Do buyers of corporate insurance consider the quality of the claims service they receive, or do they just focus on price? Next month's issue of The Risk Report will confirm that the insurance marketplace is incredibly soft, and there is no end in sight. Often, claims and other services deteriorate in the latter stages of a soft market as buyers focus on price and insurers try to remain profitable by cutting costs. (See IRMI Update 185 for many reader comments suggesting a substantial decline in claims services over the years.)

But is cutting services and related costs along with price cuts a wise business strategy? Not according to a survey conducted by Greenwich Associates, a leading international research-based consulting firm that focuses on financial services. An analysis of the responses of 714 risk managers at large U.S. companies to questions about their insurance practices and their ratings of major U.S. insurers reveals that claims quality ranks as an important driver of insurer loyalty, along with underwriting expertise and understanding of client needs. Greenwich Associates concluded that all these are much more important than price, and risk managers judge insurers by how they perform when a claim is made and how effective they are in underwriting.

This is as it should be. After all, the policy form is not the insurance product that is being purchased; the real "product" is the handling of claims and the protection (or recovery) that the insurance provides following a liability or property loss. While an organization with some claim frequency can evaluate the adequacy of the service being received from the current insurer, it is much more difficult to evaluate a potential new insurer. Nevertheless, this is something insurance buyers should try to do, and their agents and brokers must try to help them. We are beginning to see more attention paid to evaluating quality by trade organizations, such as RIMS, and even insurance brokers. I think this trend will continue. But will these evaluations and ratings trump major differences in pricing between competing insurers?

What do you think? Do insurance buyers pay adequate attention to claims service when selecting insurers? Do you perform an annual evaluation of your insurers' services to benchmark them? How can a risk manager estimate and quantify the quality of the service likely to be received from an insurer under consideration? What can agents and brokers do to help their customers evaluate the level of service they are likely to receive from a new insurer? [See reader responses]

As we get closer to the cutoff of the early bird fee, the pace of registrations for the 28th IRMI Construction Risk Conference is accelerating. Make your plans now to take advantage of the discount, get your choice of workshops, and a reasonable airfare. Take a look at the complete agenda, speakers, and registration information for the IRMI Construction Risk Conference.

Thank you very much for subscribing to IRMI Update. I hope to see you at the IRMI Conference in Las Vegas.

All the best,

Jack

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

Risk Tip

Use Loss Control and Limits To Combat Employee Dishonesty—The day before Independence Day is a slow news day. Perhaps that explains why the New York Times Metro Section on July 3, 2008, had two long stories about employee dishonesty. One reported that a staff accountant stole $2.8 million dollars from his employer, Tishman Realty & Construction, and the other dealt with the Riverdale Country School suing a former bookkeeper to recoup $960,000 that she had embezzled.

Tishman is a major player in the New York and national real estate field; Riverdale Country School is an upscale New York City private school. In addition to falling victim to the dishonesty of trusted employees they have something else in common: the employees both had prior histories of employment dishonesty! The lesson for us is obvious: loss control and limits.

Employee dishonesty risk management starts with checking prior history. Other good steps are outlined in the questions in typical employee dishonesty applications. For example:

Audits by independent CPA that includes a review of internal controls
Two signatures required on all checks over a nominal threshold
Separation of duties and mandatory vacations for accounting/bookkeeping personnel
Confirmation of statement balance by someone outside the accounts payable unit
Stamping invoice "paid" when checks are issued
Joint control of securities by two employees
Regular inventory of valuable equipment and storing it in secure areas
Computer controls including:
- Automatic prevention of repeated attempts of unauthorized access
- Exception reports generated for unauthorized sign-in or repeated access attempts
- Segregation of duties between programmers and operators
- Individuals who can authorize checks should not also be able to produce them

The answer to the question of what is an adequate employee dishonesty limit is: More than you think. Because employee dishonesty losses can go on undetected for years, even relatively small businesses can suffer very large losses. The record is probably held by a small Michigan County whose treasurer stole $1.2 million even though the county's annual budget is only a little over $4 million. Incidentally, he stole the money to fund his investment in a Nigerian Internet swindle!

A good starting point is 10 percent of annual budget, sales, etc., but note that in the case of the county, the amount stolen was more than 25 percent of one year's budget.

Employee dishonesty is an exposure that gets little respect. It's time that it did.

By: Jerry Trupin, CPCU, CLU, ChFC
Insurance Consultant/Expert Witness, Trupin Insurance Services
Briarcliff Manor, NY

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 Risk Tip. We'll acknowledge your contribution as we did for Jerry.

What's New in Captive Insurance Company Reports

The August issue of CICR contains two technical articles: the first on several recent accounting developments and the second on tax developments on partnerships and who is the true insured. An overview of the recent Bermuda conference, discussing two domiciliary developments, is also included.

For IRMI Online subscribers

For SilverPlume Sage subscribers

New Expert Commentary

There are over 1,080 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

Downsizing Risk Management: RFOA as an Affirmative Defense—Paul Siegel examines the Supreme Court's recent decision in Meacham v. Knolls Atomic Power and provides practical advice to employers facing layoffs.
Technology and Claims: Blessing or Curse?—RMIS Review Editor David Tweedy takes a look at the advantages and disadvantages of technological progress in claims management.
Risk Management for Weddings—Weddings bring with them special risks not always covered by auto, home, or even umbrella policies. Jack Hunglemann explains.
Captives: Domicile Shopping—Michael Mead points out new issues in the captive domicile selection process: lack of qualified regulatory personnel and NAIC accreditation.
Event Data Recorders: Balancing the Benefits and Drawbacks—EDRs are in more modes of transportation than ever. Brent Cooper looks at the legislation and caselaw on the issue of privacy versus public safety.

Conference Early Bird Deadline 9/12

The early bird rate for the IRMI Construction Risk Conference ends September 12. Register online today to save $125 and reserve your spot at this premier networking event. You can also see the full agenda, speaker roster, and video testimonials from your peers.

Expert Commentator Paul Siegel Hits the 50 Mark

Expert Commentator Paul Siegel's 50th article for IRMI.com is now on the www.IRMI.com home page and listed under "New Expert Commentary" above. An employment law and litigation partner of Jackson Lewis LLP, he has written the employment law column since March 2000. He has contributed articles dealing with all aspects of employment law, including discrimination, drug testing, military leave rights, OSHA ergonomics standards, and the Americans With Disabilities and Sarbanes-Oxley Acts. For more information on Mr. Siegel and his firm, see his full biography and a list of his employment law articles.

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IRMI Update—Issue #190

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