Lawsuits can pose a considerable threat to businesses, and actions related to employment practices should be a particular area of concern to business owners. According to researchers, about 60 percent of employers can expect to be sued by a prospective, current or former employee.

“It’s the increasingly litigious nature of our society,” says Derek M. Hoch, president of Leverity Insurance Group. “These lawsuits really started to trend upward when the market plummeted to its lowest point in combination with the state of the economy over the past four to five years. Desperate times can sometimes lead to desperate actions. When people couldn’t find employment, they filed suits against employers who let them go during that period of recession.”

Smart Business spoke with Hoch about how employment practices liability (EPL) insurance can help businesses manage risks associated with such lawsuits.

What are the most widely recognized types of employment-related lawsuits?

  • Wrongful termination — Discharging an employee for invalid reasons.

  • Discrimination — Denial of equal treatment to employees of a protected class.

  • Sexual harassment — Workers subject to unwelcome sexual advances, or obscene or offensive remarks.

Lawsuits can also be based on things such as wrongful failure to employ or promote, wrongful discipline and religious discrimination.

How can EPL insurance protect employers?

More than half of all claims for employment-related liabilities are against businesses with fewer than 50 employees. Claims can be costly, especially if a case has the ability to go on for an extended period of time. The average cost of an employment lawsuit exceeds $270,000. Even if the lawsuit is frivolous, it still takes time away from operating your business.

An EPL policy will help to pick up these defense costs and any judgments or claims assessed against your business. In some instances, these cases are settled before they even go to court; EPL will pay for settlement costs as well.

EPL also covers claims filed with the U.S. Equal Employment Opportunity Commission (EEOC). In 2012, the EEOC reported 99,947 charges for harassment, and costs of resolving these claims were $364.6 million.

Why is purchasing third-party EPL insurance so important?

Third-party EPL addresses the coverage gap that leaves employers vulnerable to discrimination and harassment lawsuits from customers, clients, vendors and suppliers. Standard EPL policies only cover actions related to employees or prospective employees, and most general liability policies specifically exclude harassment and discrimination.

More insurance carriers are including third-party coverage as part of EPL policies because every company is at risk. It’s vital for any business that deals with customers on a daily basis.

Other than insurance, what approaches can companies take to protect themselves?

Have a legal professional review your employee handbook to ensure it contains all the necessary information, including policies covering sexual harassment, discrimination, equal opportunity, grievances, discipline, termination, performance evaluations, Internet usage, pregnancy leave, hiring and employment at-will. Then make sure employees sign off that they’ve read it.

If you don’t have a handbook, you may not be able to secure EPL insurance because insurance carriers take this very seriously. They want to see that you’ve taken proper steps in terms of risk management and providing a safe workplace.

You can protect yourself even more by making sure you’re following proper procedures regarding hiring, firing, performance reviews and even interviewing prior to hiring someone.

Taking these steps also reduces risk, which will generally translate into lower insurance premiums. EPL insurance works hand-in-hand with your internal employment practices to provide necessary resources to defend your company against a lawsuit or claim.

Derek M. Hoch is the president at Leverity Insurance Group. Reach him at (216) 861-2727 or derek@leverity.com.

Request a quote on employment practices liability insurance or any other corporate coverage.

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Publicly held companies generally receive greater media attention about scrutiny from shareholders and government regulators than private companies, but that doesn’t mean that private companies are immune to lawsuits regarding management activities that can disrupt operations and create a financial burden for the business.

“People think that privately held businesses and nonprofits do not have much exposure. The reality is that there are many lawsuits that are brought by shareholders, employees, regulatory agencies, competitors and customers that are not covered by general liability insurance. Only a directors and officers policy can provide coverage for an actual or alleged wrongful act, breach of duty or mismanagement,” says Peter Bern, CEO of Leverity Insurance Group.

Smart Business spoke with Bern about the risks private companies face and how directors and officers insurance (D&O) can help limit exposure.

What are some potential D&O claims for private companies?

Regardless of your company’s size, the legal cost to defend a director, officer, or employee is substantial, as are the potential penalties that can be personally incurred. Because of the personal liability risk, which is not covered under a personal insurance policy, protecting these key individuals and the entity itself is critical.

Private companies have investors, shareholders, creditors and employees that can bring lawsuits alleging wrongful acts, mismanagement, breach of duty or neglect. Regulatory agencies, suppliers, competitors and customers can also be plaintiffs.

Types of lawsuits include the following:

  • Breach of fiduciary duty, including self-dealing and conflicts of interest.

  • General business mismanagement and bankruptcy.

  • Failure to deliver services.

  • Failure to disclose information.

  • Disclosing materially false or misleading information.

  • Regulatory agency actions and investigations.

  • Merger and acquisition complications and objections.

  • Shareholder derivative actions suits.

  • Freeze-out mergers forcing minority shareholders to sell stock below fair market value.

How can companies determine what coverage they need?

Because there is no standardized policy, it makes it difficult to comparison shop. There are special endorsements or enhancements that can be placed on these policies. It’s a matter of analyzing needs and selecting the necessary limits and coverages accordingly.

Underwriting factors for D&O insurance include company characteristics such as:

  • Age: Companies with less experience and shorter history of effective management are riskier.

  • Industry: Investment banking and securities expose executive management to more risk than those experienced by board members of a small nonprofit.

  • Financial stability: If a company’s finances are unstable, there is a greater chance of becoming insolvent during a lawsuit.

  • Litigation history: Insurers will analyze a company’s history of previous lawsuits and any adverse business developments.

Is D&O coverage becoming more commonplace?

It’s been around for a long time, but it had been very cost prohibitive. Also, directors and officers thought it wasn’t necessary to purchase coverage if the company wasn’t publicly traded. But even nonprofits have exposure. They have volunteers donating time, making decisions and moving money; D&O covers them if there is mismanagement.

Still, many companies are not aware D&O insurance is available. Without D&O coverage, executives are not protected personally — business pursuits are excluded from homeowners insurance.

Whether you’re a privately held, nonprofit or a public company, it is likely that your business can benefit from a D&O liability policy. Since there is no such thing as a ‘standard’ policy, a professional insurance agent is invaluable when purchasing D&O coverage. He or she will understand your organization and can help design a policy that will meet the needs of the directors and officers, shareholders and the entity itself.

Peter Bern is the CEO of Leverity Insurance Group. Reach him at (216) 861-2727 or peter@leverity.com.

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Many businesses neglect cyber and privacy issues because they simply don’t believe they are at risk or they do not fully understand the exposure.

“The majority of them think they’re safe because they have a secured firewall in place and virus protection. This is the biggest misconception out there. In reality, data thieves are simply looking for the path of least resistance. Owners of small to midsize businesses who become complacent or think they have adequate protection against cyber and privacy attacks can actually be a bigger target than large companies,” says Derek M. Hoch, president of Leverity Insurance Group.

Attacks can be harder for small and midsize businesses to recover from. Many businesses close permanently within six months after being victimized by cybercriminals.

“That’s why it is vital to have adequate controls and the proper insurance in place,” says Hoch.

Smart Business spoke with Hoch about cyberattacks and how business owners can protect themselves.

What are the cyber and privacy issues for business owners?

Cyber and privacy liability is best described as any third party or first party hacking into your database for personally identifiable information (PII). This includes access to names, dates of birth, Social Security numbers, credit card information, emails and passwords. Ultimately, this can potentially lead to identity theft and/or cyberextortion.

In addition, businesses that operate with paper files or ‘non-electronic’ information have the same potential to be compromised by both third parties and employees.

However, the most overlooked exposure to business owners is the actual cost of a data breach when your records have been compromised. On average, a data breach can cost a company more than $200 per record when considering loss of business, ongoing forensic expenses, notification costs and credit monitoring.

What types of businesses need cyber and privacy liability coverage?

Every business owner has exposure on some level if they have third-party and/or employee information stored on a computer or in paper files.

Cyber and privacy liability is relatively new, so most business owners don’t even know that the coverage exists or is available in today’s insurance market. It is a significant exposure and should be included in your overall risk management program.

How can businesses protect themselves?

It starts with the culture of the business owner and includes training employees to use proper cyber and privacy security policies and procedures. This list of procedures should include the following at a minimum:

• Use passwords on all computers, laptops, tablets and smartphones.

• Regularly change passwords every 30 to 40 days.

• Limit employee access to data.

• Restrict authority to install software unless approved by management.

• Provide ongoing training for employees who gather, use, transmit and dispose of confidential data.

• Install and update anti-virus and anti-spyware programs on every computer. Smartphones and tablets are often overlooked, yet most salespeople out in the field are using them.

• Back up your data off-site in a secure location, not in the same facility of your day-to-day operations. If the system is hacked or temporarily shut down, you can still retrieve the information and continue to operate your business.

Isn’t cyber and privacy liability part of standard business insurance?

No, most insurance policies exclude this coverage or may offer a small amount of ancillary coverage to recover or reconstruct any lost data. Cyber and privacy exposures are not covered under any property, general liability, crime, directors and officers liability, or umbrella policies. Business owners need to purchase a true cyber and privacy liability policy including security and privacy liability, notification and forensic expenses, business interruption, and cyberextortion to complete the proper risk management of their business.

Derek M. Hoch is president of Leverity Insurance Group. Reach him at (216) 861-2727 or derek@leverity.com.

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The economy is still recovering from the recent recession and businesses continue to experience budget pressures. Companies often react by cutting back, which can be a wise decision in some instances. But one area that should never be impacted by budget cuts is insurance coverage. “In fact, when budgets are tight, having proper insurance coverage is more important than ever,” says Peter Bern, CEO of Leverity Insurance Group.

“When business owners want to lower limits or eliminate coverage completely, we explain to them that it exposes their company to the risk of greater financial hardship when they can least afford it. If you don’t think you can afford insurance coverage now, then how could you possibly sustain the financial impact of a claim or loss?”

Smart Business spoke with Bern about ways to control costs without cutting coverage, as well as other risks businesses might be exposed to that would warrant additional insurance.

What can businesses do to protect their bottom line when it comes to insurance and risk management?

Most businesses strive to do four things: save money; boost productivity; increase profits; and employ happy, healthy individuals. These can be accomplished by establishing safety programs and other risk management strategies that can reduce the probability of injury and downtime. Safe environments also improve employee morale, which positively impacts productivity and service. And industry studies report that there is a direct correlation between safety and a company’s profit.

Instead of lowering or eliminating coverage to save money on insurance premiums, business owners should be strategic with deductible structures, self-insurance retentions and leveraging their insurance to be sure that they are receiving all the potential credits. Most importantly, get a comprehensive second opinion from an insurance professional who will audit your risk management and insurance program for deficiencies, and be creative in finding ways to save money while providing maximum benefit.

What are the risks of purchasing insurance based solely on a budget?

Not only does lowering insurance coverages expose your company to greater risk from a claim, it can also expose your company to possible lawsuits. For instance, if you lower and raise your coverage level annually based only on price and then have a claim for which you aren’t fully covered, shareholders or claimants could sue you for negligence because you did not have a strategic risk management and insurance program in place. Employers should develop a risk management plan based on what their company needs with respect to all lines of coverage. It’s important to follow it, regardless of budget.

Why should business owners consider adding insurance in a down economy?

There are many business owners who expose their company and themselves to risk because they are neglecting management liability insurance. In a tough economy, employment practices liability and director and officer’s insurance become even more vital. During a workforce reduction, there is the potential that someone will sue for discrimination, wrongful termination or other reasons. If there is an alleged breach of duty, perceived mismanagement of business operations or even potential violation of state and federal laws, the decision makers of the business can be held liable.

Another area that’s often overlooked is cyber and privacy liability. Policies can insure businesses for notification expenses and lawsuits that result from breaches of database information. Hackers are constantly attacking networks in an attempt to disrupt operations and/or steal credit card and personal client information; it’s a major exposure that many businesses have not considered. State and federal laws require you to notify everyone in your database if there’s a breach of client personal information. That expense could cost a fortune and be catastrophic to your business. Many companies think these types of coverage are part of their standard business insurance policy, but in reality they are excluded. Unfortunately, they may not realize it until they have a loss.

Peter Bern is CEO at Leverity. Reach him at (216) 861-2727 or peter@leverity.com.

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Published in Cleveland
Thursday, 28 February 2013 21:06

How to manage risk and control insurance costs

Every business experiences risk, but determining the true cost of risk can be difficult.

“It’s much harder to calculate the impact that negative publicity has on your revenue versus lost productivity due to equipment downtime,” says Derek M. Hoch, president of Leverity.

“To develop the most appropriate risk management program for your organization, business owners should approach insurance through a variety of cost control strategies. These include identifying exposures, implementing control measures, transferring risk and managing your exposures,” Hoch says.

Smart Business spoke with Hoch about developing a strategic action plan to effectively monitor and manage risk, ultimately resulting in reduced costs.

How do you identify exposures?

Exposures are both qualitative and quantitative. Partnering with an insurance agent who understands these aspects of your business will provide important details that help to solidify a game plan. What keeps you up at night? If your biggest concern were to occur, would you be prepared to keep your business viable? How would your income or cash flow be affected if there were unforeseen depletions of capital or a shutdown in the plant? Is the company in a financial position to take on risk or would you rather transfer that risk to an insurance carrier? It’s also important to consider your industry, market position and competition in developing a risk management solution that fits the changing needs of your business.

Quantitative analysis supports the qualitative interview. Look at the hard numbers and review losses to identify:

• Average incurred costs per loss.

• Top loss drivers and trends.

• Fraud behaviors.

• Reporting lag time.

• Frequency and severity ratios.

• Occupational Safety and Health Administration (OSHA) recordable performance.

Both qualitative and quantitative analysis is important, as they help identify your total costs of risk and lead to the price of your risk management program.

What control measures can be implemented to reduce risk?

Once you’ve identified exposures, focus on control measures — an estimated 75 percent of commercial insurance expenses are claims-driven. A business can control and reduce this percentage through pre- and post-loss control measures. This process should help to establish a safety program that will deliver a comprehensive employee safety education campaign to address your exposures.

How do you decide what risk to transfer?

A trusted insurance adviser can help you balance how much risk you’re willing to take versus the cost of transferring that risk. Important questions to ask are:

• How much risk can I afford to assume in-house?

• How can a business insurance provider assist with contractually transferring that risk to a third party?

• What portion of the exposures do I want to finance through an insurance policy?

Answers to these questions provide direction on how to approach the proper placement of insurance policies. You also need to consider current cash flow needs. If you have a mature loss control program and financial reserves to cover shock losses that occur, self-insurance retentions are also a consideration.

How do you manage exposures?

Roughly 25 percent of businesses that sustain a major catastrophe go out of business within a year. You have to be prepared to respond if there is an interruption in your operations. Planning ahead and developing a comprehensive business continuity plan is vital to achieve this goal and keep your business viable.

Implementing risk management strategies will reduce costs, because the total cost of risk is synonymous with price.

Derek M. Hoch is president at Leverity. Reach him at (216) 861-2727, ext. 517 or derek@leverity.com.

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Published in Cleveland
Thursday, 31 January 2013 20:44

How to navigate the hardening insurance market

Business insurance costs and coverage terms have become unstable, but there are steps that businesses can take to minimize risk and keep costs under control.

“Health insurance rates increase almost every year — there’s never good news. With respect to property and casualty insurance, premiums have been decreasing or flat for a number of years. Because rates have been stable, business owners are often unwilling to spend time and resources on loss control and risk management,” says Peter Bern, CEO of Leverity Insurance Group. “This reduction in pricing is deceptive, setting businesses up for a shock when the insurance market takes a turn, so it’s important to proactively address risks and losses now before insurance prices begin to climb. Those that simply ride the market without working to reduce risk will have a harder time placing coverage and won’t be offered rates that are as competitive and coverage that’s as comprehensive as they had seen in the past.”

Smart Business spoke with Bern about the causes of the hardening insurance market and what companies can do to address the situation.

What does a hardening market mean? 

It’s not just an increase in premium rates; rather, insurance companies and their underwriters are also taking a closer look at the risks and determining whether they want to change the coverage terms by requiring higher deductibles or are unwilling to provide as much, or any, coverage for specific exposures. Basically, it’s a challenged marketplace and it’s more complicated to get competitive and comprehensive coverage from insurance companies.

Why is this happening?

Over the last several years, insurance companies have been hammered by unprecedented losses from natural disasters, corporate fraud and dealing with continued flat investment returns, which can be attributed to the weak economy. Worldwide, insured catastrophe losses have hit and exceeded historical records, and, as a result, insurance companies are paying out more in claims than they’re taking in through premiums. As 2013 begins, there is no doubt that Hurricane Sandy will have a large impact on the insurance marketplace. The scary part is that the losses are still being added up. Bottom line, for insurance companies to make money and stay financially viable, they need to increase pricing and exercise greater discipline in underwriting risks.

What potential rate increases do companies face if they don’t take action?

As a business owner, a 10 to 15 percent increase in cost will still be unpleasant, but a 40 percent or more increase in addition to a reduction in coverage could affect the viability of your company. Over the past year, premium rate increases of approximately 5 to 7 percent are being seen throughout the insurance marketplace. However, certain segments and businesses have experienced larger increases in premiums because of loss frequency and severity, as well as diminished capacity in the marketplace.

What can businesses do to take charge, control losses and mitigate the effects of the hardening market?

It starts with proper risk management practices to prepare in the event of a loss. By partnering with a trusted adviser, businesses can:

• Pinpoint exposures and cost drivers.

• Identify loss control solutions tailored to unique risks of the business.

• Create a contingency plan to account for disaster and unpredictable risks.

• Build a company focused on safety.

• Manage claims efficiently to control costs.

• Determine the most competitive and comprehensive way to transfer risk.

Even if the insurance marketplace doesn’t harden to a point that it affects your company’s well-being in the short or long term, a business with effective loss control and risk management initiatives will always pay less to secure and protect its assets and exposures in any market conditions.

Peter Bern is CEO at Leverity Insurance Group. Reach him at (216) 861-2727,  ext. 512 or peter@leverity.com.

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Published in Cleveland
Monday, 31 December 2012 21:08

How to choose a business insurance provider

When it comes to insurance, people are accustomed to choosing an insurance program strictly by rate — a point proliferated by many commercials emphasizing premium savings.

But price definitely shouldn’t be the only consideration when it comes to purchasing business and personal insurance, says Derek Hoch, president of Leverity Insurance Group.

“Technology has forced that upon us as consumers. Everyone’s talking about rate and not about relationship,” says Hoch. “Business insurance is a partnership. Your insurance partner should be a trusted adviser who helps you leverage your risk. They should be very involved in your business, like your accountant or lawyer. It’s a long-term relationship rather than a commodity.”

Smart Business spoke with Hoch about business insurance and what people should consider when looking for an agent.

What is business insurance?

‘Business Insurance’ is a broad name for different coverage available to a business owner to protect against losses and to insure the continuing operation of the business. At the very basic level, it can be defined as the management of risk. There are insurance risks that, while they may never occur, can be so catastrophic that it makes sense to plan ahead and manage the risk. Insurance companies take in premium payments from many businesses, invest those payments, and create a ‘pool of money’ to pay out to a business if they suffer a covered loss.

What should be considered when choosing a business insurance agent?

You want to look beyond just price. Independent agents have access to multiple insurance carriers. They represent your best interests by leveraging their resources to find solutions to every type of risk associated with your business. An insurance agent should do his or her homework and get to know the prospective client by meeting with key people in safety, engineering and operations, and asking them open-ended questions to get them to talk about their business in order to identify its exposures. Truly, you want an insurance agent who will provide you with a thorough second opinion, rather than just quoting on an ‘apples-to-apples’ basis.

Are there ways to tell if an agent provides good service?

Good service is about the ease of doing business, like immediate customer service that includes same day turnaround on certificates of insurance, 24-hour claims service, online claim reporting, and account servicing for things as simple as adding an automobile or a driver or getting additional coverage. They should also be able to provide other risk management services like disaster planning and workplace and fleet safety programs, to name a few.

What are commonly purchased types of business insurance?

General Liability, Property, Auto Liability, Workers’ Compensation and Professional Liability are probably the most familiar. However, those that might not come immediately to mind are Cyber and Privacy Liability, Employment Practices Liability, Fiduciary Liability, Directors and Officers Liability and International coverage.

When looking for an agent, you want to look for someone who is knowledgeable beyond the common types of commercial insurance policies that any agent can provide.

How important is it for the insurance agent to have a background in the client’s industry?

It’s vital. When seeking an opinion on your personal health, you want the right doctor who specializes in your specific condition. Similarly, you want an insurance agent who understands how your business works so that the insurance can be applied to your specific needs. You will benefit from working with someone who can make sure you get the right solution to any issues you might have.

A good insurance adviser can audit your business and find deficiencies in terms of insurance, and possibly the business itself. A trusted adviser and a comprehensive insurance program can help protect the longevity and viability of your business.

Derek Hoch is president of Leverity Insurance Group. Reach him at (216) 861-2727, ext. 517, or derek@leverity.com.

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Published in Cleveland