How value added services aid the insurance claim process

Value added is classically defined as the enhancement a company gives its services before offering those services to potential customers.

It is used to describe instances where the company takes a product or service that may be considered homogeneous to its industry peers, but with a few differences from its competitors, the company enhances what its customers receive.

“With us, we work to give our customers a greater sense of value when working with ECBM,” says Daniel R. Slezak, vice president at ECBM. “For example, our claims department actually reads policies — sometimes late into the night — to make the right outcome for our clients.”

Smart Business spoke with Slezak about what you need to know about the value of value added.

What exactly is value added for insurance claims?

While most brokers will say they have a claims department to assist their customers, there are wide ranging differences in how that happens.

Most agencies will ‘process’ claims. They make sure they get to the carrier for proper notice.

You get value added service, however, when a claims department takes the time to read and understand the merits of the claim being submitted. The agency takes time to read the policy and give support to the claim before it goes to the carrier, which makes your broker your advocate. That’s added value.

What’s another example of value added services and how does it help the business?

The process should help you start to understand who you are and what goals you need to achieve. Value added services go beyond the mere sale and provision of insurance to risk control services and claims management services.

The best insurance agencies will have a dedicated team that can market your needs to the insurance marketplace. Then, there should be another team of account managers who work with you on a daily basis. And if a claim should arise, a claims team springs into action.

Those three segments need to be managed by people with experience and knowledge who have a sense of pride and understanding of your business.

We all know that when a claim occurs, it’s often not limited to nine to five, Monday through Friday. How should a broker respond to a client’s needs at 3 a.m. on a holiday weekend?

This is another instance of value added. The agency needs to have a 24/7 telephone contact system for clients. When the switchboard shuts down for the day, calls can be automatically switched to a service that will contact a claims associate.

Every day, it’s best practice to have at least two people ‘on call’ for claims. Each one would have all of the necessary contact numbers for insurance companies and adjusters. This includes a 24/7 spill response for environmental cleanup.

Imagine that it’s Fourth of July weekend. Your truck driver has a heart attack while driving and hits six other vehicles on the road. It’s a mess, but this is a real life example.

A value added broker would be able to have an accident investigation team on-site within 90 minutes of the accident.

What do business owners need to know in order to take full advantage of value added services?

Communication is the catalyst that drives any relationship to the desired goal.

The insurance agency needs to know who in the company is responsible for insurance issues and claims. Your employees need to know exactly what to do in order to reach the right people, no matter what the time of day or situation.

The nature and quality of the value-added services provided by an agent, broker and/or insurer should be a critical factor in determining where you get your commercial insurance.

Insights Risk Management is brought to you by ECBM

How to actively manage your workers’ compensation costs

A poorly managed workers’ compensation program could cause your insurance costs to skyrocket, and impact your balance sheet.

“Your internal costs/expenses affect the pricing of your goods or services, so if your internal costs are high, you may not be able to charge enough on your products or services to make the profit you need to stay in business,” says Shane Moran, vice president at ECBM.

Smart Business spoke with Moran about how to better control these costs.

How can workers’ compensation costs ripple out?

Experience modifiers (ex mod) are a measure of past workers’ compensation losses. Let’s say your company has an ex mod of 1.5, which is high. That may result in a 50 percent increase in insurance cost.

A poor ex mod could also mean a loss of business. Companies may not hire your firm because they feel you don’t run a safe operation and loses will happen.
As an example, company A takes bids on an expansion of its facility where company B’s employees will be on company A’s premises. Company A specifies that the winning bidder must maintain an ex mod factor of less than 1. So, a high ex mod not only drives up your insurance cost but also prevents you from generating new business.

What are the best businesses doing to manage their overall costs?

Smart companies have a safety committee. This committee provides many benefits, the least of which would be reviewing work accidents to help determine if it was preventable and what steps should be taken to help reduce a repeat occurrence.

Another key component is to have an active return to work/light duty program. While the safety committee focuses on preventing loss, a light duty program works to control the ultimate cost of the loss. Getting your employee back to work, even on a limited or modified basis, greatly reduces the overall cost of the claim while improving the employee’s mental well-being.

How else can companies start to better control these costs?

You need to understand where your costs are coming from and the types of claims that are occurring. You should be getting claims summaries or loss runs on a periodic basis, but many times the company’s decision-makers aren’t aware of the number of claims and/or the costs associated with them.

Companies also need to talk with their insurance broker and risk manager to develop a strategy to monitor claims. These meetings help target loss control services based on the types of claims that are occurring.

In addition, you should do some ex mod projections or forecasts so you have a general idea of what costs might lie ahead.

What are the biggest cost concerns, and how much does industry play into it?

Insurance rates have been pretty steady, so the pure rate charged by carriers isn’t the biggest concern. What is a concern is the increasing cost of treatment, which obviously drives up the cost of each claim. There also are big increases in prescription costs.

Industry type certainly plays a role in the severity and frequency of claims. A roofer has a much higher risk of having a claim than an office employee. Thus, the roofer is charged a higher rate per $100 of payroll, but the cost of treating the injury in either case is rising due to higher medical costs from providers.

How can companies reduce claim frequency?

Companies need to start looking behind the curtain to see what’s really driving their workers’ compensation claims, if they haven’t already. You can no longer just look at the total claim cost; you must look at each facet of the claim to see what can be done.

You can partner with your insurance broker to analyze this data. If your current broker doesn’t have the expertise to do this, partner with someone who can provide this service.

Then, develop and implement a plan that includes a safety committee, return to work/light duty program, and strategies to monitor the results and make necessary adjustments. You must be active in managing the process.

Insights Risk Management is brought to you by ECBM

How to reduce your costs in the age of the Affordable Care Act

The Affordable Care Act (ACA) has made the health insurance environment extremely unstable.

“Because the law is so new and was written in such a vague manner it has led to much guessing, anxiety and estimates. These three factors are leading to rising premium prices as carriers are unsure of what the pools will look like,” says Brian Bernier, account executive at ECBM.

These “pools” are the mix of enrolled employees of all companies, which are based on the number of employees at your business. Underwriters use them to estimate risk profiles and therefore premium rates.

Underwriters can usually estimate these rates fairly accurately, but because this law is unprecedented carriers don’t know what risks will be in what pools. They therefore are estimating much higher premiums. This is especially true for the employers that fall in the less than 100 employee pools, although increases are hitting businesses with anywhere from 50 to 2,000 employees.

Smart Business spoke with Bernier about why cost cutting is becoming critically important to offset these premium increases.

What should businesses be doing in order to offset these increases?

Companies should have an insurance broker perform a full and detailed analysis of the plan design, funding mechanism and carrier selection. There are new and exciting ways brokers can design the plans either through consumer driven or hybrid designs. Businesses should investigate partial self-funding with a cap on total spend in order to reduce risk and/or look into other carrier options that may have deeper discounts.

Some brokers are able to work with you to determine a maximum budget and then design your plan to fit that budget.

Why is partial self-funding so effective and what’s the risk?

Insurance companies’ rates have a built-in margin of error. The less underwriting information they have about your employees, the higher the price, which protects them from the unknown. Partial self-funding allows you to pay your claims directly, eliminating mark-ups and group pricing while retaining more savings.

The main risk discussed in self-funding is the possibility of unlimited costs based on high claims. This risk exists, but it can be eliminated with additional insurance, called stop-loss insurance. With stop-loss, you can cap your cost, typically at or below your current premium. In essence, you cap your maximum cost and if your claims come in below that amount you keep the savings.

In addition to the true cost and potential savings, self-funding provides information, which leads to a targeted focus on wellness and helps create cost reduction into the future. Like every other part of your purchasing process, the more detailed the information, the less cost there is.

Why aren’t more companies using partial self-funding?

Actually, most Fortune 1000 companies use this method. Companies with 100 employees and higher should be looking at this option. Your broker needs to provide a written comparison that allows you to determine if this option could be beneficial.

What does this mean for employees? Will you see resistance to these changes?

Self-funding is a behind-the-scenes change to the funding mechanism, not the plan options. Employees can potentially see no change. Once you go self-funded, you are given greater legal flexibility when designing your plan options. (State mandates no longer apply but you still must follow the ACA.) Your broker can mirror your exact plan design under the self-funded model in order to cause as little employee disruption as possible.

If you do decide to change your plan options in addition to self-funding or simply change your plan options without self-funding, communication is key. Your broker should have ideas on the best ways to discuss changes to help mitigate pushback and foster understanding.

What else did you want to discuss?

Like everything else, technology provides the ability for more detailed information. Understanding the overall health of your employees and finding ways to help improve it is the most efficient and cost-effective way to accomplish everyone’s goals. Companies that keep employees happy and healthy, while reducing overall costs to the business, will be the most successful going forward.

Insights Risk Management is brought to you by ECBM

Covering the property of others when you have care, custody and control

When you take custody or possession of someone’s property you can create a bailment situation. Companies who perform operations such as warehousing, storage, transportation, construction, auto repair, dry cleaning amongst others could all have care custody and control exposures. But when property of others is damaged while in your possession, standard insurance policies may limit or exclude coverage.

With the acceptance of someone else’s property comes the duty to exercise proper care in protection of that property from damage. The company or individual in possession of the property (the bailee) is responsible for their negligence to exercise proper care.

“What is considered proper care will vary widely depending on the type of property in question,” says Kevin Forbes, sales executive at ECBM. “Whether you are garaging or parking automobiles, warehousing or transporting temperature controlled food, or are a contractor with a piece of leased construction equipment, the degree of care required to protect each piece of property will be different.”

Smart Business spoke with Forbes about how your company can mitigate this care, custody and control exposure.

Does a commercial general liability policy provide protection?

The standard commercial general liability policy has an exclusion for property in the named insured’s care, custody and control. Even though the policy covers damage to other’s property, this exclusion removes coverage for any property that can be defined to be in the named insured’s possession and/or control. The policy is not meant to cover ‘your work’ and often property of others in your care is being worked upon as part of business operations.

The exclusion removes coverage from your liability policy, but there are other policies designed to specifically protect the insured for this exposure.

How would a company go about getting the right protection?

Depending on the type of operations, there are various policies that will cover the exposure. A warehouse legal liability policy covers the exposure of holding other’s people property and goods for storage under some form of warehouse receipt.

In some instances, where a warehouse receipt might not be used when storing other’s property, there are alternate ways to properly cover this exposure other than the warehouse legal liability policy. If you have an automobile repair business, a garagekeepers policy is designed to cover the exposure of having someone else’s automobile in your possession. A builder’s risk policy is how a contractor covers the property that they are performing work on.

Always do a thorough review of your operations with your insurance broker or individual placing your policies.

How does ownership know which one is right for its organization?

An analysis of the goods in question that is in their care, custody and control must be done. Review the contract or agreement that the goods are being held under. Federal and state laws and regulations, as well as various industry standards will also outline the extent of each bailee’s liability. But the right insurance and risk management professional should be your guide through the process.

Is there anything else you’d like to share with business owners?

Understanding your exposure is the first step in making sure your business is protected. Know the dollar amounts your business is exposed to — warehouse operators review the values under agreement by location, auto repair shops know the value of vehicles on their lot and motor carriers understand the values in each loaded trailer.

In many instances, the best way to limit your exposure is through the contract or agreement used in your business. When storing goods, a warehouse receipt can reduce one’s liability significantly compared to that of a true bailee. Your contract also limits amounts paid should damage occur to any property. The motor carrier’s contract with a shipper can limit or increase the amount they are liable for in the event of a loss. These are just some examples, but each industry has their own risk management practices that can help reduce the exposure your company faces.

Insights Risk Management is brought to you by ECBM

How to prepare for a wage and hour claim — before it hits your business

Wage and hour claims are liability claims or lawsuits from an employee (plaintiff) against their employer for uncompensated work hours.

Some examples of these allegations are unpaid overtime, misclassification of an exempt versus a non-exempt employee, missed meals/breaks, pooling of tips, donning and doffing, which is putting on and taking off certain work cloths or protective clothing, and on/off the clock allegations. All of these fall under the Fair Labor Standards Act that sets minimum standards for wages and overtime.

“An allegation of a wage and hour claim can quickly become an employer’s nightmare,” says Shane Moran, vice president at ECBM. “The claim can very easily become a class action lawsuit involving hundreds or perhaps thousands of employees. Plaintiff counsel will petition the court to get a court order requiring that the employer release the names and addresses of similar situated employees, and now counsel has a way of adjoining many other employees to effectively increase any settlement amount.”

Smart Business spoke with Moran about what employers need to know about wage and hour claims, including how to protect your company.

Where do wage and hour claims occur?

There are really no sectors of the economy that are immune to wage and hour allegations. There are, however, several sectors that see a larger percentage of allegations, such as health care, financial services/insurance and retail. These areas represent the bulk of the claim activity. Other sectors that contribute include transportation, food and manufacturing.

Geographically, California continues to lead in terms of allegations as well as the percentage of dollars paid. Florida is another state that has seen a recent increase in both allegations and dollars paid. Two other states that continue to be problematic are New York and Illinois. However, according to the 2013 National Economic Research Associates (NERA) survey, New York has seen a significant drop — approximately 50 percent — in its percentage of dollars paid.

How costly can these suits be for employers?

Again, according to the NERA 2013 Trend in Wage and Hour Settlement Report, the average cost to resolve a case in 2013 was $4.5 million dollars, while the median settlement value was $2.8 million dollars. So, as you can see these allegations can become very costly for an employer.

What else do employers need to know about wage and hour claims?

For the most part, there is no insurance coverage under Directors and Officers Liability or standalone Employment Practices Liability Insurance (EPLI) policies
Some carriers will provide a sublimit for defense only. Several years ago, a few carriers were offering sublimits of $500,000 or even $1 million, but those limits have now been reduced to $100,000 to $250,000. So when you look at the average cost to resolve a claim versus the sublimit of coverage, you are in affect self-insuring this exposure.

For very large companies, there are policies that you can purchase to cover this exposure, but they have large retentions and premiums that can be prohibitive.

What is the biggest mistake employers make when it comes to covering this exposure?

Many business owners simply assume that since they purchased an EPLI policy, they have coverage for these allegations.

The first step to correcting this problem is to understand what is covered — and more importantly what is excluded within the policy. Like every insurance policy, the devil is in the details; look at both the individual exclusions and the definition of a ‘loss.’

With little insurance coverage available, what can business owners do to avoid or reduce the risk of these lawsuits?

Having an audit of policies and procedures is a good starting point. Are you classifying employees correctly, such as exempt versus non-exempt? How are you capturing work time records? Are you in compliance with minimum wage? Do you pay commissions? How are deductions handled?

Also, ensure your HR and payroll departments understand the laws that apply in each state you operate. Keeping accurate and up-to-date records is essential to any defense.

Insights Risk Management is brought to you by ECBM

What’s in a name? How important is the named insured on your insurance policy

It seems simple. Make sure all entities are listed on your insurance policy.

However, companies often have multiple entities within one organization, which could be created for various reasons.

The named insured defines who is an insured under your insurance policy. When a claim occurs, if the entity that is named in a suit is not listed on the policy, you’re going to have problems because the named insured triggers coverage.

“I have clients who may have a hundred different company names,” says Scott Nuelle, vice president at ECBM. “They might have different operating companies. They might have real estate held in separate companies or partnerships.

“So, you need to make sure that all of those are listed on the policy.”

Smart Business spoke with Nuelle about the biggest mistakes he sees with named insured.

Do you need to list every single entity on all types of insurance?

With workers’ compensation, you’d only have named insureds that actually have employees and payroll. But with general liability, automobile, directors and officers or employment practices liability policies, every entity needs to be listed as a named insured.

This can be an extensive list. For instance, within a trucking company, you may have separate entities with operating authority. However, another company could own all of the equipment — the tractors and the trailers — under a separate name. Then, each terminal could be owned by a different entity. The business might even have another company that actually acts as the employer and leases those employees back to the operating company.

What about organizations that have a Blanket Named Insured endorsement?

To make it easier, many brokers will include a Blanket Named Insured endorsement. But that won’t necessarily protect you because the language in that blanket named insured may not include partnerships, for instance, and you may have a partnership that owns a piece of real estate.

It is always safer to list each entity as a named insured.

What are the most common mistakes you see with named insured?

Many times, people shut down an entity, such as a subsidiary that they are not operating anymore, and then they want to eliminate that name from the policy.

The problem is that you don’t know if a lawsuit is going to be filed in the future. You want to make sure that the coverage remains for an entity that’s no longer operating. It doesn’t cost you anything, so just leave it on.

The other common mistake is not informing your broker of a new entity.

For example, you have a policy that renews on June 1, and you start a new entity on June 15 but don’t tell your broker until the renewal. So, now you’re nine months out and that entity has not been added to the policy.

There is language in most insurance policies that will cover new entities for a period of time, usually 90 to 180 days, which gives you a short grace period. In this example, you would still have a gap where coverage isn’t effective.

Your broker should be proactive about asking you quarterly or every six months to update the named insured list, but on your end you can look at your internal business practices to make sure whoever handles the insurance is informed any time an entity is formed.

How long should you keep an entity on the policy after it has been shut down?

Generally after five years you can eliminate it, assuming there is no activity. But again, they don’t charge you per name.

If you think there’s a chance you could start re-using a name in the future, keep it on.

Insights Risk Management is brought to you by ECBM

Why not every cyber policy is the same — and what to do about it

In business today, people are starting to recognize the need for cyber insurance, after hearing about hacker attacks.

“People look at what happened to Target and still say that’s not going to happen to me, but cyber breaches involving small companies have tripled,” says Charlie E. Bernier, Esq., principal consultant of Professional Liability at ECBM.

The average breach costs about $7.2 million — for any size company — so a cyber claim could bankrupt your business.

But if you’ve decided to buy cyber coverage, what happens next?

Cyber coverage doesn’t have standard forms, and not every carrier’s policy is the same, Bernier says.

Smart Business spoke with Bernier about getting cyber coverage with the right limits, endorsements and exclusions.

What do cyber policies generally cover?

Cyber polices typically provide both first-party and third-party coverage. First-party coverage insures for losses to the insured’s own data, lost income or other harm to the business from a data breach or cyberattack. Third-party coverage insures for the liability to third parties, such as clients.

Some companies buy a cyber endorsement for an errors and omission policy, but that never covers first-party losses.

How should businesses obtain full first-party coverage for all scenarios?

Even if it’s through an endorsement to your cyber policy, you need to ensure the first-party coverage includes business interruption and reputational harm. After you discover a cyber breach, your business is stopped while you go through your systems, and this lost revenue can add up. In addition, after you notify people about lost information, you want to get reimbursed for reduction in profit during the period after the breach. There’s a good chance you’re going to lose customers due to reputation damage.

What’s important to know about the third-party coverage?

The most common mistake is not getting enough breach notification limit coverage and not setting coverage for regulatory action proceedings.

If your company discovers a cyber breach, under state and federal law, you must notify everyone whose information has been compromised. The limit needed depends on the type of personally identifiable information (PII) and amount of records you hold. As an example, a $500,000 limit is not enough for most retailers. With a few questions, your insurance professional should be able to tell how much it will cost to notify people, and therefore help set the correct limit. The ROI is six to one; for every dollar you spend on premium for a cyber policy, you save $6 per breach.

Also, you should get full coverage for regulatory action proceedings. If your company faces a government regulatory proceeding for a breach or not storing information properly, the policy should cover both the defense of that proceeding and the fine you’ll pay if you lose.

What are exclusions to avoid?

Some policies include an encryption exclusion. If one of your employees has his or her laptop stolen, which is only password protected but not encrypted, then with this exclusion the coverage is void.

Two other exclusions to avoid are a failure to upgrade software exclusion and a failure to maintain exclusions. Both of these severely limit the claims you can file.

What else do employers need to know?

A Verizon study found 66 percent of cyber breaches discovered in 2013 happened months or years prior. Don’t ever get a cyber policy that starts when you buy it. It’s worth asking for unlimited prior acts but don’t take less than a five-year retroactive date.

It’s not common, but it’s possible to include indemnification coverage on the policy. For instance, if your law firm is working for a bank, the bank can say, ‘You can’t defend our cases and work for us unless you agree to indemnify us for your breaches of PII.’ Then, if your firm loses PII, you have to pay for the notices your firm and the bank are required to send out. Cyber insurance will cover this indemnification.

Finally, keep in mind now is the time to buy a policy, with insurance carriers hungry to write cyber. The prices will never be lower and the power of the buyer will never be higher than it is right now.

Insights Risk Management is brought to you by ECBM

How to use service plans to gain control over commercial insurance

James Misselwitz, CPCU, vice president, ECBM

James Misselwitz, CPCU, vice president, ECBM

When it comes to insurance, many customers feel they have no control over their price, product, how incidents happen, losses, etc. A properly constructed service plan mitigates this frustration.

James Misselwitz, CPCU, vice president at ECBM, says a service plan is something business owners should be asking their broker about upfront.

“They should say, ‘OK, you’ve given me this spiel on all the wonderful things you’re going to do. Now show me how you’re going to deliver it to me,’” he says. “‘Show me how you deliver it to your existing customers, and show me what happens when something doesn’t get done. Give me that blueprint, so I know I can depend on you.’

“There’s no question that somebody who doesn’t follow an active service plan with a broker will ultimately pay the highest premium out in the marketplace.”

Smart Business spoke with Misselwitz about effective service plans that help manage risk.

How do service plans create fail-safe procedures?

Although most brokers use some version of a service plan, many do not monitor and control it. A service plan is a client-driven method where business owners determine, along with a broker or agent, what services they need, how often they need it and who is responsible for delivering it to them.

Some services might be a review of market conditions before renewal; a review of the loss experience and current claim activity; a review of the outstanding reserves on claims that have already occurred; a review of information for the renewal like the current automobile schedule or payroll; and a tentative experience modification factor review that shows the impact of workers’ compensation on your renewal.

The service plan helps manage the insurance throughout each cycle of the policy. Both the company and broker know the expectations, and the plan can operate as a safeguard. When the broker doesn’t complete a claim review at six months, for example, a fully automated, computerized service plan notifies the underwriter by triggering an alert at the brokerage firm. At the same time, executives have a copy of the plan and can ask the broker about it.

What happens when service plans aren’t properly executed?

Things fall through the cracks. The insurance business is a deluge of paper and electronic messages, so it’s easy to lose a due date or report that needs to be run. If companies don’t actively manage insurance with the help of their brokers, they give up control of pricing, coverage, and losses to the whims and vagaries of the insurance companies and marketplace.

For instance, if your company doesn’t have a regular claim review on workers’ compensation activity, you could have a few large claims on reserves. You might not be working on action plans to mitigate those claims. So your renewal comes up, and it’s running a temperature with a poor loss ratio. Your insurer might ask for 40 percent more to underwrite the risk or send out a notification of cancellation. Now, you and your broker are scrambling to put together a response that will allow the underwriter to stay on a reasonable price.

With what types of insurance is a service plan most important?

With a commercial account, service plan diligence is most critical with insurance lines that have loss activity and when there is anticipated change. You want to automatically stay in control of critical items like losses, payroll, premiums, sales, etc.

Also, you need a service plan if there’s an anticipated change, such as a merger or expansion. It’s important to have the right coverage at the inception, as well as coordinating existing coverage so you’re not being overcharged because of overlap.

Why is flexibility key?

As a commercial insurance purchaser, it is important to develop a system with your broker that will deliver the service that you want and need. A service plan is one such system that can help you control costs and deal effectively with change, both in your operations and in the insurance marketplace. While flexibility is the key to tailoring a service plan for each business owner, it is the ability of the broker to audit the process that seems to be the critical element in making the program work extremely well.

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

Visit our blog, for more information about risk management.

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How to minimize your product liability and exposure through insurance

Shane Moran, vice president, ECBM

Shane Moran, vice president, ECBM

If a manufacturer, distributor or merchant incurs a loss from your product, you need product liability insurance to protect your business. Product liability is generally considered a “strict liability offense” — if your product has a defect, you’re liable.

“Like most things, the devil is in the details. From an insurance perspective, it’s important to look at all of the terms and conditions of your general liability policy,” says Shane Moran, vice president at ECBM.

Smart Business spoke with Moran about the facts of product liability insurance.

What are some product liability claims?

Product claims typically fall into three categories, claims arising from:

  • The manufacturing or production process — opening a can of soup and finding a piece of metal in it.
  • A design failure or hazard — a chair designed with one of its legs significantly shorter than the others.
  • A product that is not adequately labeled as to the potential hazard of the product — the label on a cigarette pack or a warning label on prescription medicine.

Who should have product liability coverage?

Manufacturers are not the only companies with product liability exposure — every company from the manufacturer of the components down to the retailer can be brought into a suit, and potentially has an exposure. A retailer may have an exposure if it assembled or installed the product and didn’t follow the manufacturer’s instructions properly. The retailer also would have a duty to the buyer to test the product for safety.

What possible damages could be awarded?

Your company can be legally obligated for damages to a third party that your product causes. These damages range from bodily injury to property and economic damage, with punitive damages potentially awarded.

You also can sustain loses in terms of recall cost, further product testing, advertising cost to prevent damage to your reputation, and business income and extra expense loss.

Why do some policies cover economic damages, but not punitive or statutory damages?  

When policies cover economic damages, they mean compensation for a verifiable monetary loss, which can include loss of future earnings, loss of business opportunities, loss of use of the property, cost of repair or replacement, loss of employment and even medical expenses.

Punitive damages are awarded for the purpose of punishment, or to deter a reckless decision or action. Typically, they are used when compensatory damages are deemed inadequate. Punitive damage is a tricky area for insurance, as most jurisdictions have ruled that it is uninsurable. You need to examine your commercial general liability policy’s terms and conditions to see whether you have coverage. In most cases, you will find a punitive damages exclusion included.

Why is it a bad idea to underreport sales volume to lower your premium costs?

Most general liability policies are auditable. While an owner may want to use a lower exposure base to keep upfront premiums low, at the end of the day that same owner runs the risk of a large additional premium payment with the audited exposure.

Right after the policy expires, the audit occurs, which coincides with when the deposit premiums are paid. Deposit premiums are usually 25 percent of the total premium, so without using the proper exposure base at the beginning, a company could be looking at a very large outlay of cash in a short time period. This cash flow crunch could cause the cancellation of a company’s insurance for nonpayment.

Most carriers also lower their rates as the exposure base increases. So, by understating your exposure, you could be causing your company to have a higher rate and premium.

What other mistakes do companies make in this arena?

Many business owners think their insurance covers everything. But, for example, you may or may not have a product recall exclusion. The cost associated with recalling a product can be enormous, and you don’t want to find out that you have no coverage when faced with a claim.

If you’re unsure of your coverage, contact your insurance broker and/or risk manager to review the language.

Shane Moran is a vice president at ECBM. Reach him at (610) 668-7100, ext. 1237, or [email protected]

For more information about risk management, see ECBM’s blog.

 

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How the Compliance Safety Accountability initiative is factoring into your insurance

Kevin Forbes, Sales Executive, ECBM

Kevin Forbes, Sales Executive, ECBM

The Compliance Safety Accountability (CSA) initiative, rolled out in 2011, is the most recent way the federal government regulates the heavy truck and bus industries to ensure safe operation of commercial vehicles on our highways.

Companies directly affected are trucking companies, hazardous material haulers, some private carriers, heavy truck fleets and bus companies. But shippers, freight brokers and any companies that hire motor carriers to handle business transportation needs should review and monitor the safety scores of the companies they use.
“Courts have found liability in hiring a motor carrier with known safety issues and violations. This has placed an even greater need for motor carriers and other transportation companies to ensure they have good CSA scores,” says Kevin Forbes, sales executive at ECBM.

Smart Business spoke with Forbes about the CSA program and its impact on insurance.

How does the Federal Motor Carrier Safety Administration’s CSA work?

The goal is to reduce the number of crashes and crash-related deaths involving large trucks; statistics show the federal government’s involvement in safety compliance has helped. With local partners like state police and Department of Transportation (DOT) officials performing inspections and collecting data, the government uses the CSA system to rate motor carriers and bus companies against their peers and create standards of safety compliance. Motor carriers that don’t follow safety regulations can be put out of business.

How has the safety measurement system (SMS) changed?

The SMS is the database that stores and sorts the safety information collected by the various enforcement agencies. The old model was limited in its scope and effectiveness. The new system breaks the safety areas into seven categories called BASIC, or Behavioral Analysis and Safety Improvement Categories, which are:

  • Unsafe driving.
  • Hours of service, the amount of time drivers are allowed to drive.
  • Driver fitness.
  • Controlled substance/alcohol.
  • Vehicle maintenance.
  • Hazard substance compliance.
  • Crash indicator.

Information collected during roadside inspections and DOT compliance audits is used to promote safety by rating carriers in these areas. By monitoring these, the system seeks to identify problem motor carriers that need compliance review, as well as notify motor carriers of issues they might be having so they can focus on those areas.

How has CSA affected insurance?

The initiative stores information on all of the different roadside inspections for each company, which is available online to anyone at ai.fmcsa.dot.gov/sms. With this information and more at the underwriter’s fingertips, motor carriers and bus companies have had to focus on keeping BASIC category scores down to ensure competitive insurance pricing.

This trend will likely continue as the CSA program provides regulators and insurance carriers with long-term data trends. Insurance companies are using the data to develop predictive modeling programs that identify loss-indicating trends of transportation companies. In renewal negotiations there is sometimes a greater focus on CSA scores than that company’s specific loss history.

How can businesses decrease their risk?

For transportation companies, a proactive approach to understanding the regulations should provide for lower insurance costs, quality shipper/customer relationships and more money to the bottom line.

The CSA regulation places a greater onus on the drivers, so proper communication and education of the driver workforce is necessary. Strong hiring practices are crucial. Investing in newer equipment and technologies also can help reduce scores. Vehicles can be equipped with safety features such as lane departure warnings, rollover warning devices, computer/video monitoring devices for driver behavior and more.

Companies must monitor their scores and see what areas they need to focus on. Your broker can help you in this constantly changing process.

Kevin Forbes is a sales executive at ECBM. Reach him at (610) 668-7100, ext. 1322 or [email protected]

For more information about risk management, see ECBM’s blog.

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