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.