"Insuring anything is a form of evasion of responsibility as it generates the feeling that 'I've taken care of that so I don't need to pay attention any more,'" argued risk management pundit Felix Kloman in an e-mail to me several months back, "I'm sure that you will take issue with me on this."

While I don't completely buy into this view, I do see his point. For many years, I've watched as organizations tried to delegate risk management with a premium payment, thinking that a risk of loss is "handled" simply because it is insured. Of course, this is a very short-sighted view as it completely overlooks so many other costs and considerations. While the stated purpose of insurance is to return the person or organization to its pre-loss condition, it always fails to do this. There is little or no recovery for the lost business opportunities, time, reputation, customers, employee morale, etc., that stem from property, liability, or workers compensation losses. In fact, it is not uncommon for these uninsured losses to exceed the insurance recovery.

Sometimes insurance acts like a barbiturate that lulls us into a false sense of security. Look at a business that knowingly retains significant risk, and you will see superior risk management programs in place. It is likely that these superior programs also translate into business advantages—such as higher quality products and improved worker productivity—that lead to higher profits. This is why organizations should retain as much risk as possible, using insurance only as necessary to protect against truly catastrophic loss.

What do you think? Does insurance sometimes remove the motivation to implement superior risk management programs? Have you ever seen an organization greatly improve its risk management program after deciding (or being forced by the market) to retain more risk? Has the fact that a risk was insured ever led to a bad management decision by your firm (or your clients' firms)? In general, should most companies assume more risk than they do and then do a better job managing the risk they assume? [See reader responses.]

Have a great day.

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI

Risk Tip

You've Got E-Mail—Don't Let It Get You—E-mails routinely are included in "documents" requested during the litigation discovery process, because smoking-gun messages often are found. To protect your organization:

Have a formal policy on e-mail use, and have employees acknowledge in writing that they will follow it. Include the right to monitor employee e-mail. Main rule: Never send an e-mail you wouldn't want a jury to see.
Substantive e-mails to and from your attorney aren't subject to discovery. Subject lines should include something like "Privileged and confidential: attorney-client communication." In the text, ask for the attorney's guidance.
Sometimes it's best to communicate by picking up the phone or walking to the other person's office and having a conversation.
In e-mails, don't exaggerate, speculate, insult anyone, use vague terms such as "substandard" or "troublesome," or use legally loaded terms such as "negligent" unless you are sure the term is appropriate. Consider "keyword" tracking software.
Include e-mail in your document retention policy. Archive systems can allow you to find the files you need without wading through all the others. Be wary of using every archival technology available, however. Metadata—data about data—can be valuable to an opposing counsel.
At the first hint of legal action, place a hold on any documents that might be relevant, and don't allow them to be destroyed, regardless of your retention policy.
Remember, "deleted" items still reside on a server with a "not used" status, and can be retrieved until they're overwritten.
"Blogging" risks can include defamation, libel, invasion of privacy, infringement of intellectual property, and securities laws violations. Insurance is available to address these exposures, which typically fall outside the "advertising injury" protection of a commercial general liability policy. If you include blogging standards in your e-mail policy, reference your existing company policies regarding nondisclosure of confidential information, discriminatory conduct, etc.

By: William Henry
Vice President, The CIMA Companies, Inc.
Alexandria, VA

www.cimaworld.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 William.

New Expert Commentary

There are now over 800 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

"Simple Logic" Precludes Ambiguity in Offer Letter's at-Will Clause—Paul Siegel relates a California decision that says employers may rely on clearly worded, unambiguous statements of at-will status where the employee has agreed to them.
Average Insurance Premiums Hold Steady in Second Quarter—Advisen reports that insurance premiums remain flat or decrease slightly but hurricane regions continue to endure increases in property insurance premiums.
Is There a Reinsurance Paradigm?—Significant collateral reduction requirements, investment and insurers moving offshore, underwriting property catastrophes ... Pete Polstein asks: Is this a trend in the making?
Beyond Equipment Theft—Losses from vandalism, sabotage, unauthorized use, joyriding, and the theft of building materials and scrap metal are significant. David Shillingford explains.

Products and Services

Practical Risk Management Is Now Available from IRMI—Since 1974, Practical Risk Management—The Handbook for Risk and Financial Professionals has been one of the world's most widely used risk management references. Known in the industry as "the Green Book," this resource for best practices has helped risk professionals at all levels make sound decisions and take action. See the Table of Contents and how you can become an even more valuable adviser to your clients.

Online Ethics CE Course Meets State Requirements

"Ethics for Property and Casualty Insurance Professionals" is one of our many online insurance CE courses. Passing the course will not only give you 4-6 hours CE credit, depending on your state, but also meet your state's ethics course requirement. And you won't believe how reasonable the cost of these courses is. Check all the courses out.

Expert Commentator Profile: Kevin Merriman

Kevin Merriman, a partner with Goldberg Segalla LLP in Buffalo, New York, writes the Case of the Month column for IRMI.com. He lectures and writes extensively on insurance law issues, and counsels insurance companies on a broad range of commercial and personal lines issues, including auto, homeowners, commercial general liability, commercial property, law enforcement, public officials, employment practices liability, and workers compensation. His insurance law column provides legal perspectives of what insurance policies cover—and what they don't—as determined by recent court decisions. For more information on Mr. Merriman, see his full biography and a list of his articles.

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IRMI Update—Issue #145

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