IRMI Update—Issue #80
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
January 6, 2004
In This Issue
Colleague,
Arnold Schwarzenegger might be invincible in the movies, but he hasn't yet
terminated the California workers compensation insurance crisis. Frankly, we
don't expect to see many positive results from political solutions in the near
term. For now, employers and their advisers must rely solely on tried and true
risk management approaches and smart insurance purchasing decisions.
To help with this, we have asked three California workers comp experts to
put together an intensive 1-day seminar covering important classification and
rating nuances, claims management best practices, and the latest developments
in California self-insurance and multi-employer pooling. If you buy or sell
workers comp insurance in California, you should consider attending. For dates,
locations, the agenda, and speaker biographies, see the
Seminars section of IRMI.com.
As we enter our fourth year of publishing IRMI Update, I must once again
thank you for your support. We enjoy a strong and vibrant readership of 30,000
professionals who participate by expressing their views, sharing risk management
tips and techniques, and recommending IRMI Update to their friends in the business.
While IRMI Update is far from the most profitable endeavor in which we have
engaged, it is one of the most rewarding. I really appreciate your friendship
and your participation.
Best wishes from all of us at IRMI for a prosperous, healthy, and happy New
Year.
Jack
Jack P. Gibson
President
IRMI
ISO Revises
Additional Insured Endorsements—Insurance Services Office, Inc. (ISO),
announced last week that it has made a filing in most jurisdictions to significantly
revise a number of the additional insured endorsements used with the commercial
general liability (CGL) policy. The purpose of the revision is to eliminate
coverage for the additional insured's sole negligence. Many courts have held
that the keystone phrase "arising out of" used in most standard endorsements
should be interpreted to include such a broad scope of coverage. Also in this
filing is a new optional endorsement that may be used to eliminate contractual
liability coverage for broad form indemnity agreements, causing the contractual
liability coverage to parallel the more restrictive additional insured endorsements.
In most states, the planned effective date for the changes is June 2004.
These changes will have a substantial impact on many of our subscribers,
and IRMI will report on them in detail in supplements to our reference manuals:
Contractual Risk Transfer,
Construction Risk Management and
Commercial Liability Insurance.
Use Tracking Systems To Prevent Equipment Theft—When
a company needs to protect its vehicle fleet or high-dollar, mobile equipment,
traditional equipment theft prevention techniques often prove inadequate. Removing
fuses, hidden fuel shut-off switches, disengaged or removed components, locking
devices, parking/electrical/fuel impediments, and many alarm systems will only
temporarily deter a determined, educated thief or one equipped with a mobile
crane and a flatbed truck.
Vehicle tracking systems may provide the answer. There are several currently
on the market in North America, Europe, and Asia that use GPS satellites to
track the whereabouts of any vehicle or mobile equipment at all times. Some
systems allow 24/7 customer monitoring via computer access with full color GPS
delineated maps. While heavy steel shipping containers and underground garages
may prevent a signal from being captured, some systems use cellular phone technology
for the tracking portion of the system, which produces improved performance
in these cases. A few firms use both GPS and cellular systems at the same time,
implementing the best features of each and ensuring a backup should one form
of signal fail.
These vehicle tracking systems provide automatic notification if the equipment
is moved without authorization, frequently resulting in theft recoveries within
1-2 hours, reducing the likelihood of damage to the equipment. Tried-and-true
companies offering such systems in Canada the United States at this time include:
Corporate risk managers with substantial equipment values or sizable vehicle
fleets are installing these integrated or complimentary alarm/immobilizer/vehicle
tracking devices at an increasing rate. In some cases, insurance companies require
it. Reducing the loss frequency and severity to the vehicle and contractors'
equipment sector will help both the unit owners and the insurers—a classic win-win
scenario.
By: Owen Kurin, P.Eng., FCIP, CRM
Loss Prevention Manager
The Citadel Assurance Company
A Credit Suisse/Winterthur company
E-mail: Owen.Kurin@citadel.ca
Suggest a Risk Tip.
Future issues of IRMI Update will include more risk tips from our readers. Send
us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. We'll
give you credit for your contribution.
There are now 487 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
The Mental Health
Provider and Workplace Violence Prevention—Dr. James Madero explains
the valuable contributions an experienced mental health provider can bring
to the Workplace Violence Prevention Team as it manages potentially violent
workplace incidents.
-
Up-Front about Reinsurance—The
fronting relationship can cause confusion. In this article, Larry Schiffer
explains the basics of fronting and why it may be necessary for licensing,
rating, pooling, or regulatory reasons.
-
The New Business
Risk Rationale (Part 2)—In this second article, Pat Wielinski
addresses the economic loss rule—how it is applied by the courts, insurance
coverage for the exposure, and why it's important to bother with the concept.
-
Private Aviation:
Developing a Corporate Policy—Most firms don't have an internal
policy, oversight, or any method of tracking the use of private aircraft
by staff members. Adam Webster identifies key features of such policies.
What's New
in IRMI Online—We have recently updated
IRMI Online
to include the latest issues of our newsletters,
The Risk Report,
Captive Insurance Company Reports, and
Financing Risk & Reinsurance, as well as
supplements to a number of the reference manuals. Please use
this link to go directly to a summary of the new issues and information
with direct links into the publications.
24th
IRMI Construction Risk Conference Scheduled—Mark your calendar for
the 24th IRMI Construction Risk Conference to
be held November 8–11, 2004, in Orlando. If you have a topic you'd like to see,
are or know of a good speaker, or otherwise want to provide input on this year's
Conference, please follow the instructions on
this web page to
send us your suggestions by February 15.
New Seminar
for Reducing California WC Costs—If you buy or sell workers compensation
insurance in California, don't miss this important workshop: Reducing California
Workers Compensation Premiums: Expert Techniques To Minimize Costs. Three risk
management and workers compensation experts present proven techniques for insurance
purchasing, premium determination and disputes, risk finance, claims management,
and claims auditing. Whether you are a policyholder or insurance professional,
these strategies will help you in a difficult market. Many tactics you can use
immediately; others offer long-term solutions to keep a lid on costs in the
years to come. Here's a sample of what you will learn:
- How to ensure that employees are correctly assigned to the least expensive
classification
- Effective negotiation strategies using the California rules and appeals
processes
- Recent developments with self-insurance and multiemployer pooling options
- Why, when, and how to do a claims audit
- How to control long-term costs with good claims management
- The best way to work with insurers to assure claims are properly handled
- New developments in the California workers comp insurance market
This full-day seminar is designed for the busy executive. Programs are held
in convenient locations to ensure only 1 day out of the office! Mark your calendar:
Pasadena—February 17; Anaheim—February 19; San Diego—March 2; and Oakland—March
4. See our web site for exact locations,
speaker biographies, and more details.
In IRMI Update 79, Jack Gibson relayed his
concerns over a recent survey that indicated many businesses do not purchase
business income insurance and asked readers to relate their experiences and
opinions regarding this issue. Below are some replies.
- My client, a car stereo and alarm installation business, had a $250,000
fire loss under a businessowners policy, including $70,000 for physical
damage to personal property, the remainder for business income and extra
expense. With that insurance, he was able to relocate in another facility
next door, continue his business without terminating his employees, and
eventually relocate in a permanent new location.
—Sharon Jakobi, Interisk Corp., Tampa, FL
- I enjoyed your editorial on business interruption (BI) and have two
comments. First, the ACCORD or ISO BI worksheets are difficult to complete,
particularly if the insured is a middle-size business. Large businesses
with an experienced bookkeeper can figure it out as can small mercantile
operations, motels, etc., who use simple monthly earnings.
Another problem in BI insurance is being able to rebuild quickly after
a covered loss. Recently, one of my insureds had 40 percent of his shopping
center burn down. I do not know why, whether it was the property manager,
the city zoning officials, or the independent adjustor, but the final adjusted
amount was not determined until 6 months after the loss. Only then could
the contractor order the supplies (steel, etc.) to start rebuilding. Luckily,
the damaged portion could be replaced in 4 months, just 10 days short of
the anniversary date of the fire. Otherwise, the 12-months rents insurance
would have stopped. That delay was scary, and it was also an unnecessary
expense for the insurance company. Prompt rebuilding would have saved 6
months of rents insurance.
Partial solution? Keep a catastrophe plan and building plans off-premises.
Be strong willed in getting the adjustor and city officials together as
soon as possible and impress upon them the need for quick cooperation. Get
your insurance agent fully involved in making these meetings happen quickly.
—Ivey Jackson, Sevier, Fowlkes & Jackson Insurance, Birmingham,
AL
- Back in the late 1980s, a manufacturing client had fallen on hard times
and needed to cut expenses everywhere possible, so he called me in to discuss
his insurance program. After reviewing the cost of each line of coverage,
he decided to drastically cut his business personal property AND his business
income coverage. Fortunately, I advised against both and documented that
these were his decisions made against my advice. The premium savings was
less that $4,000. Within 3 months, his plant was hit by a massive fire,
due to an employee blunder, that destroyed the majority of the main production
wing of the building.
Because of becoming a major coinsurer in BOTH property and business income
he received only a small fraction of the limit he originally carried. The
amounts he received, even after very generous consideration about valuation
of the BPP by our adjuster, was nowhere near enough to get this business
up and running. The insured had only his customer lists to sell, so he "merged"
with a long-time competitor and became an employee instead of an owner.
All of his employees (40) lost their jobs as a result of not having sufficient
income to resurrect this business.
Just another example of short-sighted decisions that have very long-term
consequences.
—Thomas W. Davis, CIC, Davis American, Ltd.
- Even with business income coverage, many businesses never recover, or
fail within a year after a major loss. In today's economy, continuity of
operations is critical to retaining customers in the short and the long
run. Customers need to know they can rely on business income coverage which
provides the funds as a sort of stop gap measure for the recovery period,
to reduce the loss by funding alternative means to deliver products and
services. To actually recover, businesses must have a disaster recovery
plan. Redundancy, reciprocal agreements, third-party outsourcing, and alternate
sites all must be evaluated. The limit selection is actually secondary to
understanding operations and what a business would do in the event of a
major loss.
Many small businesses can purchase BOPs with 12 months of unlimited coverage
built into the program, so the choice of purchasing coverage and limits
is a non-issue. Small to mid-size accounts purchasing specific coverages
and limits will need to consider the flow of operations and how income is
generated, the cost of alternatives and work-arounds, and analyze how production
and costs will be affected, thus influencing net income. Because things
never go exactly as planned in these scenarios, companies are wise to build
in a cushion based on their confidence in the analysis they've done. Twenty
percent is usually a good starting point. Any discussion of business income
must include discussions of disaster planning and the insured's post-loss
goals.
—Elizabeth L. Good, CPCU, Underwriting Manager, Schinnerer
& Company, Inc., Chevy Chase, MD
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