Workers’ compensation claims and insurance are not things an employer can leave to chance. The company’s managers need to actively work to manage the direct costs of workers’ compensation insurance, as well as indirect costs from lost productivity.

Brian Chance, vice president, Claim Services, at ECBM, says workers’ compensation insurance cost is based on a fairly strict pricing model that is heavily regulated by states. An employer’s actual claim expenses play a large role in the calculations that are done in order to price their insurance.

“An employer’s workers’ compensation claim experience has a direct impact on the cost of workers’ compensation insurance,” he says. “Larger employers may be self-insured to some extent and pay every dollar of their claims, and therefore, time and energy should be spent to reduce claim costs. Each dollar saved could be their own or will reduce the impact the claim will have on their insurance pricing.”

Smart Business spoke with Chance about the best techniques for managing workers’ compensation.

Are there certain industries where managing workers’ compensation is more critical than others?

All employers are subject to the same insurance pricing model, and therefore, all employers benefit from managing their claims. However, in certain industries — especially construction — a company’s claim experience may be reviewed in order to qualify it for contracts. Companies with worse than average claim experience may find themselves precluded from bidding on certain projects. Consequently, employers that ignore their workers’ compensation claims will spend money they would otherwise be saving, and some may find they are precluded from working.

If a company doesn’t effectively manage its workers’ compensation claims, what can be problematic?

The direct impact of not managing workers’ compensation claims is an increase in insurance costs or the out-of-pocket expenses paid by larger employers. However, there are many indirect costs employers suffer when an employee is injured. Studies have shown that for every dollar paid for a claim, the employer suffers $5 in indirect costs. Some of these costs are lost productivity due to the missing employee, the cost of errors or rework caused by inexperienced replacement employees, and poor employee morale.

Another misstep is that many employers assume that their role in the claims process ends after they report a claim. Employers that take a proactive role in managing their claims and the actions taken by their insurance carriers see lower costs as a result. Employers should have an ongoing dialogue with their injured employees and their insurance carrier in order to ensure that all steps are being taken to facilitate a return to work and reduced costs.

What are some best practices to use when managing claims?

The first thing you, as an employer, can do is report employee injuries as quickly as possible after an injury. Injuries reported more than three days after they occur cost more for each day the report is delayed. When you ignore an employee’s injury, the employee might find his or her way to an attorney and feel as though you are trying to avoid responsibility for the injury.

You also should return injured employees to work as quickly as possible by utilizing a transitional duty return-to-work program. Employees working in a modified duty capacity tend to heal faster, return to full duty quicker and are less inclined to use their claim as a way to punish their employer.

Additionally, you should identify local medical providers to treat your injured employees. Medical provider partners are most important to the ultimate cost of the claim because they determine the need for treatment and the extent of the disability. Medical providers who specialize in occupational injuries and understand your transitional duty program are critical to your ability to manage your claim costs.

Are certain areas within workers’ compensation becoming more critical to monitor?

Yes. As all employers know, the cost of medical insurance goes up every year due to inflation. That same inflation impacts workers’ compensation treatment costs, as well. Therefore, it is critical for employers to partner with providers that offer high-quality care at a discount. Employers with transitional duty return-to-work programs enjoy lower medical treatment costs on their claims because employees who are working tend to seek less medical treatment.

In addition, the U.S. government has spent a great deal of time and money in order to protect the interests of the Medicare system. Claims involving Medicare beneficiaries must be handled properly; otherwise, the employer and its insurance carrier could be subjected to extraordinary fines and penalties.

Once you put management techniques in place, how should you measure their effectiveness and then adjust accordingly?

Once you, as an employer, begin to manage your claims, you should see a reduction in the number of lost workdays you record on your Occupational Safety and Health Administration log. You will also observe a reduction in the payments being made on your claims and have fewer employees out of work.

Brian Chance is a vice president, Claim Services, at ECBM. Reach him at (610) 668-7100 or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

Published in National

Indemnity clauses are included in contracts to provide a means by which the contracting parties can shift the responsibility of risk.

“Indemnity clauses can expand, limit or even eliminate the obligations of one party to another with regard to property damage, personal injury and contractual obligations,” says Paula Devaney, Director, Claims Services, at ECBM. “Indemnity clauses are drafted in order to establish the terms and conditions upon which one party can shift risk associated with the performance of the contract.”

Smart Business spoke with Devaney about how to make indemnity clauses work for you, shifting risk away from your business.

What’s an example of how indemnity clauses work?

Here’s an example: Company A owns a building and retains Company B to complete parking lot repairs. As a result of the activities of Company B, a visitor to the building falls and sustains an injury. The visitor files a claim for damages against Company A. Pursuant to the indemnity clause in the contract, Company A demands that Company B respond to the claim since it arose out of their operations. If the contract did not include a properly drafted indemnity clause, Company A would have to bear the risk and costs of resolving the claim on their own behalf.

Do indemnification or insurance provisions apply first?

Indemnification provisions are evaluated first, as these clauses establish the parameters that will govern the risk being shifted. Insurance provisions are then evaluated to determine if the circumstances of the claim or demand will fit within the purview of the insurance coverage requested to be purchased. Not all of the risk that is shifted by an indemnity clause is or can be covered by insurance.

Both indemnity clauses and insurance are risk transfer vehicles. In a contractual relationship where an indemnity agreement exists, the parties will also include insurance language to support the indemnity. In the insurance world, the indemnity clause is commonly referred to as the ‘belt’ and the insurance provisions are referred to as the ‘suspenders.’

If the indemnity clause and insurance provisions are successfully drafted and implemented, the insurance purchased by the indemnitor will provide the indemnitee with a certain level of comfort that there is a means by which the indemnitor will be in a position to pay for the risk that has been shifted to them.

How does the language of the indemnity clause affect the end result? 

Language that must be thoroughly evaluated is anything in the clause that establishes very broad terms of the risk being transferred. Both parties who are depending on the viability of an indemnity clause should draft indemnity language that is specific to their relationship, complies with the jurisdiction in which the clause will be interpreted and clearly, or as best as possible, defines the proposed intent of both parties entering into the agreement. Effective communication is paramount to ensure that intent is clearly understood.

What must you include when creating a contract’s indemnity clause to provide the most protection for your company?

One way to establish a high level of clarity is to include or create definitions of key terms in the indemnity clause. Terms such as claim, damages and contractor/vendor conduct can be included in a definitions section of the contract so that there is little to question as to what type of act constitutes a breach, what constitutes a claim and what damages are subject to indemnification. Simplifying and defining the terms can allow a more clear and concise interpretation of the indemnity clause against the circumstances giving rise to the demand for indemnity.

The identification of the parties to be indemnified is also crucial. The party potentially granting indemnity will wish to limit the parties to be indemnified, whereas the party requesting indemnity will seek to expand or broaden the list of potential indemnitees.

The duty to defend and associated costs must be clearly established and can also include issues such as which party controls and/or must consent to defense, the degree to which one party must consent to settlement and the remedies available if there is a refusal to defend an indemnified claim.

Other factors to be addressed are:

  • Losses/damages or limitations on types of damages. Issues such as attorney’s fees must be included as a recoverable cost, while consequential damages should be contemplated along with fines and penalties.

  • The period of time in which an indemnity clause survives the contract.

  • Including and/or defining the type of event that can trigger the obligation to indemnify.

  • Insurance procurement. The indemnity clause in a contract should not rely on the viability of the entity granting the indemnity. If the indemnitor goes out of business, their insurance may still be in effect.

When your business is signing a contract that includes indemnity clauses, what should you watch out for?

It is crucial for both parties to read the contract, and specifically the indemnity provisions, carefully. Every indemnity clause is different. There is nothing standard, and many times nothing fair, about an indemnity clause. If you do not read the clause and carefully consider the implications, you can be accepting a tremendous amount of risk you never intended to undertake.

The indemnity clause should be drafted in a manner that carefully considers the intent of both parties. When negotiating indemnity provisions, you may win some battles and lose others. However, with effective communication between both parties and effective review of the contract by legal counsel and, just as importantly, your insurance broker, the intent of the contract will at least be understood. Therefore, you can enter the contractual relationship with an understanding of the risks and liabilities.

Paula Devaney is a Director, Claims Services, at ECBM. Reach her at (610) 668-7100, ext. 1216, or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

Published in Philadelphia

Certificates of insurance play an important function in doing business. Companies need a certificate to get work. A contractor needs one to get onto a jobsite. A trucker needs one to be able to pull up to deliver a load of cargo. A real estate company needs a certificate of insurance to go to settlement to buy a new building.

“It is the lifeblood of industry from an insurance standpoint,” says Joyce Shefsky, vice president, client services at ECBM. “There are so many issues involved with certificates, it can be a time-consuming and difficult process to get them issued and accepted.”

For example, a bank or general contractor will thoroughly examine a certificate of insurance to make sure everything is in compliance with the contract requirements, she says. If it isn’t, the insured could be held in breach of contract, or business could be delayed while the certificates are amended.

Smart Business spoke with Shefsky about the role that certificates of insurance play in doing business and how to properly use them.

What is a certificate of insurance and what should be included on it?

A certificate of insurance is evidence that certain insurance coverage is in existence as of the date the certificate is issued. It shows the insurance carrier providing coverage, the effective and expiration dates, policy numbers and limits of insurance.

Certificates of insurance are usually issued in conjunction with a contractual relationship between a third party and the named insured on the insurance policy. The contract typically stipulates the coverage and limits required.

It should include:

  • Current policy information (limits of insurance, policy term, etc.)

  • Name of the insurance carrier and the NAIC number

  • Signature of agent

  • Correct name and mailing address of certificate holder

If additional insured status or waiver of subrogation is required, a copy of the endorsement to the policy should be included.

Certificates of insurances are very critical to the construction industry, although other industries depend on them, as well. Often, it is the last thing businesses deal with, and it can be very costly if the insurance requested is not what the named insured has purchased. For example, a company will bid on a construction contract and not bother looking at any of the insurance requirements. Then, when it gets a job, all of a sudden it has to purchase more coverage, and its profit decreases or it is held in breach of contract.

When employers receive certificates of insurance, how should they review them?

The contractually required insurance, amounts, types of coverage and endorsements should be compared to the certificate provided. A procedure also should be in place to verify receipt of renewal certificates when the policies expire. In addition, a system to manage storage of the certificates is crucial; at the time of a loss, it is critical that the insurance certificate be available.

When requested to provide a certificate:

  • Verify that your current coverage meets or exceeds the required insurance; this must include all endorsements requested.

  • Always have your insurance consultant review the insurance requirements prior to signing a contract.

  • Realize that adding additional insured status means you are sharing your limits with the additional insured, and you may want to consider purchasing higher limits to protect yourself.

What incorrect assumptions do employers make about certificates of insurance?

Some business owners mistakenly assume that certificates of insurance are binding. They might wrongly believe that just because a certificate has been issued to them that they are covered for any loss. Finally, all additional insured endorsements are not the same. Each is issued for a specific purpose, and the preparer of the contract must be specific as to the form of additional insured required.

How do subcontractors and policy renewals play into certificates of insurance?

When you hire a subcontractor to do work for you, request that a certificate of insurance be provided prior to the start of work. It is very important that the contractual agreement contain all of the indemnity and insurance requirements that are required in your contract with the owner or general contractor.

For policy renewals, a system needs to be in place to follow up for renewal certificates. The certificates need to be reviewed for compliance with your contract.

How have states taken legislative and/or regulatory action to address issues pertaining to certificates of insurance?

Often, insurance agents are asked to amend the Acord certificate form. It is copyright infringement to change the wording on the form. The wording that is printed on the form cannot be amended. There is legislation in most states forbidding an insurance agent to amend coverage by issuing a certificate. The policy must be endorsed for coverage to apply.

No business owner wants to be held in breach of contract because of a problem with the certificate of insurance. It also can slow business down — a job may not start, cargo may not get off a truck or a building owner cannot go to settlement. Therefore, take the time to ensure that everything is in order and properly reviewed to keep your business moving.

Joyce Shefsky is a vice president, client services at ECBM. Reach her at (610) 664-8299, ext. 1205, or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

Published in Philadelphia

Today it is standard practice for building owners and developers to require evidence of commercial general liability insurance from contractors that are doing construction work for them. This insurance coverage provides protection for bodily injury claims arising out of injuries at a job site, says Philip Glick, a senior vice president at ECBM Insurance Brokers & Consultants.

“It also covers claims due to physical damage to the construction site or adjacent property that may occur as a result of a negligent act by a contractor or subcontractor,” says Glick.

Smart Business spoke with Glick about how the right insurance can protect you against contractors’ errors and omissions.

Why isn’t general liability insurance coverage enough?

We are seeing an increasing number of claims arising out of negligent work by contractors that are not insured under their general liability policy. Examples include a pure economic loss the owner suffers as a result of negligent acts by the contractor but where the claim does not arise out of bodily injury or property damage liability. Such economic loss could include cost overruns as a result of the general contractor’s or construction manager’s failure to properly bid subcontracted work, or to manage the overall project costs, especially if the project is on a cost-plus basis.

Another example would be a loss suffered by a business owner or tenant as a result of construction delays, or a loss incurred by a retailer that was counting on occupancy prior to the Christmas shopping season but the space is not completed until January.

Almost all contractor’s and construction manager’s general liability policies contain an exclusion of bodily injury and property damage claims arising out of the rendering or failure to render professional services. Examples are negligence in the hiring or supervising of architects or engineers, or preparing or approving maps, shop drawings, surveys or drawings but where the loss is not directly caused by the contractor’s construction work.

How can a building owner or developer cover against these uninsured risks?

The solution is for the building owner to require the general contractor or construction manager to purchase contractor’s/construction manager’s professional liability insurance as a part of the contractor’s insurance. This is specifically designed to provide protection for economic losses incurred by an owner or another third party due to negligent scheduling, purchasing, cost overruns and delay costs described before caused by the construction manager’s or general contractor’s negligent acts. This coverage can also insure property damage and bodily injury liability claims arising out of a contractor’s professional errors.

What major exclusions or coverage gaps may be included in professional liability coverage?

Contractor’s professional liability insurance is not intended to cover contractual guarantees or warrantees made by the general contractor or the construction manager. If a contractor guarantees a project will be completed by a specific date, that the cost of the project will be no more than a specific amount, or that a project will perfectly meet the needs of the owner or tenants and then fails to meet those guarantees, these events will not be covered under the contractor’s professional liability policy. However, if these events were caused by the negligent acts or omissions of the contractor, the insurance would apply.

Contractor’s professional liability insurance typically does not include coverage for claims arising out of professional negligence of employees of the contractor or construction manager who are performing architectural or engineering work. Separate architect’s or engineer’s professional liability insurance is typically needed to cover these professional services. Some contractor’s professional liability policies can, however, be endorsed to cover these additional professional services.

Contractor’s professional liability insurance almost always excludes claims brought by one insured person or entity against another insured person or entity under the policy. An owner may, as an example, request they be added to the contractor’s professional liability policy as an additional insured similar to the requirement to be added to the contractor’s general liability policy. Unfortunately, if the owner is added as an additional insured, there is no coverage for a claim brought against the general contractor or construction manager. A solution may be to amend the insured versus insured exclusion so it does not apply to the owner or developer as an additional insured.

What else does this insurance not cover?

Contractor’s professional liability insurance also does not cover claims arising out of faulty workmanship. This includes the cost to replace faulty materials that have been used.Coverage for faulty workmanship or warranty repairs can be covered under a separate contractor’s performance bond.

General contractor’s and construction manager’s professional liability policies are almost always written on a ‘claims-made’ basis in contrast to the contractor’s general liability policies, which are typically written on an occurrence bases. Under a claims-made professional liability policy, there is only coverage for a lawsuit or claim filed by the owner against a contractor for negligent work if the contractor or construction manager has a policy still in force when the claim is brought, as opposed to when the negligent work was performed or when bodily injury or property damage took place.

One solution is for the owner to require the contractor to continue to renew its professional liability policy for a minimum period in the future after the work is completed, typically two to three years. Another requirement could be to specify that the contractor must purchase a ‘tail’ or extended reporting option that provides a 12- to 24-month extended reporting period for a claim to be filed arising from prior work, if the contractor should nonrenew his policy in the future.

Philip Glick is a senior vice president with ECBM Insurance Brokers & Consultants. Reach him at (610) 668-7100, ext. 1310, or

Insights Risk Management is brought to you by ECBM Insurance Brokers & Consultants

Published in Philadelphia

The laws, technology and science regarding your business’s exposure to cyber liability are evolving rapidly. Privacy breach laws passed in other states may apply to your company if you’re a downstream service provider, or your business could fall under federal requirements for protecting personal identifiable information. And with stricter rules in place for consumer privacy, a breach could cost you and your company far more than damage to your reputation, says James Misselwitz, CPCU, vice president for ECBM.

“The average cost to notify a record holder of a breach is now $350,” says Misselwitz. “Part of the restoration costs can require continued monitoring and biennial privacy audits for as long as 20 years, in some cases.”

In the health care and financial services industries, the average breach costs more than $2.4 million, according to Net Diligence.

Smart Business spoke with Misselwitz about what steps employers can take to decrease exposure to cyber liability.

What is cyber liability?

Cyber liability exists because companies collect, store and share information about consumers. The Federal Trade Commission has been charged with safeguarding privacy for consumers. As a result, there is an emerging group of federal regulations in the form of laws such as the Gramm-Leach-Bliley Act, HITECH Act and Health Insurance Portability and Accountability Act, along with guidance from the Securities and Exchange Commission for publicly traded companies that force disclosure on their 10Q reports.

In addition, most states now have passed their own version of privacy breach laws; only Alabama, Kentucky, New Mexico and South Dakota do not have laws on the books. Of these, the biggest game changer came from Massachusetts, which requires all downstream service providers to comply with its law and have a signed contract addendum certifying that they meet the requirements for all customers.

What cyber liability exposure do employers often fail to consider?

It’s obvious the financial, health care and retail segments face exposure. But when you take a closer look at cyber liability regulations, they easily encompass law offices, accountants, nonprofits and any Internet storage provider. Think about the following when trying to determine your cyber liability exposure.

  • Do you collect in your files the name, address, date of birth and Social Security number of your customers?

  • Do you have more than 500 customers with this information on file?

If so, you need to urgently consider cyber protection.

What are the particular dangers for mid-sized businesses?

Mid-sized business owners need to take steps now to create self awareness of their data. What data do you store? How many files do you have and what information is contained in those? Where and how is it stored? Do those files have back ups and who has access to the data? What controls are in place? Is the data kept on portable devices? As employers go through these questions, they start to get an understanding of what data they have and whether they could be subject to a significant breach.

Employers may believe that if they don’t do business over the Internet, there’s nothing to worry about. However, cyber liability laws cover data, not the way that data is obtained.

How can employers safeguard their businesses and prioritize the protection they put in place?

You need an assessment process to recognize potential breaches. You also can seek expert help in establishing formal polices and procedures while ensuring that portable devices are not loaded with information that would trigger a breach if lost or stolen.

However, the first basic step should be encrypting the data. Encryption is cheap, readily available and usually easy to install. It also provides a great defense.

When prioritizing protection, use a knowledgeable broker and a detailed analysis of risk to review which insurance coverage is available and at what price as an integral part of your cyber liability business strategy. At that point, you’ll need to put in place testing, an audit and a timetable to re-evaluate your exposure. The laws, the technology and the science are changing too rapidly to just buy an insurance policy and leave it alone.

What risk drivers cause business owners to obtain cyber liability coverage?

Usually it takes an event, such as a missing laptop or a disgruntled employee, to get the owner to focus on what just happened and what could have just happened. At that point, they start to think about risks and how to transfer them to an underwriter. More important, they start to consider the steps they need to take to ensure that if this event happens again, they have eliminated or significantly reduced risk.

Cyber liability insurance is at approximately 15 percent of the market and growing. Larger health care providers, credit card companies, social network providers and banks have been the first big purchasers of the coverage.

What do employers need to know about their cyber liability coverage?

You need to understand the amount of limits; how much coverage is in first-party and third-party benefits; whether the legal expense is inside or outside the limits, and does that portion of the policy have limits; and whether your lawyers, accountants and crisis management teams are acceptable to the underwriter. If you are dealing with a knowledgeable broker, these will be part of the due diligence and product design.

Although some 16 million confidential records were exposed through more than 662 security breaches in 2010, according to the Identity Theft Resource Center, if you consider your liabilities carefully you could minimize your risk of joining that number.

James Misselwitz, CPCU, is a vice president for ECBM. Reach him at (888) 313-3226, ext. 1278, or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

Published in Philadelphia

Businesses often need to evaluate where they are in order to decide where they want to go, and sometimes the best way to do that is by comparing themselves to a standard.

“In today’s world of sharing information, companies can now drill down to specific cost drivers within workers’ compensation, direct medical care, direct pharmacy source and litigation management, to name a few,” says Daniel Slezak, vice president at ECBM. “Benchmarking has proven to be a most valuable process for identifying performance improvement areas. Once the information is shared in scale, you can identify the best-performing companies, which leads to the identification and implementation of best practices.”

Smart Business spoke with Slezak about how to benchmark your risks and lower your costs as a result.

What are some risks that companies need to manage?

If you start with the premise that an organization needs the commitment of top management, other risks come into play when the doors of the business first open. Some risks to keep in mind are:

  • Employee hiring and screening practices. Without proper personnel, you cannot grow your business.
  • Safety education, orientation and training. Once you have a trusted employee base, you need to have a constantly evolving safety message.
  • Worker involvement. When you allow employees to buy in to your message and take ownership, performance improves.
  • Recognition and rewards.
  • Accident and incident investigations. When a problem occurs, you need to determine why and then take corrective measures.
  • Drug and alcohol testing can enhance your positions and mitigate ultimate cost.

Once a company has addressed these basic risks at its foundation, it can move on to more specific areas, depending on its operations. Some examples include personal protective equipment, IT backup and security, and having well-maintained vehicles.

What are the benefits to benchmarking risk management costs?

Every business faces the possibility of accidental loss of property, income, liability and injury to its employees. If you are committed to minimizing those losses, insurance brokers and risk managers have the resources to put in place a plan that will possibly engineer solutions or effectively educate employees on a strategy you can enforce. The ultimate benefits are safe, healthy employees who are more productive with their working activities.

What are some examples of best practices?

The concept of benchmarking in insurance is simple — provide guidance to a company that will be shared with management and show them that the terms of coverage and cost are reasonable relative to other similar organizations.

You also can dig into the elements that make a program successful. For example, in workers’ compensation, you need to know your medical versus indemnity split of claims. The more claims you keep as medical only, the more the total cost of claims drops. As you measure your company against others, determine what program you could have in place to achieve the best practice. Then ask if it is something that is manageable.

You also can look at the closure rate. How long are your claims staying open? Are you getting employee back to work? Best efforts are not acceptable; your company needs to strive for best practice as the goal.

By drilling down within your vendor costs, you can eliminate extra expenses by knowing best practices before implementing them. Medical bill repricing can vary greatly by vendor. As an example, a risk management consulting firm recently effected a simple change in a client’s program that is projected to save it millions of dollars, in a client’s program that is projected to save it millions of dollars, which we personally just achieved with a client.

What pitfalls do companies encounter when benchmarking?

The most critical concern is choosing the correct peer group. Your broker will align you with the same industry and company size, but the geographical footprint also needs to be considered. For example, if you have a retail operation with stores located in mostly urban areas, you can’t expect the same results as someone with a high concentration in suburban areas when it comes to general liability or workers’ compensation claims. Another pitfall is failing to engage top management. The team has to be on the same page throughout the process so that expectations are set, measured and supported in a timely fashion.

How can you compare risk management practices and costs to other similar companies?

Risk management consultants constantly use benchmarking to determine adequate limits and pricing models. The data available today allows you to determine if you are carrying adequate directors and officers limits and what terms and conditions are available. This type of measurement can be used on other lines of coverage as well. It starts with having credible information about your own company. Most actuaries want to look at 10 years if you are trying to establish your own triangle of losses for a workers’ compensation rate. However, if you have at least five years, the actuary can identify trends and cost drivers. Keep in mind that some benchmarking, such as policy terms conditions and pricing, is a snapshot view of one year comparing your company to the ‘pool’ at a point in time.

With your data in hand, contact an insurance broker. Most quality brokers have the ability to access databases, such as RIMS Benchmarking Survey, NCCI and Advisen, for comparisons. Tillinghast Towers Perrin D&O Survey is universally regarded as an excellent source of information on D&O. Then, by implementing best practices for managing risks, you can lower costs, increase productivity and make top management smile.

Daniel Slezak is a vice president for ECBM. Reach him at (610) 668-7100, ext. 1323, or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

Published in Philadelphia

After more than six years of decreasing insurance premiums and broadly available coverage, commercial insurance rates have reached bottom and are beginning to increase, while coverage terms and conditions are diminishing.

“Now is the time for business owners to focus greater attention on their property and liability insurance programs and take steps to minimize the impact of these coming changes,” says Philip Glick, senior vice president at ECBM Insurance Brokers & Consultants.

Smart Business spoke with Glick about what a tighter insurance market means and how businesses can handle these changes.

What happens when insurance premiums rise?

Historically when premiums begin to rise, coverage terms and conditions also are generally scaled back. Many of the broad coverage terms and conditions that have been readily available during the past few years are becoming more difficult to maintain.

What are other indications of a tighter market?

Many insurance companies have begun to slow down the adjusting of property insurance losses, particularly with respect to the business income portion of claims. Property claims that historically could be adjusted in three to six months are often taking more than a year to close out. Property insurance companies also are routinely bringing in forensic accounting firms to pick apart every line of income and extra expense claims, often delaying the adjusting process by as much as a year.

Insurance companies are routinely denying coverage for additional insureds under the general liability policies of those they cover. For example, there are extensive delays for landlords getting acceptance of coverage for claims filed by people injured at their tenants’ premises. This is also occurring when general contractors ask for coverage for claims by their subcontractors and property owners are seeing delays in obtaining coverage for claims filed against them from construction site injuries for work done by general contractors.

During the past several years, insurance companies have been imposing coverage restrictions. As an example, insurance companies will not  provide contractual liability coverage nor extend additional insured status to another party for the sole negligence of that other party  under the commercial general liability policies they write for contractors to extend coverage to building owners.

There’s a push for higher windstorm deductibles on property insurance coverage written for clients with properties not just on the Florida coast, but in areas 30 to 40 miles from the coast, including large parts of New Jersey, southern Connecticut and Massachusetts. They are imposing deductibles as high as 2 to 3 percent of insured building values for windstorm losses.

What can employers do to mitigate these changes to property and liability insurance?

As business owners, you can take a number of proactive steps now.

  • Take control of adjusting new property loss, including setting strict timelines and strategies soon after the loss occurs. Then closely monitor progress from the initial claim report until the final closeout and payment.
  • Demand that your vendors, contractors and suppliers provide the required additional insured coverage needed and get confirming renewal certificates of insurance. Copies of  the appropriate additional insured  endorsements should back up these certificates on the supplier’s renewal insurance policies to verify that the additional insured protection is extended to you.
  • Push back aggressively on your contractors, suppliers and vendors to be sure their insurance companies promptly accept the tender of any claims from your company under their general liability insurance policies.
  • Carefully evaluate the detailed terms and conditions of the renewal proposals for every insurance policy you purchase. In addition, scrutinize the renewal coverage provided to you by your vendors, contractors and tenants to be sure the renewal is as broad as the prior coverage you relied upon.
  • Meet early with your insurance broker or agent to get an early warning of any likely changes in coverage terms and conditions and premium increases. Also, request your renewal insurance proposals as early as possible including  getting several optional quotes for each major insurance policy to have choices available to help mitigate any rate increases of attempted coverage restrictions.
  • Get renewal proposals including higher deductibles on property coverage,  and also including optional deductible quotes on your general liability insurance renewals, as ways to reduce renewal premium increases. Likewise, get quotes with higher automobile physical damage deductibles.
  • For larger businesses, consider renewal workers’ compensation proposals that include deductibles or retrospective (cost plus) rating options if your current policy is written on a guaranteed cost basis.
  • Increase your umbrella liability, directors’ and officers’ liability and other liability policy limits now if your current coverage limits are too low. Similarly, increase your insured property and business income values to adequate amounts while you can still  negotiate reasonable property insurance renewal premiums before rates move up further.
  • Attempt to lock in renewal premiums and coverage terms and conditions now for a longer term. Many insurance companies are still willing to provide 15-month or 18-month  terms and, in some cases, even  24-month policy terms and conditions for clients with good loss experience and a strong financial position. During the past few years, many insurance buyers didn’t pursue longer-term policies believing that they could obtain lower rates on renewals as the market continued to soften.
  • Evaluate the responsiveness, scope of services, financial strength and staying power of the insurance companies and the insurance  agents or brokers you do business with. Be sure the professionals you deal with will help you implement strategies to properly protect your business through the next few years.

Philip Glick is a senior vice president with ECBM Insurance Brokers & Consultants. Reach him at (610) 668-7100, ext. 1310, or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

Published in Philadelphia

You may not have given much thought to your company’s 401(k) plan since establishing it years ago. And it is likely that you have a third party service provider, such as a bank or financial institution, doing the administrative work.

But a new ruling by the Employee Benefits Security Administration (EBSA) — which goes into effect July 1 — is forcing in-house retirement plan administrators to stand up and take notice. The new regulation, called the Final Sponsor Fee Disclosure Regulation under the Employee Retirement Income Security Act, could put your company’s plan administrators in serious financial jeopardy, says Charles Bernier, president of ECBM Insurance Brokers and Consultants.

Company plan administrators, who are fiduciaries, have always been personally liable if they do not fulfill their responsibilities. But this new rule, which aims to rein in third-party service provider fees, has the potential to bring financial calamity to plan administrators who are unaware that they, not the service provider, carry all of the liability for missteps.

“Many company plan fiduciaries — who can be the owner, a financial or human resources officer or director — don’t realize that they could lose their homes over this,” says Bernier.

Smart Business spoke with Bernier about the new rule and how to protect your company’s 401(k) plan fiduciary.

What does this new regulation say?

The Final Sponsor Fee Disclosure Regulation, or 408(b)(2), mandates full disclosure of all fees and compensation, direct and indirect, that are charged by 401(k) service providers. Prior to the regulation, the onus was on the company’s plan fiduciary, or trustee, to find out the service provider’s fees and compensation. Before, if a fiduciary didn’t ask, the service provider didn’t have to tell.

In this mandated disclosure, a service provider also has to state if it is a fiduciary for the plan, or whether it’s not. This can come as a surprise to plan administrators who may have assumed, incorrectly, that their service provider is also the fiduciary.

Do many businesses incorrectly make this assumption?

According to the Department of Labor, there are 483,000 retirement plan administrators in the U.S. Of those, 17 percent are aware that they are the fiduciary and 83 percent are not.

The problem with not knowing that you are the fiduciary of your company’s retirement plan is that you have unknowingly put your personal assets at risk. A fiduciary assumes personal liability for the responsibilities for administering the plan correctly.

A February 2008 Supreme Court ruling states: ‘Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach.’

The word ‘personal’ means just that, and there is no corporate veil in place to protect you. So, in essence, you have pledged your home. That is the dirty little secret to this deal. And ignorance is no defense in a court of law.

The responsibilities and duties of a fiduciary, among other things, include making sure that the plan is paying out only reasonable plan expenses to a service provider.

How are reasonable plan expenses defined?

The benchmark number for a plan of        100 participants with $2 million in assets is 1.32 percent. If the service provider fee is, say, 2.5 percent, the fiduciary must document and report this.

This may not seem like a lot of money, but when you consider that there are 72 million Americans in 401(k) plans, and if everyone is overpaying fees by 1 percent for 25 years, compounded, you can see that it can be very lucrative for service providers.

If a company’s plan administrator has not documented this information, he or she may be liable for those extra fees; one estimate is that this can be as high as $75,000 per employee over the life of a 401(k). Estimates are that $2.3 trillion will be put back into employees’ 401(k) as a result of this new regulation. That money must be paid back to the employee’s retirement fund. If the company’s plan administrator is also the fiduciary, that money will come out of the administrator’s own personal assets.

What can plan administrators do before July 1 to protect themselves?

First, consult with your company’s attorney to find out if you are the fiduciary of your company’s 401(k) plan. Second, get a fiduciary liability policy before the rule goes into effect July 1. These plans are typically not expensive and can cover all individuals, trustees and board members who act as fiduciaries of the company’s retirement plan.

Finally, get a new administrator for your plan that has low fees and accepts fiduciary responsibilities.

What are some key dates for the new regulation?

July 1 is the date that the service provider must disclose its fees and compensation to clients and to explain whether it is the plan’s fiduciary. These meetings between service providers and a company’s plan administrator are already taking place all over the country.

On Aug. 30, the company’s fiduciary must issue a report on a monthly basis to each of its employees about how much the service provider is taking out of each 401(k) each month in fees and other compensation. If an employee complains about this fee to the Department of Labor and asks for an audit, the fiduciary must comply and present reports about these fees for the entire life of the 401(k). And these monies will have to be put back in. And if you are the fiduciary and do not have fiduciary insurance, those funds will be taken out of your personal assets.

Charles Bernier is president of ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100 or

Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants

Published in Philadelphia

Due to the historic amount of catastrophe losses that have occurred over the past few years, the property insurance market has changed significantly. This is particularly true for businesses that have exposure to catastrophe perils such as wind, flood and earthquake.

“If you have property that has these exposures, you are going to see significant changes on your property renewal,” says Gloria D. Forbes, an executive vice president with ECBM Insurance Brokers and Consultants.

Smart Business spoke with Forbes about how to manage your property insurance through the storm.

How has the market changed?

Both insurance companies and reinsurance companies are using new catastrophe predictive models to determine their rates, as well as deductibles and capacity. Capacity is how much of their capital they can allocate for these ‘CAT’ exposures, or, more simply put, the amount of coverage that they will be able to offer in insurance limits. The latest version of the model was adopted by most insurance companies last spring and summer, so the market is still in the process of changing, with rates and deductibles increasing.

How do catastrophic losses affect the market?

Insurance companies purchase reinsurance to protect them from very large losses. We have seen some of the largest catastrophe losses in history each year since 2009. Because property reinsurance is a global market, what happens in Chile, Australia, Thailand and Europe has an impact on the American market.

So any client with property that is considered to be exposed to windstorm, flood or earthquake is going to see changes in both the rate being charged to insure those exposures and is also likely to see change in terms and conditions.

What other changes can businesses expect?

When we refer to windstorm, we are usually referencing named storms such as tropical storms and hurricanes. Traditionally, named windstorm issues were limited to coastal property, but with the new model, the area considered at risk has expanded.

Although they may not be used to seeing them, businesses may begin to see percentage deductibles for exposure to windstorms or named windstorms. Those percentage deductibles are not a percentage of the loss; they are percentages of the total value of the property. If you have a $10 million building with a 1 or 2 percent deductible, you would have a $100,000 or $200,000 deductible, respectively. In the past, you would see this in Florida and properties surrounding the Gulf of Mexico. These percentages are being used more frequently to put the insurance company further away from the loss.

We are starting to see separate named windstorm deductibles being applied for locations within a 25-mile radius of the coast, from Virginia through New England.

Also, with the rise in tornado activity, we are seeing insurance companies increase windstorm deductibles, so you might not see a percentage deductible for windstorm, but you might experience the insurance company putting a higher flat dollar deductible, say $50,000 for windstorm.

Insurance companies are also decreasing limits for wind, flood and earthquake, which is an adjustment.  In the past insurance companies would ‘throw in’ a certain amount of coverage for flood or earthquakes. Last year’s east coast earthquake impacted that. There were numerous losses as a result of that quake.

Now insurance companies are more cautious about giving away earthquake coverage.

How has the way insurance companies determine rates, premiums and deductibles changed?

There have been great advances in modeling over the last few years. The insurance companies use analytics to predict storm frequency, severity and the probable maximum loss they are exposed to, given recent events. As these models become more sophisticated, they are tracking their exposures differently than they used to.

Here’s an example: A hurricane hit the gulf and did minor damage, but it continued to bring a huge rainstorm through the central part of the U.S. Most of the damage done was inland flooding from the rainstorm activity that took place for 48 hours after the hurricane hit the coast. Now when an insurance company underwrites that hurricane exposure, it is not just looking at how it hits the coast but also at the resulting rainstorm damage that takes place afterward. In the past, that tracking capability did not exist.

Also, many insurance companies are changing their coverage to include flooding related to a named storm or hurricane as part of the damage done by the storm. Consequently, the flooding is thus subject to the higher storm/wind deductibles that apply, as opposed to being considered a separate event.

What can businesses do to reduce the possibility of suffering catastrophic losses?

Obviously, you purchase insurance on property you own to protect your financial interest, but one of the best things you can do to reduce the possibility of loss is to properly plan for disasters ahead of time. It is important to have someone who can guide you through the changing policy terms and assist you in identifying your exposure to loss.

Additionally, it is typical to have resources become overloaded in a catastrophe. So one of the keys to disaster planning is to have in place the arrangements that you need. As a result, in the event of a large disaster, you will receive quick response from restoration companies and contractors to assure that cleanup happens as quickly as possible and your property is preserved. Moisture can create a mold exposure, which is often not covered by insurance companies. Working with an experienced broker that has these relationships and can assist you at the time of loss is critical.

Gloria D. Forbes is an executive vice president with ECBM Insurance Brokers and Consultants. Reach her at (610) 668-7100 or

Published in Philadelphia

If your company experiences a loss of money, securities or assets as the result of a crime, you may think your insurance will cover the loss.

But claims for this type of loss, called a fidelity loss, are usually excluded under other policies you purchase.

“Usually, the loss results from an employee or someone in a position of trust that is responsible for the property or money being lost,” says Scott Nuelle, vice president of ECBM Insurance Brokers and Consultants. “And if you don’t have the right insurance, such a claim could threaten your business.”

Smart Business spoke with Nuelle about how fidelity losses can affect your company and how to protect yourself.

Why do companies need to be aware of fidelity losses?

Companies usually assume they have coverage somewhere for fidelity losses, and they may not realize that they don’t. Properties policies do not cover money or securities.  They also exclude coverage for theft by an employee, regardless of what the employee steals.

Many believe they don’t need the coverage because their business isn’t that big and they feel they know the people who work for them. Most larger companies understand the exposure but don’t always purchase enough limits.

How do you protect yourself against fidelity losses?

Companies should set up internal controls, as well as audit procedures. These internal controls should monitor who has access to money, checks, money orders and property. You need checks and balances built in so that one person, particularly a trusted adviser, cannot do anything without at least one other person in a position of responsibility signing off on it.

Additionally, companies should consider purchasing insurance coverage, the most common of which is a crime policy. There are industry-standard forms, but the form and coverage will vary in each individual insurance policy. These coverage forms include employee theft, forgery or alteration coverage, theft, disappearance and destruction coverage for both inside and outside the premises, computer fraud and wire transfer fraud.

Why should employers consider additional endorsements beyond their basic coverage?

A lot of the package policies people buy will have some limited crime coverage. Employers can look at it and say, ‘I have coverage,’ but the sublimits are usually pretty small. It provides minor protection against what is usually a pretty large exposure.

Even though you have coverage, if you don’t have it set up correctly with the right endorsements, you could end up in a position where you don’t have what you think you have.

Also, many companies assume that their internal controls are sufficient to ward against employee theft. But people who are motivated will find ways around internal controls, and employee theft could occur in small amounts over a period of months, or even years. When you realize that the ongoing theft by one employee becomes one occurrence, it becomes easier to understand that the loss could grow to a very large number. If one employee steals either money or property every week over a period of years, the loss could easily get into six or seven figures. There has been an uptick in these claims over the last few years and they are big losses.

What are some trouble areas where companies’ coverage may be lacking?

The standard definition of ‘employee’ in the coverage does not include subcontractors or independent contractors acting as employees. You need to rely on your broker to add that endorsement to include independent contractors as employees.

Another area where we have seen an increase is in theft of wire transfers made through your bank. There are hackers that will intercept wire transfers and redirect the money to offshore accounts. This area of theft is still emerging, and the banks may not take responsibility for all of the loss after the transaction is completed. Unless you have computer fraud coverage and wire transfer fraud as part of your coverage, you may have no recourse and no way to recoup that money.

Another recommended endorsement provides coverage for claims expenses, because when you have one of these claims, the easy part is proving that you’ve had a loss. However, you don’t recoup anything for that loss unless you can quantify it, which requires hiring investigators and forensic accountants to prove the amount of the loss. The expenses associated with hiring these types of experts and with proving your loss can be substantial.

The ERISA endorsement is another common enhancement. If you have employee benefit plans, such as 401(k) plans, you have to post bond with ERISA. Rather than posting a separate bond, you can get an ERISA endorsement added to crime coverage, which satisfies the government’s bond requirement.

How can companies ensure that they are protected from fidelity losses?

The key is having a broker who knows how to structure the coverage based on your operation at the most competitive price. Just as important, you need to deal with a broker who can put a claim together and advise you once you have a claim.

These types of claims are not like car accidents, where you can show your damaged vehicle and get it fixed. You have to know how to put the claim together, and you need to know which forensic accountants and investigators to use.

The insurance company has its own experts. It is important to have a broker who will be an advocate for you in this complicated process.

Scott Nuelle is vice president of ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100 or

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