IRMI Update—Issue #131
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
February 22, 2006
In This Issue
Colleague,
As we discussed in issues 128 and
129, TRIA was extended until the end of 2007
with some changes. The February issue of The Risk
Report contains an extensive analysis of the changes implemented by the
extension act and offers practical advice for managing terrorism risks and obtaining
the best possible terms on terrorism coverage in the future. The article was
written by James Macdonald, former chief underwriting officer for ACE USA, and
I highly recommend reading Jim's analysis. If you subscribe to
The Risk Report on IRMI Online, you will
find it
here.
If you subscribe to The Risk Report
in SilverPlume Sage, you will find it
here.
If you don't subscribe, learn more about The
Risk Report
here.
On another note, I am pleased to announce that IRMI will be conducting a
new seminar series, "Residential Risk and Insurance 2006: Advanced Strategies
for Developers and Contractors," this summer. Two recipients of the IRMI Words
of Wisdom speakers' award, Mike O'Neill of ACIG and Jeff Masters of Cox, Castle,
and Nicholson, will be presenting the program. Seminars will be held in Las
Vegas, Dallas, and Orlando in April and May. Learn more about the agenda, speakers,
and dates here.
Thank you for subscribing to IRMI Update.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Avoid WC Supplements—One of the most debated
subjects in workers compensation (WC) is employer supplements. Supplements involve
the employer offsetting the reduction in pay an employee experiences when receiving
WC benefits.
Waiting Period
Employees Loss of Earnings (???)
Employee is restored to Pre-Injury Wage
| .6667 of Pre-Injury Wage |
(Tax Free) |
| Pre-Injury Wage |
$600 week (Taxed) |
| Comp Rate |
$400 week (Tax Free) |
| Employer Supplement |
$200 week (Taxed) |
|
$135 week (Tax Free) |
| Employee Receives |
$535 week (Tax Free) |
|
$750 week (Taxed) |
The first gap that supplements are sometimes used to offset is the waiting
period. This is usually the first 3 to 7 days that the employee is out of work.
The waiting period is not paid until the employee has been out of work for a
certain number of days. The main reason for a waiting period is to encourage
the employee to rapidly return to work. If the employer pays the first week
of benefits, this built-in encouragement is eliminated.
The basic function of WC benefits (as with most insurance) is to make the
employee whole again. Most states require the WC insurer to pay 2/3 of the employee’s
average weekly wage subject to a maximum. The benefits are paid tax-free. In
the above example, the employee is receiving $600 per week as an average weekly
wage. The WC weekly benefit rate is $400. The employer has decided to provide
a supplement of $200 (taxed) per week to raise the employee's wages back to
their pre-injury wage. The after-tax rate of the supplement is $135. When added
to the WC weekly benefit rate, the employee is receiving $535 tax free. Converting
the employees pay back to a taxed rate, the employee is now receiving the equivalent
of $750 per week in taxable income.
Since the employee is now receiving a higher pay rate without having to work
s/he has little or no motivation to return to work. I recommend the avoidance
of providing WC supplements for this very reason.
By: James Moore, President
J&L Risk Mgmt. Consultants, Inc.
Raleigh, NC
www.cutcompcosts.com
Suggest
a Risk Tip. Send us a practical tip (less than 300 words) for identifying
and managing risks, buying insurance, managing claims, or filling gaps in insurance
coverages. Submit your
tips. We'll acknowledge your contribution as we did for James.
There are now 763 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
We are looking for a hard-working individual to sell IRMI publications by
phone in tandem with computer demonstrations. Candidates must have 3 or more
years of experience as a commercial property and casualty CSR, account representative,
or underwriter. If you have commercial lines experience and live or want to
live in the Dallas area, we can teach you how to sell the IRMI way.
Hours: 37.5/week Monday through Friday. Occasional exhibiting at a major
conference and occasional trips for on-site demonstrations. Base + commission
with benefits. Send resume and salary history to
.
Author Kate Westover helps you understand the accepted practices and procedures
that support a captive's ability to achieve its mission and purpose. You'll
learn what it takes to establish a successful captive insurance company—one
that sets the standard and withstands the test of time! See the table of contents
and order
here.
In IRMI Update 130, Jack Gibson asked readers
how we should handle pandemic risks, such as that posed by Avian Flu. Following
are some of the responses received.
-
I believe that planning for an Avian Flu pandemic is a worthy of use
of an organization's time; however, I would caution that a more comprehensive
plan be established to address communicable disease outbreak, including
Avian Flu. There are hundreds, if not thousands, of disease strains that
have the potential to be debilitating on a global scale. Some have not become
well adapted at human infection, others lack an ease of transmitability
between people, and still others are currently rather innocuous but, with
mutation, could become a serious concern.
Whatever the disease, whatever the reason for outbreak, the time to establish
your plan, to think about resources that might not be available, to lock
in contingent contracts is now. And once you establish your plan, run an
exercise (at least one) to test the plan. Your plan will be better because
you did, and your people who will have to execute the plan won't be doing
it for the first time during a real crisis.
—Mark Taylor, Risk International Services, Sr. Risk
Analyst, Charlotte, NC
-
When developing business continuity plans, I divide the project into
a series of workshops. In one of those workshops, we discuss risk and recovery
strategies. I break risk into three categories: loss of technology, loss
of real estate, and loss of experienced staff. We then discuss recovery
strategies that deal with these three risks individually and in combination.
Under loss of experienced staff, I use Avian Flu as an example of how you
can lose large quantities of staff without losing real estate or technology.
Other examples include a severe snowstorm, labor action, chemical/bio hazard
whether by terrorist or accident, etc.
The point I stress is "How you lose your staff almost doesn't matter."
What matters is the simple fact that they're not available, and you have
to have contingency plans to work around that loss. Strategies include:
work from home, work from dispersed smaller location (branches), curtail
unnecessary work (prioritize), have strong documentation available for replacement
workers, and cross-train for task coverage. The reason for the loss is important
when developing mitigation strategies, not when developing recovery strategies.
Once the loss has been suffered, you have to deal with its impact.
—Raymond Cross, Auto Club Group, Business Recovery
Analyst, Dearborn, MI
-
The idea of providing the flu shot to employees of this school system
of 11,000 employees and 90,000 students is doable, unfortunately it will
not happen due to something that we have no control over: a supply problem!
It seems that just like oil products, we are hostage to offshore producers
with few options to establish a timely vaccine of adequate quantity. So,
do we allow the foot draggers in public office to force the nation to just
accept the economic impact and significant loss of life?
—Steven Henderson, PCSB
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