Are you on LinkedIn? If so, we have two groups on LinkedIn that you are invited to join (if you qualify). The IRMI Group is for all risk professionals and has over 700 members who are quite active in sharing information with each other. The CRIS Group is only for those who hold the CRIS certification and will keep you apprised of the latest developments with the CRIS program. The next time you go to LinkedIn, I hope you will join one or both groups.

As we approach the end of the year, many insurance agents and brokers find they need to obtain some additional insurance continuing education credit to renew their licenses. If you are among them, please consider taking some of our high quality and reasonably priced online courses. We offer courses on numerous topics, and many of them satisfy special state requirements (e.g., flood insurance, insurance law, and ethics). Of course the core courses leading to the MLIS and CRIS certifications are also approved for insurance CE in all states. Learn more on the Insurance Continuing Education page of our website.

This is the final issue of IRMI Update for 2009. Best wishes for a wonderful holiday season as well as a healthy, happy and prosperous 2010.

All the best,

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.

IRMI Featured Publication

Prevent Coverage Gaps

101 Ways To Cut Business Insurance Costs provides cost-cutting strategies for every major line of coverage. This "how-to" guide is organized by line of coverage and is designed to help insurance buyers, agents, and brokers do a better, faster job of auditing their insurance programs. You'll find a gold mine of 101 tried-and-true strategies to reduce insurance costs without giving up necessary protection. Get more details and see the table of contents.

Risk Tip

Price Claims Handling Services on a Per-Claim Basis

From time immemorial, insurers have relied on the loss conversion factor (LCF) to price their claims handling services within their retrospective rating plans as well as when they front for a captive. If your LCF is 1.10, it means that you're paying the loss plus 10 percent. If a claim is worth $10,000, the claims handling costs would be $1,000; if the claim is worth $1 million, the handling would cost $100,000. See the problem here? In these examples, the $10,000 case could be an order of magnitude more difficult to manage than the $1 million case. As the claim cost rises, the amount of work is assumed to also rise, but this is far from the "rule." Shouldn't claims handling be priced based on the amount of work expected instead of on the size of the claim? Of course it should! Not to be too cynical about it, but couldn't the LCF act as a disincentive for the insurer to settle the claim? After all, the insurer is spending the insured's money. The independent claims management companies (those not associated with an insurer) almost always price their services on a per-claim basis. Try it—you'll like it!

By: Donald J. Riggin, CPCU, ARM
IRMI.com Risk Finance Expert Commentator
Spring Consulting Group, LLC
Boston

GET PUBLISHED IN IRMI UPDATE: 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 acknowledge your contribution as we did for Don. Submit an IRMI Update risk tip.

What's New in Your IRMI Library

Avoid Common Follow-Form Coverage Mistakes

Even seasoned risk professionals often overlook the complexity of so-called follow-form coverage when arranging liability insurance programs. It seems that it should be simple to make an umbrella or excess policy cover the same set of exposures as covered by the primary policy, but it is not. There are many ways that an improperly drafted follow-form provision can ruin a casualty program.

In his role as coeditor of Commercial Liability Insurance, Senior Research Analyst Rich Scislowski studies court cases involving coverage issues arising out of follow-form provisions. Collectively, they paint an ugly picture. Each case represents a situation where something went wrong (usually in the coverage placement process). Policyholders bought "follow-form" coverage in the belief that their lead umbrella or higher level excess policy would automatically respond to the same losses as the underlying policy, only to find out that the follow-form language actually used was insufficient to do the job.

Rich has identified what he believes to be the top 10 areas where these placements go wrong and result in coverage disputes. A short article in the November Executive Briefing for Commercial Liability Insurance briefly discusses each of them (on IRMI Online and SilverPlume). If you subscribe to this reference service, be sure to check it out and heed Rich's advice on your next excess liability insurance placement.

For summaries of other new and updated information in your IRMI library, go to What's New on IRMI Online or What's New in SilverPlume.

New Expert Commentary

There are over 1,101+ risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

The Duty To Defend—The actual, not alleged, case facts affect an insurer's duty, per Steve Rawls.
Is Your Brand Protected?—Sanford Warren warns to maintain and protect underlying trademark.
Significant Narrowing of Rule B Attachments—Maritime case makes sense, per Michael Orlando.
Supervisor's Role in Employee Performance—Peter Furst says to encourage worker creativity.
Insurance Agency/Broker Valuations Remain Uncertain—Jeff Balcombe discusses recent trends.
Business Interruption—Paul Haynes and Michael Speer recommend revisiting your coverage.
Claim Preparation and Adjustment Expense—Jay Levin says review the policy and maximize recovery.

Your View

Federal Workers Comp Law

IRMI Update 217 asked readers for their views on standardizing the workers compensation law, while leaving administration up to the states. See some of the many, rather polarized responses below.

A uniform (nationalized) set of regulations is the only way to streamline the delivery of any mandated coverage. With workers compensation, however, I do believe some adjustment as to benefit levels (not duration) should be considered at the state level so as to account for regional cost differentiations. A standardized set of regulations will streamline the delivery, increase efficiency, and lower the cost of delivering workers compensation within every segment of the delivery chain. This is especially true for multi-jurisdictional employers that operate across different state lines. This can be compared to the effects that ERISA preemption has had for self-insured benefit plans.

—Phillip C. Giles, Division Vice President—Marketing,
Artex Risk Solutions, Inc., Pinehurst, NC
With the wide ranging discrepancies in wages and healthcare costs among the states, I do not believe a uniform law and benefit levels across the states would provide adequate coverage in many of the states with a higher cost of living or higher healthcare costs. It could also result in healthcare providers to refuse workers compensation related injuries and those remaining in the "system" to be less qualified or deliver service at the level they are being compensated. This would not be in the best interest of employees or employers.

—Dorothy Terry, Coverage Specialist,
Seitlin Insurance & Advisory Services, Miami
The differences among the states as respects taxation, regulation, and legislation are what make some states more attractive than others for businesses. States that burden businesses with taxes or heavy regulation make themselves less attractive to business, and thus lose sources of revenue and even population. Workers compensation regulation falls into this category. States that set benefits higher than others find out that they do not attract employers. Leave workers compensation regulation to the states so that it can be one more issue to make states more attractive for business.

If we want to see how well federal regulation works, look at the U.S. Longshore and Harbor Workers' Compensation Act and the benefits which sometimes are double those of workers compensation benefits. The result of federal regulation will be loss of competition among the states and the imposition of incredibly high benefits at the expense of business.

—Kenneth Bush, Executive Vice President,
Insurance Audit & Inspection Co., Indianapolis
There is no doubt that standardizing work comp laws would be a great giant step forward. It even makes more sense to keep the federal government out of any administration of same.

—John L. Werley, Partner,
The Chadler Group, Inc., Fairfield, NJ
Since my job requires us to screen independent contractors and ensure they are in compliance with workers compensation insurance laws in the state(s) in which they conduct business in, implementing a standardized WC law would definitely reduce the amount of work we would have to do since it would be the same requirement for all companies we want to do business with, regardless of the state(s) they are in. Currently, we have to research the requirements for each state and ensure independent contractors are in compliance, and it can be very time consuming. In my opinion, implementing this law would have way more benefits than drawbacks when you look at the big picture. I believe all stakeholders would definitely benefit from this, starting with the insured.

—Oscar Galvan, Contract Compliance Manager,
Bergensons Property Services, Inc., Oceanside, CA
A uniform WC law makes sense, as in the U.S. Longshore and Harbor Workers Compensation Act. However, uniform benefit levels for statutory workers comp cannot work as the variables in income levels and cost of living are too great.

—John Treubig, ARM, Director, Risk Management,
JBL Trinity Group, LTD, Matawan, NJ
In concept it's a reasonable proposition that should improve efficiencies and reduce cost in the administration of claims, including elimination of added legal expense for reciprocity cases. As a practical matter, I question whether a universal law and benefit level will be accepted given the diversity of workforce, industry, and economies throughout the states. I presume this would apply to the remaining monopolistic states as well. In any event, I for one would encourage the effort to achieve a standardized system. In the long run, it should benefit both employee and employer.

—Laura L. Latshaw, Corporate Risk Manager,
Cupertino Electric, Inc., San Jose, CA
Conceptually, it makes a great deal of sense. One nation, one law. However, I am not certain that the federal government will not need to be involved to supervise the states' administration of the federal law which would increase costs and add to bottlenecks. And then there is the issue of cost of living considerations. There can be a disproportionate amount of purchase power depending where you are working and living. Bottom line, although you have 50 different states with 50 different WC statutes, at the end of the day, they are quite similar in intent. There needs to be a study which suggests definitive savings and a benefit. Not only to corporations, but to the claimants. Then, it may work.

—Louis Garbis, President,
Integrated Insurance Brokerage Services, Inc., North Aurora, IL
This would make life so much easier on me -- a small broker that does business in multiple states. Behind this push 100 percent.

—Adam Brand, President,
Citizens Comprehensive Insurance, LLC, Jenkintown, PA
I respectfully disagree with Mr. Fleming's proposal. The last thing we need is another federal law to force some states to increase benefits while other states would be forced to decrease benefits to comply with the new federal statutes. If implemented, there is no doubt that complaints to local Congressmen would lead to the appointment of a workers compensation czar to "fix" the problems caused by the new federal law. We would be left with states administering the new national law with federal bureaucrats to the rescue to oversee the state administration. And how about the new taxes imposed to fund the new federal bureaucracy? I feel much better with the 50 state experiment. If a new state law is passed, and something goes astray, it will only disrupt commerce in one state.

—Gerald J. Chimenti, President,
American Risk Management Services, Inc., Pittsburgh
Having been a workers comp adjuster for 13 years, I think it would be a good idea to standardize the system with the states administering the plan. They already do this. In the process, we could iron out some of the discrepancies, and I think the good would even out the bad. The problem in Texas is the medical care. It is excessive, and the results are not positive. Maybe they could get to the bottom of this through standardization.

—Luann Folkner, Contract Administrator,
CF Jordan Construction LLC, El Paso, TX
This sounds like a good idea on the surface, but due to the probability that many of the currently unfavorable aspects of the current law in many states, I strongly suspect that more conservative states, like Virginia, would see a dramatic increase in work comp rates. Take a look at the rates in California, for example, and compare them to Virginia. Wow!

—Mike Powell, Sr. Vice President,
Bankers Insurance, LLC, Charlottesville, VA
I believe applying WC laws and regs universally across the United States would be a positive step as it would eliminate all the hurdles you must jump through when you are writing a WC policy for a multi-state account. Presently, you have to be concerned that a worker may be working in another state than his normal location and he could choose to pick the benefits from that state as opposed to his own due to better benefits, which is not something that is built into the pricing of an account. Another positive would be that you eliminate the states coming up with rules and regulations for their state that are contrary to other states, thus clouding the coverage issues further. NY is a prime example of this, as we are now having insureds being fined for not having NY listed on the WC policy even though they have no ops. in NY but had previously performed work there or traveled through the state during the course of the day.

—Steve J. Koch, Senior Casualty Underwriter,
Zurich NA, Marlton, NJ
Let's put this in perspective. Terry Fleming gave some proprietary evidence of why he'd like to see a federal WC statute. That evidence was his municipal experience and some of his thoughts as to the problematic trends therein (as best as I've heard from numerous sources). Those problem sources included high hazard employees (firefighting and law enforcement as examples). I understand his difficulties since he deals with labor groups, a politically powerful voting segment, and many specific municipal statutes that serve these high hazard groups. The effort to contain costs and improve one's cost of risk is not an easy effort but one that has been done before and will be done again. Swapping a state stature for a federal one isn't the answer. I would suspect most risk managers would be fearful of a federal takeover (even in concept) of the WC system since all of the states and territories have uniquely different systems (i.e., benefit levels, fee schedules, second injury funds, assessment hierarchies, residual market loads, COLA provisions, and on and on). And one critical point is that reform does happen at the state level when a focused effort is made. It happened in CA, FL, TX, and NY, and if it can happen in those large states, it can happen anywhere. That's what should be focused on ... not on suggesting the Fed's come in and salvage a local problem. If you want to know what a federal system would result in, we've already been provided the examples: Jones Act, and all the others.

—Wayne L. Salen, Director of Risk Management,
Labor Finders International, Inc., Palm Beach Gardens, FL
A federal WC model would be acceptable. This would then present a minimum standard that the states would adopt. However, as a decentralist and believing in local rule, the states can then modify to add broader benefits, if decided by the state legislatures. Similar to some federal laws, like minimum wage, where some states adopt higher amounts above the federal level. Most of the WC laws across the country would then be on a similar level.

—James Stenstrom, Director of Risk Management,
Roundy's Supermarkets, Inc., Milwaukee, WI
Ah, the beguiling lure of standardization. Sure it has its place in our industry, but this isn't one of them. There are so many systemic and cultural differences in the workplace environments amongst the various states that this idea is bound to come up with bad outcomes for everyone. "Administration" by the states doesn't help much, as it is the laws and regs that determine the insurance coverages and the systems that evolve to implement them. As they say in political circles, this whole idea should be a nonstarter.

—Philip Lieberman, President,
Lieberman Consulting Services, Ithaca, NY
Although the idea sounds great, I can't imagine all 50 states agreeing to administer a program in exactly the same way. Where would the "average weekly wage" come from—we in Texas would want Texas to apply; I'm sure that those in Maryland or New York would want their own state to apply. Perhaps it could work that way with each state providing its own minimum and maximum weekly wage for injured employees.

Would each state's insurance department provide the administration? How would the funding of this additional task be funded?

—Becky Walker, Risk Manager,
D E Harvey Builders, Houston
In diversity is strength. I wouldn't be so quick to throw out a system that has worked and helped millions of injured workers over the years. The solution is to continue to work to improve the system where there are inequities. A one size fits all approach needs to demonstrate it won't stifle improvements and innovations that benefit injured workers going forward.

—Gary Cooper, Association Manager,
Safety National, St. Louis, MO
Be careful what you wish for. The states reflect the WC issues in their localities. If taken over by the federal government, NC will now pay premiums to compensate for the woes of MI, for example. Let the states deal with their own concerns as was established by the Tenth Amendment. Washington has too much to deal with now without further takeovers.

—Thomas M. Eckert, CEO,
MLB Construction Services, LLC, Mallta, NY
As with any regulation at federal level, I believe that a standardized workers compensation law would be mired down with bureaucratic legislation. Although working with so many state bureaus is difficult, I see no gain in making legislation at the federal level.

—Debra A. Leahy, State Filing Analyst,
Nationwide Agribusiness Insurance Company, Des Moines, IA
I think it would be a great move. Standardize the system. I think it would cut down on cost across the board.

—Mark David Bartlett, Claims Manager,
Archer Daniels Midland, Decatur, IL

IRMI Update