IRMI Update—Issue #86
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
April 6, 2004
In This Issue
Colleague,
If you own, are insured by, or work with captives and subscribe to The Risk Report (our monthly research report),
be sure to check out the April issue. In it Kate Westover discusses what she
considers to be 10 of the most important best practices that make captives successful.
She'll also be covering these best practices, and many more, in her new seminar
series, Captives Built To Last, which kicks off in Las Vegas next month. Kate's
last seminar series, Captive Solutions for the Middle Market, was a big hit,
and we're looking forward to this more advanced look at the topic. For dates,
locations, and to see the agenda, go to the seminar Web page.
I'd like to thank everyone who responded to my last editorial regarding the
importance of using a careful employee selection process. While some took issue
with a few of my points, many people seemed to agree with my overall perspective
on this topic. You can read selected responses below.
Lastly, please consider sending us a risk tip to use in a future issue. It
should be a paragraph or two suggesting a specific adjustment to make in insurance
policies to improve coverage, a claims management tip, an insurance procurement
idea, a safety program hint, or some other idea that a risk manager could use
to improve his or her risk management or insurance program. We get very positive
feedback on these tips from our readers, and we give credit to the authors.
It's a great way to demonstrate your expertise to others in the industry. Complete
the RiskTip form.
Thanks for subscribing to IRMI Update. We appreciate your support and confidence.
All the best,
Jack
Jack P. Gibson
President
IRMI
Commission an Independent Safety Program Audit—Independent
evaluations of your company's operations can prove helpful in preventing accidents
and claims. The advantages of outside safety evaluations include the following:
- Objectivity. Since they are not employees
of the firm, risk control consultants bear no personal risk when they provide
frank assessments that are critical of an entity's safety program or production
practices.
- Expertise. Some risk control consultants
specialize in certain industries and/or types of operations (such as mining,
automotive, maritime, construction) and can therefore offer emerging, state-of-the-art
solutions to problems that might not be proposed internally.
- Cost. Although the hourly rates of top
risk control consultants are steep (often as high as $250 per hour, with
$1,200 daily minimum charges) their advice can provide both immediate and
significant paybacks. These high but nonrecurring fees must also be assessed
in comparison with the permanent and much higher cost of employing risk
control staff personnel.
- Convenience. For firms that have operations
spread across a variety of national and international locations, independent
risk control consultants offer the advantage of proximity, which can be
valuable in conserving corporate staff members' time and energy.
Source: Derived from recommendation #76 from
101 Ways To Cut Business
Insurance Costs
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
acknowledge your contribution.
There are now 523 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
Domestic Violence
in the Workplace: A Continuing Danger—This newly revised chart
lists the current stand-alone e-commerce insurance policies being offered.
Some policies cover both first-party losses and third-party liability claims,
others just one or the other. See what coverages are available and how to
contact the appropriate insurer, MGA, or broker.
-
Standards Needed
for Mold Exposure, Testing, and Remediation—Richard Zarandona
and Kent Holland discuss the mold litigation explosion, defective construction
as the alleged cause of mold growth, the health effects, and the need for
standards.
-
Follow-the-Fortunes
Updated—In an update of a 2001 article, Larry Schiffer examines
how some new reinsurance cases have interpreted the follow-the-fortunes
doctrine in environmental and asbestos contexts.
-
Claims—Do You Recognize
Your Policy?—Gary Bausom takes a look at the insurance industry's
approach to claims handling from both the insurer's and the risk manager's
perspective—and the many areas where they differ.
What's New—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 go directly to a summary of the new issues and information with direct links into the publications.
New Captive
Seminar by IRMI—"Captives Built to Last: How To Structure and Operate
a Captive Insurance Program That Withstands Market Cycles" is a new seminar
to be held in three cities this spring. This workshop is for single-parent,
group, and agency captive owners, insureds, and service providers that understand
the basics of how and why captives are formed and want to look at the practical
realities of owning and operating an insurance company. Attendees will deepen
their understanding of the operational and financial issues that arise in different
types of captives, find out how to set expectations for the captive management
and service team, and learn ways to quantify captive "value added." Mark your
calendar and plan to attend in one of these cities: Las Vegas on May 5-6; New
Orleans on May 19-20, and Philadelphia on June 2-3. Call (800) 827-4242 to request
a brochure or see the seminars section of IRMI.com for more information.
In the last issue of IRMI Update, Jack mentioned
the use of preemployment tests to reduce employment practices liability exposures.
We received many responses and comments on the practice, both pro and con. Some
of these are reproduced below.
- Our agency has used preemployment personality testing successfully for
the past 10 years. This is a vital piece, in my opinion, to eliminating
bad hiring decisions. I believe companies become exposed to potential claims
or make bad hiring decisions when they do not follow standard hiring practices
or make exceptions to their normal procedures. It's critical to have a clearly
defined hiring procedure and to follow it on every person to be hired. Exceptions
or bending of the procedures can occur when companies are shorthanded or
trying to fill positions too quickly. This only increases the margin for
error and really doesn't benefit either party.
—Bill Horner, SCLA, VP Risk Management Services/Broker,
Bowen, Miclette & Britt, Inc.
- The only thing I would add to your list of standardized processes while
hiring an employee is the "post offer physical examination." This is quite
effective, especially if you have established a relationship with the examining
physician, and the physician has your job description with essential duties.
I have always been a believer that businesses hire their problems. At
the insurance company where I am a Risk Consultant, hiring is one of our
focus topics for 2004.
—Douglas A. Dejmal, ALCM, Risk Consultant, Federated
Insurance Company, Springfield, MO
- I agree with all your suggestions except personality testing. I suppose
it can't hurt, but I don't place a lot of merit in an objective test score
on such a subjective subject. I prefer a 3– to 6-month trial employment
period agreement after which time either party can walk away without reason
or prejudice.
I have always found it fascinating that companies need to train employees
how to NOT harass others. If they don't know that before they're hired,
you don't want them on your team.
—Barry M. Port, Executive Director, PURMA, Southborough,
MA
- We have used personality profiling evaluations for all new hires for
many years and are certain they are of great value. The few times we have
ignored the results have not been in our best interest. I would advise all
to do the criminal background tests first and save the money involved in
the personality profiling. We recently interviewed a recent graduate with
a Insurance & Risk Mgt. degree. He did poorly on the profiling test. We
later found he had an altercation with a female after a party while in college.
His profile indicated Aggressive, but not persuasive! Amazingly true. We
do the other things you mentioned too. All this is great but you're best
bet is to have a thorough employee handbook too and procedures for dealing
with problem employees and document, document, document!
—Ron Anderson
- I have had experience with faulty hiring practices. When I was a new
manager experiencing high turnover and not using preemployment personality
testing, I eventually discovered testing is the way to go. With testing
and choosing the right person, I am not retraining new staff every 6 months
and having a frustrated client base. There is nothing worse than having
your clients confused because they had three different people handling their
account in a year and with extremely inconsistent messages. I now use the
personality testing and found it to be invaluable. I have had a stable staff
and satisfied customers. I also use this personality testing periodically
on my staff once they have been in their position for a year or two. This
has proven to be helpful in assessing my staff and developing them for growth.
That is my view.
—Angela M. McInerny, CIC, AAI, Assistant Vice President,
Swan & Sons-Morss Co. Inc.
- I agree 100 percent with what you're saying in regards to hiring practices.
This is the same thing we've told our clients in regards to Work Comp. Most
employers that have Work Comp problems have hiring problems. We've always
said, "You hire your own problems." If more people would do exactly what
you're saying, not only would they reduce the potential for EPLI claims,
they would also reduce the potential for Work Comp and especially fraudulent
Work Comp claims.
—T. Gray
- I agree, lots of offices do not have a capable person to hire new employees.
You need to be a people person and be able to read and analyze people's
attitudes and behavior over a very short period of time. We have had some
issues with wrong hires in the office. Then they are surprised some of then
lead up to possible lawsuits for wrongful termination.
—Michele Vanzandycke
- These tests are nonsense. They stem from a branch of science that suffers
from a fundamental flaw. Psychology assumes that man has no support and
works on the mind only. This is like saying a man has no heart then trying
to evaluate the blood flow. If the foundation of such a practice is a total
error, why pay any attention to anything it creates? Absurdum ab initio.
—Bill Ford, CPCU, JD, CLU, CIC, ARM, AAI, Regional Account
Executive, ProAssurance Group
- I totally agree with your opinion. I think that it is unfortunate that
people are so scared to share information about hiring a problem (or a great)
employee. We live in such a litigious society that people are paranoid to
be honest about how good or how bad a prospective new hire performed.
When I look at an existing employee’s, workers compensation, financial,
driving record, accountability, dependability, disciplinary issues, and
consistency, you can look at their background check information and conclude
their were signs in their past that support the probability of issues with
that employee at some time in the future.
—Lisa Boreham, Consumers Concrete Corporation, Director
of Safety, Training & Environmental
- Recently we have stepped up our efforts to further reduce our members’
workers compensation and auto liability losses by reviewing what best practices
they are using and what practices might be improved upon. In addition, we
went through a root cause analysis as to where our losses are coming from.
While we can always do better, it turns out that our members have been doing
a great job in reducing the environmental hazards that cause losses, i.e.,
poor housekeeping, uncovered holes, etc. It became quite evident that we
need to do a better job in hiring the right people and firing the wrong
people. In other words, "hire smart" and "fire smart." Time after time,
claimants had an unsavory background, weren't committed to the construction
industry or the company, had high rates of absenteeism/tardiness, and were
not in good physical shape. While we weren't able to check the statistics,
there's a good probability that this same group of employees is also adversely
affecting the health insurance costs of our members.
Anyone wanting to get to the next lower level of losses needs to carefully
review the area of hiring and firing practices.
—William S. McIntyre, Chairman, American Contractors
Insurance Group, Dallas
- I think that your theory is sound. I agree that most lawsuits do occur
on the back end of employment. Personality testing is a very delicate area
in the hiring process. I would be interested in knowing what testing you
use. I am certain that your personality testing is valid for the position
being applied for, but if it is not, I think you may be opening yourself
up for potential litigation. This personality testing must also be gender,
ethnic, sexual orientation, and religious affiliation neutral as well and
I am sure that the test you use has accounted for all of these things. Just
my 2 cents.
—Supervisor of Treasury Operations, ESCO Technologies
Incorporated
- I agree to a certain extent. If a company is very specialized and small,
the idea of being able to have a plentiful selection of employees is ideal.
However, it is not realistic. When an individual with specific skills leaves
a position open, the process to find a replacement is difficult; not to
mention the huge void in the progress of business. Sometime getting even
a less than ideal candidate eases the pain while continuing to search for
that perfect fit, which I'm beginning to believe is 1 in every 200.
—Donna Nolan
- My perspective is slanted both as an employer and as a person who worked
for companies that conducted preemployment investigations to include verification
of credentials, lifestyles, backgrounds, etc. Select personality testing
is appropriate in certain occupations, say sales or jobs involving public
contact almost entirely; it is not in other occupations, as you suggest.
However, wrongful hiring is different than wrongful termination. Background
investigations will help with the wrongful hiring claim/suit, but only strong
management controls and common sense will work against wrongful termination
that also invariably includes allegations of sex, money, greed, and power
plays.
—Richard DaSilva
- I think you are correct about preemployment testing. It would reduce
the number of claims, at least the fictitious ones. It would leave only
the pure, actual losses. This would help the EPLI industry as a whole. We
would be able to produce more accurate rates in actuarial departments and
handling less claims in claims departments, which would help the carriers.
Less claims usually results in better pricing and lower deductibles for
the insured. The claims for wrongful termination and discrimination would
go down. This would threaten a large number of attorneys that specialize
in employment law. Once the attorneys found out about the testing practice,
they would find a way to rip the testing apart. We would have an abundance
of failure to hire and discrimination claims. Since we cannot mandate the
perfect test questions, the courts would have to interpret every test. As
we all know, each state handles the enforcement of their state's laws differently.
A test question that is approved in one state would not be approved in another.
The lobbyist for the lawyer and different other groups would claim that
the test are bias and/or discriminatory. It would force the Supreme Court
to make a ruling. Each state court would have to make a ruling as well.
In the end, I think it would turn into one of those great ideas, that was
released too early and shot down. Testing will be good, but not for another
10 years or so. We need to deal with affirmative action first.
—Thomas Caputo, EPLI Program Manager, Rockwood Programs,
Inc., Wilmington, DE
- On your preemployment testing article, you are absolutely correct, and
as a former Director of Risk Management and Human Resources at another firm,
I was constantly "crying" this. Human resource peoples’ biases often influence
who is hired and who is not with no regard for experience or ability to
do the job. Perhaps and only perhaps they may be getting better now, but
I doubt it as Human Resource people only want to protect their turf. Therefore,
when the risk manager has to defend EPL suits, only then is there any discussion
(perhaps) on how hiring is done. Too late! So start with Human Resources—their
training and mandate.
I cannot believe that Human Resource people are still being used to screen
high level executive positions. When I hear that Human Resources is involved
in a job search, I drop out.
Will it change? I doubt it as many firms do not want to be involved in
employee hiring at any level other than very senior positions and then only
after the screening has been done by HR.
—Mary Daniels, ARM, Director of Enterprise Risk Management,
American Agency System, New York
- Actually, Jack, the steps you recommend don't sound like theory at all,
in my view. There are a surprising number of bad actors out in the job market
masquerading as legitimate candidates, and employers have a right to protect
themselves.
One comment, however: personality testing is, in this day and age, not
nearly as controversial as testing for drug abuse. Just looking at how Major
League Baseball currently treats (mistreats?) the issue gives you a flavor
for how touchy it has become. I believe this is where we need to spend some
additional time to make the discussion complete, i.e., assess the potential
legal constraints.
—Dick Schmidt, Ithaca, New York
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