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
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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, Sr. Risk
Analyst,
Risk International
Services, 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, Business
Recovery Analyst,
Auto Club
Group, 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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