IRMI Update—Issue #71
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
August 26, 2003
In This Issue
Colleague,
Last week's computer virus activity really concerns me. Like most organizations,
IRMI was bombarded by the new Welchia and Sobig.F viruses. The Welchia virus,
like the Blaster viruses that preceded it, continuously attacked our network
though our direct Internet connection. The Sobig.F virus sent us thousands of
virus-laden e-mail messages. We received more than 1,500 on Tuesday alone. Fortunately
our defense systems protected us from infection, but just dealing with the volume
of activity consumes huge amounts of productivity.
What we must all realize is that we are facilitating these attacks. These
viruses spread when people fail to use anti-virus software and/or to keep their
systems updated with the latest security patches and virus definitions. When
this happens, our own computers become infected and engage in attacks on other
computers.
Education is one of the primary keys to solving this problem. As risk professionals,
we must convince the managers of our companies (or our clients' companies) of
the need to expend the resources necessary to keep their systems absolutely
up to date and safe. That pet IT project must take a backseat to basic security.
Additionally, businesses would benefit from helping their employees understand
how to protect their home computers to prevent them from being used against
us.
As we become more dependent on the Internet it is also becoming our Achilles'
heel. No company is an island within the Internet, and we must all work together
to minimize the risk.
On a more positive note, this is an exciting time of the year for us as we
begin receiving registrations for the IRMI Construction Risk Conference. We
are looking forward to seeing all our friends in Chicago and hope you will be
among them. It has become the primary place for construction risk management,
insurance, and surety professionals to meet each year, and I promise a great
educational program. For more information or to sign up, go to this web page.
Thanks for subscribing to IRMI Update and for recommending it to your colleagues.
Have a great day.
Jack
Jack P. Gibson
President
IRMI
Prepare for Another Hard Market Renewal—With
another hard market renewal approaching for many, it is important to start preparing
now. Following are a few hard market survival tips:
- Clearly document your loss control program for underwriters. If you
don't have one, get senior management commitment to put one in place.
- Review your claims information to ensure it is correct and current.
Describe steps taken to address any frequency/severity problems.
- Prepare a high quality, thorough underwriting submission, including
a great deal of detail to distinguish your account from others.
- Begin the renewal process early—at lest 4 months prior to the anniversary
date.
- Meet with underwriters and review your risk management program, financial
position, and business plans.
- Review the financial position of your insurers.
Taken from the upcoming September 2003 IRMI Insurance Market Report in The Risk Report. See below and check out
this Web page for
more information.
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 448 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
Insurer Insolvency: A
Growing Concern—The Council of Insurance Agents & Brokers has released
its second quarter data showing that the market is leveling and beginning to creep downward in
some areas. However, insurer solvency continues to be an increasing concern
to brokers. "Responding to Insurer Insolvency" is one of the sessions at the
upcoming 23rd IRMI Construction Insurance Conference. Speakers Mark Christensen
and Rick Shamis will show how to avoid liabilities arising from contractual
obligations when your insurer becomes insolvent and offer insight into the unique
impact insurer insolvency has on wrap-up programs, the role of the insured's
broker in anticipating future coverage needs, and the likelihood of recovery
from the insurer's estate via reinsurance or as an unsecured creditor.
How To Get Our Annual
Insurance Market Report—Our annual analysis of the insurance market
will be published in the September issue of The
Risk Report. Sign up today, and you'll receive the market report around
mid- to late September. Each monthly issue of The Risk Report tackles a single risk management issue or problem in
sufficient detail (8-12 pages) to give you useful insights and solutions that
you can put to work. Upcoming issues will deal with privacy, SARS and other
catastrophes, dealing with contract requirements in a hard market, return-to-work
programs, hospital self-insurance, and much more. Check out this Web page for more
information.
In IRMI Update 70, Jack Gibson asked whether readers
thought employment practices liability insurance (EPLI) was a necessary coverage
for small to mid-sized employers. We received many responses, some of which
are reprinted below.
- We are a 235 million dollar company. While our agent and others have
brought up the subject of EPLI coverage, management has opted for a mandatory
arbitration policy. So far this has worked. However there is some concern
that this conflicts with the concept of employment at will, since it is
now a condition of employment, requiring the employee to sign an acknowledgement.
I know there have been recent court rulings supporting arbitration over
the alternative but am not sure if this is now accepted as the law of the
land.
—John Lickert, Insurance Administrator, Frisch's Restaurants,
Inc., Cincinnati
- If you have a car you buy automobile insurance . . . if you have employees
you buy EPLI coverage.
—Dori Shields, Executive Vice President, Casswood Insurance
Agency Ltd, Clifton Park, NY
- I read your comments on EPLI with interest. My firm has been buying
EPLI coverage since 1999. Our proactive broker began suggesting it in 1998.
For the relatively low cost of the premium, I feel mid-size companies are
foolish not to carry the coverage. Employees today are too eager to shout
a battle cry over what used to be deemed "normal" employment actions, such
as terminations for performance. With the increasing litigiousness of employees
and the corresponding decrease in our society's belief that we should be
accountable for our actions, companies can find themselves in the expensive
position of having to defend themselves for decisions that used to be considered
the normal course of business. When that happens, it doesn't matter if the
claim proves frivolous or not—the company still has to pay for defense coverage.
On the flip side, I feel there is potentially more exposure to an employment
practices claim in small to mid-size companies because, too often, the people
handling terminations, promotions, training, etc. are not properly trained
in the legal aspects of their actions and, more importantly, in the documentation
of those actions. This lack of awareness can inadvertently expose the company
to legal action, even if their original intent was legitimate.
—Laurie Germano, PHR, Human Resource Manager, KBS, Richmond,
VA
- I feel this coverage is imperative for many small and medium sized companies
as many don't have a human resource manager or department to control the
risk. An option for small and medium sized companies is to join a PEO (Professional
Employee Organization). The PEO assumes the human resource responsibilities
and generally provides up to $1 million EPLI coverage. Naturally, there
is a charge for the PEO participation, however, it can be considerable savings
for small to medium-sized companies.
—Bill Horner, SCLA, VP Risk Management Services/Broker,
Bowen, Miclette & Britt, Inc., Houston
- I worked with a very prominent regional property and casualty company
for 9 years—in the first 3 of those 9 years, the company introduced EPLI
and we had minimal sales. The application process was tedious and the pricing
was out of the range of affordable for most small to mid size commercial
size accounts. The company seemed to clearly understand the challenges of
providing a new product to a market that had little or no experience with
employment practice issues.
Today, I work with a not for profit that serves churches—two denominations—and
we provide EPLI with our D&O on every church, no exceptions. The coverage
is not an endorsement, it is a fundamental coverage part. That tells you
how important we see the coverage. Dr. Richard Hammar of Church Law and
Tax Report speaks to the issues of EPLI—the fastest emerging case law against
churches today, not sexual abuse!
With this said, we don't see EPLI offered to churches by most competitors—if
it is offered, the application process is tedious and the form is limited.
In today's litigious environment, I think EPLI should be a fundamental
coverage. The key is to educate the consumer so that they can practice proactive
risk management to avoid the allegations of workplace harassment, etc. Our
focus is education backed by the right coverage.
—Kristin Woods, CIC AAI CPIA CSE, Executive Vice President,
The Insurance Board, Gaithersburg, MD
- With regard to EPLI insurance for small firms, the availability of the
product at a competitive price is well worth it for smaller firms can still
face the same type of lawsuits as larger firms for hell hath no fury like
a disgruntled, harassed employee. Some companies are providing $5,000/$5,000
of EPLI coverage automatically under their BOP products. And also giving
clients options for increasing limits up to $1 million.
One of the issues that we see with smaller firms is that most of them
are not as well organized as larger firms in terms of handling harassment
complaints. When you have the owner, who is also the human resources department,
sales manager, MIS department etc., you find that a harassment issue can
go un-addressed and later turn up as a full blown claim.
The underwriting of EPLI for smaller firms is much lighter than your
typical stand-alone EPLI product say from the Chubb's or AIG's of the world.
As a consequence, the coverages are more restrictive. Nevertheless, some
coverage is better than no coverage.
—Scott T. Harrigan, CIC, Commercial Lines Marketing Representative,
NIA Group LLC Freehold, NJ
- I am a broker who handles accounts between $50,000-$500,000 in premium.
I focus on construction and manufacturing. My employers have between 15-20
employees. Of my 60 or so accounts, under 5 have EPLI coverage. Believe
me I offer it to all of my clients, because I know that they need it!! Realistically
the percentage of employers purchasing the coverage is small. I think 40-60
percent of my clients should buy it.
—David Viola, CIC, Huckleberry, Sibley & Harvey, Insurance
& Bonds, Inc., Maitland, FL
- I have mixed emotions about the purchase of EPLI. When the coverage
was first introduced, I felt it was not being priced or marketed correctly
which was exactly the reason that only large corporations (which had much
exposure) were purchasing it. Basically, underwriters forgot the law of
large numbers for this coverage and were allowing themselves to be selected
against (i.e., only those folks that felt they had large exposures would
purchase). The managers of small to mid-size companies would not purchase
the product as the price versus exposure was not a good purchase for them.
They also felt they could do a better job of controlling issues that create
EPLI type claims. The EPLI product is still being treated like D&O by most
underwriters and thus the purchasing public. Until we can get the cost down
per unit by spreading the risk, the product will not be widely purchased
and to blame the agent force when not sold is ludicrous.
All you have to do is look at the way the broad form CGL endorsement
was initially sold. In my old life as a national accounts branch office
underwriting manager, I remember phone conversations with other company
underwriters who would call and say, "Are you guys crazy?" because as a
company, we made the decision to add the coverage to all policies. We felt
that we could use the dollars that people who had little exposure to help
pay for those that did. One of the big issues was the "contractual coverage"
provided in the endorsement. I would always overcome these underwriters
by asking them if they wrote contractual on a "stand-alone" basis (which
I knew they all did) and say if your agent asked you on a specific account
to add the coverage, would you? Almost always the answer was yes and I would
respond by saying, "See, you are being selected against."
Until underwriters learn that insurance is a socialistic product in a
capitalistic society, and that we should always spread risk between those
that have a lot of exposure with those that have less exposures, we will
always have this same scenario.
—Jim Sammons, CIC, Vice President, Guaranty Insurance
Services, Inc., Austin, TX
- I've defended one case brought against a broker by a client premised
on the theory that despite the client projecting an image as a very moral
firm, the broker should have insisted the client buy EPLI insurance to protect
it against its pervasive sexual harassment problems. The E&O exposure for
brokers isn't theoretical it is real.
—Bart Wulff, Partner, Jackson Walker L.L.P., Dallas
- Unless you hire only white males under age 40 exclusively, everyone
else is part of some protected group which enhances their ability to sue
an employer for big bucks. I don't know how an employer could actually hire
white males under age 40 exclusively anyway, because someone could sue for
NOT being hired, alleging they were discriminated against BECAUSE the "employer"
obviously hires only white males under age 40 . . . so go figure!
—Thomas W. Davis, CIC, President, Davis American, Ltd.,
Oakbrook, IL
- Several years ago, before EPLI was widely available, I successfully
obtained a new account because of two recommendations. One was to purchase
EPLI and the other was to file an EPLI claim with their employers' liability
carrier. At the time, the insured, a family-owned printing business, had
its GL and WC with the same carrier. They had an EPLI claim for sexual harassment
arise out one of the son's liaison's with a female coworker, who, when terminated,
filed a sexual harassment lawsuit. The claim was denied under the GL policy,
and the insured incurred over $70,000 in legal expenses defending the son.
I was asked to review the policies, concurred with the GL carrier's denial,
and then recommended they file another claim for coverage under the employers
liability Coverage B of their workers compensation policy. Within 2 weeks
of filing the claim, the insurance company settled the case, picked up 100
percent of the insured's defense expenses, and I got a new client. You see,
at that time there was no exclusion under the Employers Liability coverage
for employment practices liability. Unfortunately, within 6 months of the
settlement, employment practices exclusion became a standard part of the
employers liability coverage part.
Since that time, I have made it a practice to always recommend EPLI,
especially to closely held, privately owned businesses, citing this case
as a principal reason. Many privately held and family-owned businesses fail
to see that they too are just as vulnerable to employment practices lawsuits
as larger public businesses. In many cases, these businesses have a greater
vulnerability because they lack formalized human resources policies and
procedures. The process of acquiring EPLI puts the business through an assessment
of their human resources practices, guides them to establishing better policies,
procedures, and documentation that can later help their defense. I often
share with my clients and prospects some of the employment practices handbooks
or guidelines some of the underwriters have published to help manage this
risk.
The general availability and range of offerings for EPLI today, even
at the current minimum premiums, makes this a coverage that every agent
should recommend, quote, and get their customers to sign off on should they
decline.
—Michael J. Glapion, ARM, Sales & Risk Management, Gillis,
Ellis & Baker, Inc., New Orleans
- Like so much insurance coverage, the less you can afford the premium,
the more you need the coverage. A large firm has the sophistication, the
procedures, the cash flow, and the raw numbers to make self insurance of
EPL a viable alternative. Small firms lack all of these. Often they lack
even a dedicated HR person, much less a department or staff, to manage this
exposure. In most such firms, the owner or manager may have taken a class
and may have made a token effort to addressing this exposure. This is at
best a largely unmanaged exposure for a firm with no resources to respond.
Do they need the insurance? - yes. Will they buy it? - hardly ever.
—Jim Chambers, CPCU, ARM, Producer, Redmond General Insurance
Agency, Redmond, WA
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