters are "taking a harder" look at each client. In return, more questions are being asked even on existing clients.

- Less Underwriter Appetite: Carriers are redefining the industries that they are looking to write new business in. Therefore, you may encounter less carriers vying for your business.

- Raising Property Values: The practice of ensuring that adequate limits are being used.

- Worker's Compensation: The raise in health care costs and the volatility in this line of coverage has made worker's compensation an oftentimes unprofitable line of coverage for many insurance carriers. Therefore, rate increases are being used to offset costs/unprofitability.

- Endorsements and Policy Language: Be sure you and your broker read through endorsements to ensure new policy wording has not restricted coverage.

 What can I do to offset rate increases?

The Best "Offense" is an Active Good "Defense"

- Early Renewal Strategy with your Broker: Set expectations and have a plan. Your broker must be willing to "fight" on your behalf.

- Have a Story to Tell: What are "you" doing to take ownership of your risk management program? Safety programs? Why are you a good risk?

- Face-to-Face Meetings: Be willing to meet with not only your broker but your underwriter that is representing your insurance carrier. Hearing a CFO tell the company’s story about its risks and what’s being done to mitigate them is music to an insurer’s ears.

- Be Prepared for Underwriter Push Back: What if the insurance carrier is asking to raise property values? Have a strategy in place!

- Be Open to Change: Changing insurance carriers and brokers is not a bad thing.

- Alternative Risk Transfer Mechanisms: High Deductibles, Captives, and Self-Inusring.

Enjoy the NCAA tournament! Have a plan and be willing to change the plan during the renewal process!

KENTUCKY WORKERS COMPENSATION RULES FOR OUT-OF STATE EMPLOYERS

We get asked this question quite often by our clients that are domiciled in Ohio: Since we purchase our worker's compensation through the Ohio BWC, why would we need to purchase Kentucky worker's compensation if we cross "the river"?

According to the Ohio BWC, Ohio employers with employees working out of state must comply with the other state’s workers’ compensation laws. This even includes sales people making outside sales calls or deliveries being made. Kentucky requires all out-of-state employees working in the state, regardless of the time spent in the state, and coverage in the employees’ home state to obtain coverage through Kentucky's workers compensation system or a private insurance carrier.

Furthermore, according to Kentucky's Workers Compensation Act an Ohio employer performing work (even temporary) in Kentucky must have a separate insurance policy. Coverage must be afforded by an approved carrier providing benefits in accordance with the Kentucky Workers’ Compensation Act. Kentucky does not accept the Form C-110s filed by Ohio employees as these are not enforceable by Kentucky courts. Any worker injured in this state has the right to file a claim for benefits under terms of our law.

As an Ohio employer, what if I do not comply?

There no grace period for Ohio Employers to work in Kentucky under Ohio Workers Compensation, but that Ohio Employers are also open to a fine for not obtaining Kentucky Workers Compensation coverage beginning with the first day they have employees working in Kentucky. The statutory fine is not less than $100.00 or more than $1,000 per occurrence; with an occurrence being defined as each employee and each day worked by that employee. This means that if you have five employees working in Kentucky without Kentucky Workers Compensation coverage you are subject to five separate violations and fines.

Contact us if you need help becoming compliant.

Sources: www.labor.ky.gov, www.ohiobwc.com, & www.aci-construction.com

Product Recall - A Tricky Coverage

Some of the most expensive claims in the marketplace today evolve around Product Recall, and often become high profile issues in the United States. Many companies face the concern and critical question: Do I have coverage for "this"? The answer to that question is - maybe!

If your company has a General Liability policy in place it provides coverage for bodily injury, which would include consumer sickness, injury, or death. On the contrary, this coverage is not always an appropriate level of coverage for a company because it does not extend to financial losses to the company (1st Party) or the company that sold the final product (3rd Party).

What coverage should we have if General Liability is not enough?

Product Recall Insurance will provide coverage in the event of any of the company's (1st Party) products are recalled. Coverages under these types of policies are suppose to include expenses incurred in the recall event and liability to the 3rd Party - expenses, loss of income, and/or reputational damages. Ideally Product Recall Insurance should respond to both voluntary and involuntary recalls, but some insurance carriers will require the recall to be "mandatory". The reality is the federal government never formally requires anybody to recall a product because they have gotten companies to do it voluntarily. Therefore, it is important to understand what "triggers" the insurance policy - make sure your broker outlines this for you.

The two major components to Product Recall Insurance are: 1st Party and 3rd Party.

1st Party = Your Company. This will include the costs that your company directly incurs:

- Cost to notify customers of the recall
- Shipping and disposing of the recalled product
- Costs associated with replacing the product (not the product itself though)
- Expenses that are related to contract with the 3rd Party

3rd Party = Company that sells the final product (Distributors, Wholesalers, or Supermarkets). This will include the damages to the 3rd Party's product, reputation, and loss of business income.

Another major component of Product Recall Insurance is: Crisis Management.

There is normally a set sub-limit that the insurance carrier sets aside that will cover the PR and other expenses incurred in addressing a recall event. It will also help with the expenses the company (1st Party) incurs to restore is reputation.

An often forgotten coverage that may become relevant in a recall event is Director's & Officer's Liability (D&O). What if a claim is presented by shareholders, investors, or officers of the company (1st Party) for the financial loss incurred due to the recall event?

When analyzing Product Recall Insurance and D&O coverages remember that not all insurance carriers provide the same policy language. Exclusions, Claim Triggers, and Endorsements are often times different from one insurance carrier to the next; therefore, buying the policy with the "cheapest" premium and the "lowest" deductible may turn out to be a waste of time and resources.

Sandy Reaffirms Need for Business Interruption Insurance

“Superstorm Sandy” ravaged the East Coast in late October, causing billions of dollars in damage. Hundreds of thousands were without power for more than a week. Looting, price gouging and gas rationing took its toll, and businesses suffered. Many in the northeast also suffered significant commercial flood damage as a result of the storm, temporarily putting millions out of work. Traditional property insurance policies do not cover loss of income due to events like Sandy, highlighting the importance of having a business interruption insurance policy.


Business interruption insurance provides:

• Compensation for lost income if your company has to vacate its premises as a result of disaster-related damage covered under a property insurance policy

• Compensation for the profits that would have been earned based on previous financial records, had the disaster not occurred

• Compensation for operating expenses, such as utilities, that must be paid even though business temporarily ceased

• Compensation for expenses of operating in a temporary location while repairs to the permanent location are completed

Business interruption insurance cannot be purchased on its own—it must be added to a property insurance policy or included in a business owner’s insurance policy. Policy limits should be sufficient enough to cover a large amount of time to rebuild the permanent business space. Generally the business must be closed for several days before coverage begins, and it does not pay for those days retroactively. Price of coverage depends on the risk of disaster to the premises. This may depend on the business location, nature of the business and how easily the business could function at an alternate location on a temporary basis.

Claims from business interruption losses alone could reach $15 billion once all is said and done, pushing the total estimated economic cost of Sandy past $80 billion.

You can never predict if a disaster will cripple your business, which makes business interruption insurance a must. A business continuity plan should also be in place to get your business up and running as quick as possible following an interruption.

The Hidden Fleet

Does your organization operate a “Hidden Fleet?”

Many companies operate a “hidden fleet.” A lot of companies make the statement that “we don’t have a fleet of vehicles.” However, employees could be driving a lot more often than otherwise thought.

The hidden fleet can be:

- Part‐time help running errands in their personal vehicles.
- Home health personnel using their personal vehicle to visit customers.
- Employees take the mail to the post office.

The “hidden fleet” can also be:

- Created whenever an employee takes a personal vehicle on a company trip.
- Whenever an employee uses their personal vehicle on company business, on a regular basis.
- Whenever a maintenance employee regularly uses their personal vehicle to pick up supplies.

The “hidden fleet” can also be any incidental trips your employees take for company business. Remember the “every once in a while” trips.

What to do:

- Survey your organization for employees that “drive for the company.”
- Survey your organization for employees that use their personal vehicles for company business.
- Survey your organization for “trips” that people take, for the company.

Provide training

- Employees that drive must have routine defensive driving training.
- Make safe driving a routine safety training topic.
- Consider providing training for everyone that drives in your company.

Make Policy

- Require employees to wear their seat belts when they’re driving on company business, even in their personal vehicles.
- Require signed policy regarding seat belts and safe driving rules.

Inspect Vehicles

- Verify that vehicles are safe to drive.
- Provide checklists and resources for employees that drive their personal vehicles for company business.
- For employees that can’t afford repairs to their personal vehicles, consider making funds available to assist them in maintaining a safe vehicle for company use.

Non-Owned Vehicle Requirements

Employees driving personal cars for company business must meet the following requirements:

- MVR checked pre-hire and annually
- Classify the employee’s personal policies as ‘Business Use’ policies
- Name (Your Company Name) as an ‘Additional Insured’ on personal auto insurance policy
- Have minimum limits of $300,000
- Provide Certificates of Insurance to management on an annual basis

Cyber Liability - What does it mean?

As you know over the past 10 years there has been a shift from "bricks and mortars" to "clicks and orders". Everyone (at least is seems that way) has access to the Internet and every company has a web presence.

As technology becomes increasingly important for successful business operations, the value of a strong Cyber Liability Insurance policy will only continue to grow. The continued rise in the amount of information stored and transferred electronically has resulted in a remarkable increase in the potential exposures facing businesses. In an age where a stolen laptop or hacked account can instantly compromise the personal data of thousands of customers, or an ill-advised post on a social media site can be read by hundreds in a matter of minutes, protecting yourself from cyber liability is just as important as some of the more traditional exposures businesses account for in their general commercial liability policies.

Unfortunately the common "general liability" policies do not account for cyber liabilities in a time when data theft is commonplace and there is an increasing number of intellectual property liability claims.

Cybersecurity attacks and incidents can vary widely, including theft of financial assets, intellectual property, and sensitive information belonging to clients and customers. Repercussions of these attacks and incidents can include remediation costs, disruption of operations, increased litigation, increased cyber protection costs, and reputational damage.
 
What are the economic threats that "your" company faces within the cyber world?:

Data breaches – Increased government regulations have placed more responsibility on companies to protect clients’ personal information. In the event of a breech, notification of the affected parties is now required by law. This will add to costs that will also include security fixes, identity theft protection for the affected and protection from possible legal action. While companies operating online are at a heightened risk, even companies that don’t transmit personal data over the Internet, but still store it in electronic form, could be susceptible to breaches through data lost to unauthorized employee access or hardware theft.

Claim Example: A hacker successfully obtains sensitive personal information from a company’s computer system. As a result, a number of customers bring a claim against
the company for allowing access to their personal information.

Intellectual property rights – Your company’s online presence, whether it be through a corporate website, blogs or social media, opens you up to some of the same exposures faced by publishers. This can include libel, copyright or trademark infringement and defamation, among other things.

Claim Example: A lawsuit is brought against a mutual fund manager by a competitor alleging that their online marketing content and product branding have been plagiarized and their trademarks infringed upon.

Damages to a third-party system – If an email sent from your server has a virus that crashes the system of a customer, or the software your company distributes fails, resulting in a loss for a third party, you could be held liable for the damages.

Claim Example: An employee of a company sends a "seasons greeting" email to a client, but the email had a virus implanted in the email. Once the client opens the email his or her entire company's network crashes resulting system failures, loss of income, and hardware replacement.

System Failure – A natural disaster, malicious activity or fire could all cause physical damages that could result in data or code loss. While the physical damages to your system hardware would be covered under you existing business liability policy, data or code loss due to the incident would not be.

Claim Example: A manufacturer experiences a small fire loss to its server room. The property policy responded to the physical loss of the servers, but there was unique software and code that was used during the manufacturing process. The loss of the software and code resulted in a stoppage of manufacturing for an extended amount of time.

Cyber Extortion – Hackers can hijack websites, networks and stored data, denying access to you or your customers. They often demand money to restore your systems to working order. This can cause a temporary loss of revenue plus generate costs associated with paying the hacker’s demands or rebuilding if damage is done.

Claim Example: An organized crime ring gains unauthorized access to a company's transactional system, obtaining customer account information and authorization codes. They demand funds to stop the release of the data.

Business Interruption – If your primary business operations require the use of computer systems, a disaster that cripples your ability to transmit data could cause you, or a third party that depends on your services, to lose potential revenue. From a server failure to a data breach, such an incident can affect your day to day operations. Time and resources that normally would have gone elsewhere will need to be directed towards the problem which could result in further losses. This is especially important as denial of service attacks by hackers have been on the rise. Such attacks block access to certain websites by ether rerouting traffic to a different site or overloading an organizations server.

Claim Example: A retail’s server is infected by a severe virus, and as a result their website is not available to customers for an extended period.

Why Cyber Liability Insurance?

A traditional business liability policy is extremely unlikely to protect against most cyber exposures. Standard commercial policies are written to insure against injury or physical loss and will do little, if anything, to shield you from electronic damages and the associated costs they may incur. Exposures are vast, ranging from the content you put on your website to stored customer data. Awareness of the potential cyber liabilities your company faces is essential to managing risk through proper coverage.

Cyber Liability Insurance is specifically designed to address the risks that come with using modern technology; risks that other types of business liability coverage simply won’t. The level of coverage your business needs is based on your individual operations and can vary depending on your range of exposure. It is important to work with a broker that can identify your areas of risk so a policy can be tailored to fit your unique situation.

Top 10 Threats to Small & Mid-Sized Businesses

Optimism is the fuel that drives the entrepreneurial spirit, so it isn’t surprising that most business owners consider themselves optimists. Too much optimism, however, can get a business into trouble. A business plan built solely on the “best case scenario” is like a house of cards—one gust of wind (or fire or wrongful termination lawsuit) and the entire business can come crashing down. That’s why businesses temper their innate optimism with a healthy dose of reality. In other words, they learn to manage risk.


The first step in implementing a comprehensive risk management plan is identifying potential risks. To help you get started, we have provided a list of the top 10 threats facing small to mid-sized business owners. As you read through the list, consider the unique risks facing your business and ask yourself whether those risks are being managed effectively.

1. Protecting your Property

Property holdings are often business' largest asset. Therefore, for the long-term security of your business, it is vital that you evaluate potential threats to your property and develop a plan to manage those threats. Begin by taking a complete inventory of all your assets to determine how a loss might affect your business and how much coverage you need. Property coverage can come in many forms to suit your specific needs, but a typical policy will provide the replacement cost value for your building and the actual cash value for your business property.

You have a lot weighing on your budget already, but don’t make the mistake of planning for the “best case scenario” when it comes to your property coverage. Leaving your small business underinsured is a risk too great to take.

2. Business Interruption

The U.S. Department of Labor estimates that more than 40 percent of businesses never reopen following a disaster such as a fire or flood. Is your business prepared to weather the storm if disaster strikes? If a fire causes your facility to be temporarily unusable, what would you do? Ideally, you would move to a temporary location while your permanent place of business is being repaired, but traditional Property Insurance does not cover this move or the loss of income while the permanent business location is being repaired (unless you have the proper Business Income and Extra Expense coverages/limits). Ill-prepared businesses are often forced to completely shut down operations during repair, which can do irreparable damage to their brand and leave employees without work for extended periods of time. Business Income is invaluable, though often overlooked, coverage that safeguards your business by covering operating expenses and lost income while the permanent business location is being repaired. This will allow you to maintain payroll and, if needed, reallocate current employees to help with the cleanup effort. Insulate.


3. Liability Losses

No matter how well you plan, running a business can be fraught with unexpected surprises—the only way to completely avoid liability is to shutter your business. Smart businesses do the next best thing: protect their assets by carrying adequate Commercial General Liability (CGL) Insurance coverage. CGL policies provide coverage for claims of bodily injury or other physical injury, personal injury (libel or slander), advertising injury and property damage as a result of your products, premises or operations. A CGL policy with adequate coverage limits enables you to continue normal operations while dealing with real or fraudulent claims of negligence or wrongdoing, and also provides coverage for the cost of defending and settling claims.

4. Key Person Losses

Many small businesses are built around the talents and expertise of a few individuals. If an employee crucial to the functioning of your business departs unexpectedly due to death or injury, would day-to-day operations continue as usual or would disorder and uncertainty ensue? Would you be able to maintain your current level of performance and current revenue stream? How would you cover for the financial loss of the employee or pay for a temporary replacement during his or her recovery? Key Person Insurance can help you answer these questions with confidence. This coverage is designed to provide financial stability in a time of stress and uncertainty, allowing you to keep your business moving forward without missing a beat.

5. Injuries to Employees

Businesses have the responsibility to indemnify workers who are injured or become ill during the course of their employment. Many businesses do not realize the full effect workplace accidents have on their organization. Beyond initial treatment costs and lost production time, on-the-job injuries have an impact on insurance premiums, which can increase your costs for years to come. Thankfully, by managing exposures and promoting safety, it is possible to control workers’ compensation premiums. Having the proper pre- and post-accident procedures in place can drastically reduce the severity of a workers’ compensation claim, and implementing a comprehensive safety program can reduce the accident rate. Together, these two steps can produce tremendous long-term savings.

6. Managing Electronic Data and Computer Resources

Some businesses often lack a formal IT department or even rudimentary internet security measures, which leaves them vulnerable to unscrupulous cybercriminals searching for an easy target. With an estimated liability of more than $200 per compromised record (multiplied by hundreds or thousands of customer records), the cost of a single data breach incident can be devastating for a business. If your business stores customer records electronically, it is crucial that you have robust security measures in place. In addition to taking preventative measure to reduce Internet-based exposures, specialized technology coverage, such as Cyber Liability Insurance, can help protect your business against damage from cyber attacks, data breaches and other Internet-based exposures.

7. Environmental Exposures

Think of a business with significant environmental exposures. What comes to mind? Most people think of a large manufacturing, mining or petroleum operation, but these are not the only industries at risk for environmental liability losses. It is important to perform a comprehensive risk analysis to determine your own level of exposure. Keep in mind that because most commercial insurance policies contain pollution exclusions, unless you carry Environmental Insurance, you may be uninsured against significant environmental loss exposures.


8. Employment Practices

From the moment you begin the pre-hiring process until the final goodbyes at the exit interview, you are at risk for a lawsuit. In fact, three out of five employers will be sued by a prospective, current or former employee while they are in business. Although many lawsuits are groundless, defending against them is costly and time-consuming. Your business should take a hard look at whether it can afford to defend itself against accusations of wrongful employment practices. If not, there is an insurance solution called Employment Practices Liability that will protect your company against wrongful termination, discrimination (age, sex, race, disability, etc.) or sexual harassment lawsuits.

9. Contracts

 In many cases, businesses become saddled with large additional risks, accepted via risk transfer from savvy suppliers or customers. While it’s tempting to shave costs by skimping on legal fees, making sure your business isn’t accepting additional and unnecessary risk can save you a lot of money over the long haul, both in legal costs and in insurance coverages.

10. Manage Your Supply Chain

Do you rely on one or more third-party suppliers to produce certain components used in your products? If you do, a disaster that interrupts your supplier’s regular business operations could have a crippling effect on your production abilities. Although you should always try to minimize potential liability through contingency planning and other risk management techniques, as supply chains grow across the globe, sometimes there is little you can do about the exposures faced by your suppliers. In a perfect world you could simply avoid doing business with companies that present numerous risks or that are unwilling to conform to your standards, but pricing constraints and niche markets limit the number of potential suppliers to choose from. Supply chain insurance is meant to cover losses you incur as a result of an interruption to your supply chain. Such coverage allows you to work confidently with suppliers who face exposures beyond your control.

Other items to consider

- Do you have employees that travel outside the USA?
- Do you have a board of directors?
- Do you have fiduciary responsibility with respect to your company sponsored health and/or 401k plans?
- Does your company give advice and/or conduct design work?

Insurance is a key component of any comprehensive risk management plan, but successful risk management also involves prevention, training and contingency planning.