Business Insurance Risk

Break The Bottlenecks With Business Insurance

The Harvard Business Review recently published an article titled “Break Your Industry’s Bottlenecks”. The concept being that to create a successful business “you have to break the rules and overturn the received wisdom about how things work.”

This could not be truer when it comes to the purchase of business insurance, which is a bottleneck for businesses and has been done the same old way since the Stone Age.

Two important items stood out:

When business as usual is set aside it significantly reduces cost, and

Outdated purchase is one of the five types of bottlenecks mentioned in the article

Premier Risk Management has also found these two items to be true. Too often the executive responsible for insurance has many responsibilities and business as usual is easy. Resource constraints force executives to stay the course, in turn abandoning meaningful savings opportunities. Companies often assume their broker is the only resource necessary. The executive has done it this way since he/she started in business, did it this way in their old company and this way in their new company. We can’t forget… they have been with the same broker for over 10 years.

Challenge the Business Insurance Status Quo

When companies and executives challenge conventional methods they will benefit and discover what they didn’t know … competition is a healthy alternative! Outsourced Risk Management helps remove the frustration and is an innovative way to provide expertise not otherwise available.

The Risk You Don’t Know Can Hurt Your Biz

Tom Bullen speaks on behalf of Premier Risk Management now part of the risk advisory arm of AETHOS Consulting Group in the Jennings Wire podcast.

Tom Bullen is with Premier Risk Management, the risk management advisory arm of AETHOS Consulting Group, a hospitality focused executive search and human capital services firm. AETHOS speaks with hospitality companies around the world and hears the concerns of CEOs and leadership, and the question of risk is always top of their minds.

Listen to the podcast here!

Business Insurance & Managing Risk: You Don’t Know What You Don’t Know

What I do know is that it is hard to admit that you don’t know what you don’t know. Recently I gave a presentation at the 2015 Business Law & Corporate Counsel Symposium. The presentation was about business insurance and managing risk for businesses, the real message I wanted to leave my audience was that CEO’s, CFO’s and their advisors, like attorneys need to “know what they don’t know” and seek out an impartial expert to look out for their best interests.

How Well Do You Understand Your Business Insurance?

Over the years – I have heard so many people say “I didn’t know that”, “No one ever explained that to me” or “I really didn’t understand that”. It is all too common that people don’t fully understand the insurance products and services they have been sold.

So much focus is placed on the premium (cost of the policy) that the recovery aspect is overlooked and therefore not understood. When purchasing an insurance product you should understand how you will be indemnified should a loss occur (paid for your loss and returned to the condition you were in before the loss, no worse no better).

The exposures businesses face in the world are vast, complicated and dynamic. Insurance is only one of the avenues to address and transfer risk, but that too is complex and dynamic. There are many moving parts to coordinate to ensure a company is properly protected.

Here is a startling statistic: 75% of businesses that suffer a catastrophic loss go out of business within two years of their loss. I can promise that the reality and root cause of most companies’ problems who suffer these catastrophic events is that:

They didn’t “know what they didn’t know” about insurance and their coverage, and
They were SOLD insurance rather than purchased it – and there is a BIG difference

A number of attorneys at the symposium voiced their agreement and shared experiences regarding the misunderstanding of an insurance contract.. They valued the insight an impartial consultant can provide. That says a lot right there.

Be in the know! Seek out assistance to understand what you don’t know – it will pay off in the long run.

Understand the Insurance Adjustment Process

It is not unusual for the insurance company to compile values that disagree. These differences are resolved through Claim Adjusting, or if necessary through the Appraisal procedure, a simple, inexpensive form of arbitration. However, many recent changes in wording of some policies have included striking-down the Appraisal process and instead now require parties to go to court.

To adjust is to negotiate. An adjuster is a negotiator. Think about that for a moment. This simple fact seems the most difficult for policyholders to realize. The dictionary defines the word adjust: To settle or bring to a satisfactory state, so parties are agreed in the result: to adjust our differences, to bring to agreement, to determine the amount to be paid, as in settling an insurance claim.

Typically in the past, only the person representing the insurance company has been considered the adjuster. Historically, the policyholder has been considered–for lack of a better word–the adjustee, or the one receiving the adjustment. If you can’t imagine yourself as an adjuster, it is probably because of the word itself. When adjusting is foreign to your background, education and experience, it only follows that you would have difficulty assuming that role.

We are all adjusters, in all our dealings. You are an adjuster when you have bargaining power and are prepared to deal from a position of knowledge and strength. This mental image is important for all your negotiations. The winning combination in adjusting is having an organized, methodical, and self-confident approach. Actually, winning in adjusting is not the act of one party driving the other party to defeat, as some would believe. The perfect adjustment occurs when the enlightened needs of both sides are met to the satisfaction of both sides.

A company adjuster facing a knowledgeable policyholder usually realizes that the claim adjustment will be a cooperative effort. Also, this mutual respect may more likely lead to mutual agreement.

Probably the most difficult aspect of acting as one’s own adjuster is in having to enter the realm of the unknown at a time following a disaster. Psychologically, most people are not up to the task under these circumstances. It is very common to see people in a state of shock, confusion and helplessness. Those who are objective, informed and prepared are more inclined to be emotionally level and competent.

The time of a personal disaster is not the time to be thinking about all of this for the first time. Think about it now and take comfort in the knowledge that you are able to protect your interest without feeling at a loss, if the unthinkable does happen to you.

Some adjusting options to consider:

Have the insurance adjuster representing the company handle your claim.
Utilize a public adjuster. Yes they do exist, they’re few and far between, but they do exist.
Adjust the claim yourself. This means much more than just telling the company that you had a loss. This means calculating what you are entitled to, presenting it in a way that they understand you have some knowledge of what you are entitled to and knowing how to negotiate best on your own behalf.

“Drive or be Driven”! The idea that you either are going to control the business transaction (because that is what it is at this point) or you’re going to want to be taken care of and just watch to see how it turns out.

It is important at the very outset to decide how you are going to handle the matter. Once you surrender authority it’s difficult to reclaim.

Here are a list of steps to take in the event of loss (these can be adapted to conform with your business):

Property Damage

Mobilize your emergency response organization.
Protect your property from further damage.
Fix leaking pipes.
Restore fire protection.
Temporarily support collapsed or impaired structures.
Notify your insurance broker or your Insurance Company claims representative, giving the date, time, cause and location of the loss.
Board up the premises and correct unsafe conditions, if applicable.
Isolate the damaged area whenever possible.
Separate damaged from undamaged property.
Restore power to critical areas such as freezers.
Establish a loss control account to detail all expenses incurred as a result of the loss.
Retain all invoices, time sheets, etc., to ensure all costs are captured and attributable to the loss, and to prevent an overlapping of normal costs with these expenditures.
Obtain identification of all civil authorities involved such as fire, police, health department, building inspector, etc.
Retain any piece of equipment or other property that may be the cause of the loss. This should be tagged and identified as to its function and the time and date of the incident in order to establish a chain of custody.
Take photographs, if possible, prior to the removal of any debris.

Business Interruption

Estimate the period of interruption to operations due to the property damage event.
Determine the direct effect to operations or production, including any indirect or contingent effects of the shutdown.
Determine if your company can use other facilities to make up the loss.
Determine if your company can make up production through overtime or weekend work.
Determine if finished goods inventory can be utilized to offset a loss of sales.
Determine if your company has any extraordinary sales commitments.
Determine if your company has any sales contracts that can be delayed.

Still concerned about the insurance claims and adjustment process? Contact us, we are here to help.

8 Important Points When Presenting Your Loss & Claim

In the previous post Proof of Loss: The proof is in the pudding, we shared the importance of knowing how the business insurance claims process works so you can get paid what you are due if you suffer a loss. These 8 points will help you navigate the claims process successfully.

1. Familiarize yourself with lines 90 through 122 of your insurance policy or the “Duties in the Event of Loss” section. You cannot afford to violate these duties. This policy section also grants authority to file your claims as well as authority of a third-party to file a claim on your behalf.

2. Calculate your loss first before filing your claim. You have the advantage of telling the Company Adjuster you know something of what you are entitled. Compare this to just reporting an uncalculated loss and giving the Company Adjuster the authority to direct and decide how much you should claim.

3. Remember these time limits:

60-day time limit, after date of loss, to file the Proof of Loss.
20-day time limit, after Appraisal notice, to select an Appraiser.
12-month time limit, after date of loss, if you elect to file a suit.
60-day time limit, before date of loss, for certain coverage pertaining to vacant or unoccupied buildings.

4. Prove adequate insurance. If the insurance company determines that you carried too little insurance and attempts to impose a penalty, remember, you carry the burden of proof, you may still be able to eliminate penalties by proving adequate insurance. For example: if the problem involves a building structure, you may shop for a total replacement cost estimate much the same as insurance companies shop for repair estimates. You may locate a licensed building contractor who will establish that your insurance was adequate when compared to the contractor’s replacement estimate. Replacement estimates are not to be confused with repair estimates.

5. Salvage is that which is saved. By claiming only the portion of your loss that remains after deducting salvage value, you maintain ownership of that item and the salvage remains your property. Salvage bids establish salvage value.

6. Save all remains of property until you have received your settlement. The burden of proof is on you as the policyholder. Anything to help prove your loss is valuable. Photos, warranties and manuals are also helpful. If you must discard certain debris prior to settlement, it would be wise to first take photographs.

7. Understand the Appraisal Procedure. If you have differences with your insurance company, you should know of a quick, fair, inexpensive procedure called Appraisal. It is a form of arbitration with a binding award conducted by disinterested parties that is designed for “amount of loss or damage” disputes. You must first remember to file the Proof of Loss, even if not requested by the company, within 60 days from the date of loss. Make certain if you go beyond 60 days that you have been provided a written extension of time by the insurance company—similar to a tax-filing deadline. You may request the Appraisal procedure within a “reasonable” time after filing the Proof of Loss or at the time of filing the Proof of Loss. NOTE: Many recent changes in wording have included eliminating the Appraisal process and instead require parties go to court.

8. The filed Proof of Loss represents the amount of your claim and is a demand for payment. If your loss exceeds your insurance coverage you may wish to claim that portion as an income tax deduction. To protect that deduction, be sure that the Proof of Loss form states all of your loss and not only your loss covered by insurance.

Watch for the final post in this series… Understand the Insurance Adjustment Process.

Proof of Loss: The proof is in the pudding as they say

From an insurance perspective it is important to know how you can recover when your business suffers a loss. Questions to consider when filing a business insurance claim:

1. Will your insurance coverage be adequate?

2. How do you go about getting a recovery?

3. What are your responsibilities in the process?

Knowing how the claims process works, what you should be prepared for and what you can expect when you face a loss is critical to know. The proof will be getting paid what you are due and the pudding is how it all works.

Understand Insurance Claims Concepts and Procedures

The purpose of purchasing insurance is to protect company assets from suffering loss. Those assets are both tangible and intangible. The insurance policy is based on the concept known as indemnification. This means that the insurer is to make the insured whole again assuming that the proper coverage and limits were purchased. In other words the company is to be put in the same position they were in prior to the loss, no more, no less.

Policyholders have a responsibility to act with consideration, demanding what they clearly are entitled to but not asking for things they believe are unlikely to be insurable. This includes creative claim theories, acting with a sense of fairness on valuation issues, and being transparent. Remember, insurance is a vehicle for financing fortuitous risk and not a means of becoming an occasional profit center. In order for insurance to work, a pooling of losses and premiums is required. In most years, an insurer is using your premium to pay for losses of others.

It is extremely important to remember there is a time limit of 60 days after the date of loss, in which you must file the form, Proof of Loss with the insurance company. Just reporting that you had a loss is not enough. You may lose your rights and leverage if this form is not filed within the time limit. Think of this deadline the same as you would for a tax-filing deadline–with a timely filing or written extension.

Some tips for a well-received claim:

A typewritten claim has a neat, more acceptable appearance
List all items separately
Try not to group items into categories
It is best to list property building-by-building and room-by-room in order to relate back to its physical placement

The depreciation shown varies according to condition and quality of property and only represents a general method of calculation. Your own calculation would largely depend on the life expectancy of your property.

Original or duplicate receipts are an important way to prove a loss. If no receipts are available, verification of ownership can be proven by affidavit. An affidavit should list the property in question and be signed by disinterested parties who thereby verify ownership and possession. Also, pictures are worth a 1,000 words – when there is a fire loss for example, many items in a room become unrecognizable – so it is a benefit to take pictures of rooms to document what exactly was in them to help you remember.

But before you can present your claim in the proper fashion, there are some duties that you must be familiar with so as not to jeopardize your recovery.

Watch for our next post which will cover 8 important things to keep in mind when presenting your loss and claim.

EEOC Playing Hardball When it Comes to Employee Background Checks

Recently some predominant companies have been in the cross-hairs of the Equal Employment Opportunity Commission (EEOC). Since the EEOC found it necessary to release new guidelines related to background checks I thought I would share various articles that can be insightful for business today and a good read for the HR departments. Additionally here are some of those specific stories as they relate to some of those large companies answering to the EEOC.

Bottom line … whether you win or lose against the EEOC each employment practice liability insurance (EPLI) policy has a deductible. Premiums are impacted based on claim activity thus you can be financially impacted. End of the day, policy and procedures can be an important aspect of your risk management program to mitigate cost.

Cost of Risk & The Price of Your Risk Management Program

Every facet of your organization affects your cost of risk. It is difficult, at best, to quantify all aspects of this total cost of risk. For example, if you manufacture specialty equipment or products and you are faced with a recall, what is your loss of reputation or market share? In contrast, other components of your total cost of risk are easily quantifiable, such as insurance premiums, or the downtime of a custom piece of machinery and the resulting lost production.

Total cost of risk is an insurance term describing the cost of both pure and speculative risk. Additionally, cost of risk is synonymous with price — the price of your risk management program. By taking a total cost of risk approach you can positively affect your price.

The goal then is to structure a risk management program that protects the four main asset categories of your business:

Organization
Personnel
Property
Net income

The structure of your risk management program looks to the endgame of your price. To reach the endgame you seek, you must first further define Risk Management into four key tenets:

Identification of exposures through analysis
Implementation of control measures to those exposures
Risk transfer or financing
Management of current and future exposures

Identification of Exposures – Things to Think About

Exposures are both qualitative and quantitative. Analyses into both arenas offer the starting foundation of understanding your current exposures to develop forward-thinking approaches. The qualitative discussion will confirm if the business initiatives are in correlation to the risk management program.

As a CFO, you should look to confirm that your risk management approach supports your overall business objectives. What risks or concerns do you have relative to your business i.e. what type of event would shut you down? If that concern happened, how would your income or cash flow be affected if there were unforeseen depletions of capital or a shutdown in the plant?

A discussion on the qualitative aspects of your business provides the important details needed to solidify the most appropriate game plan to your endgame, price.

What is your viewpoint on risk? Are you/your company risk averse? Is your company in a financial position to take on more risk versus transferring that risk to another party or contractually to a carrier?

To help determine your risk aversion, it helps to assess your company history. For example, if you are a start-up company, cash flow and funds are typically tight, so you are more likely to be adverse to risk to protect the financial viability of your start-up organization.

Conversely, if your company has a 20+ year history, there are also risks, including becoming obsolete, stagnant, or too conservative with your business plan.

Furthermore, consider your industry, market position, and competition in positioning your risk management solution to the changing needs and direction of your business.

Quantitative analysis supports the qualitative interview. Look at the “hard numbers” and prior losses to identify trends in your performance. Also analyze losses to identify a variety of variables, such as:

average incurred costs per loss
total incurred trends
top loss drivers
locations with high frequency issues
fraud behaviors
reporting lag time
frequency vs. severity ratios
OSHA recordable performance

The results of this type of analysis will reveal opportunities to approach the critical areas driving your total cost of risk, price. This evaluation will help to isolate the root causes of these problematic areas and look to implement control measures to mitigate this exposure.

Implementation of Control Measures

Now that you have identified exposures you can focus the appropriate resources to areas that will deliver the highest impact on your bottom line. Control measures should be designed from a pre-loss perspective.

An estimated 75 percent of commercial insurance expenses are claims driven. Look to control and reduce this percentage through pre- and post-loss control measures.

A comprehensive loss control evaluation points to strengths and weaknesses in loss control programs. One may have strong management leadership behind his or her initiatives but have no employee buy-in or participation. Create a risk reduction culture, establish a safety committee, delivering a comprehensive employee safety education campaign. Your business operations will determine the types of measures and approaches to take in addressing your exposures.

There are many post-loss or cost containment strategies. A proactive and effective Return to Work program is one strategy that positively affects your bottom line: offering a bank of modified duty jobs for employees and informing the doctor there is modified work available.

Also, establish a relationship with a local occupational medicine clinic. Interview them to learn about their services and tour their facilities. Invite the physicians into your business to get a first-hand look and understanding of your operations. By providing them with the details of your operations, they can accurately evaluate reported injuries to confirm if they are work related.

Fraudulent claim behavior can drive the cost of risk out of control. The National Insurance Crime Bureau often approaches insurance fraud rings between doctors, physicians and people. Whether it’s an auto accident or alleged workplace accident, send a clear message that fraud will not be tolerated.

Anti-fraud tactics include educating employees on the effects of insurance fraud through payroll stuffers and worksite posters, and offering safety incentives for solid performance. Also, keeping a motor vehicle accident kit in each one of your company vehicles, along with a disposable camera, allows you to document evidence, providing a stronger subrogation results.

An active Loss Control Program and post-loss procedures are key to cost containment.

Risk Transfer/Financing

Once you have identified exposures and created control measures, you can focus on the remaining exposures to transfer and/or finance. You will want to address questions such as: How much risk can you afford to assume in-house? How can we assist in contractually transferring that risk to a third party? Lastly, what portion of the exposures do we want to finance through an insurance policy?

Addressing these questions offers a direction as to how to approach the financing of your risk. Think about current cash flow needs. Are account receivables current? If there is a lag, how long is it, and are there resources to correct it?

Considerations involve self-insured retentions if you have a mature loss control program and the financial reserves to cover those shock losses that occur. Therefore, a combination of insurance and non-insurance strategies should be considered.

Manage Your Exposures

It is estimated that 25 percent of businesses that sustain a major catastrophe are no longer in business within a year’s time. If there is an interruption in your operations, are you prepared?

In a dynamic business environment, risks and exposure change constantly. Therefore, continual monitoring of the programs in place is essential, as well as future business expansions, will help to dictate the course of your risk management program.

We highly recommend you:

Develop a Strategic Action Plan to put the needed control measures in place, including a Disaster Recovery Plan. This involves backing up your policies and procedures.

Offer consistent loss control policies and procedures to all divisions and departments within your organization.

Cost of Risk Resources

To develop the most appropriate risk management program for your organization, you should look to approach ‘insurance’ through a variety of insurance and non-insurance strategies, such as:

Identification processes (qualitative and quantitative)
Loss analysis tools to uncover exposures
Implementation of pre- or post-loss initiatives that address cost containment
Business continuation planning/disaster recovery
Risk financing options, retained losses or transferred
Regulatory compliance issues

As you can see, risk management and protecting your organization is not about just buying an insurance policy. It is about developing a strategic action plan, execute on that plan, and fully commit to the monitoring and support of those initiatives.

“Total cost of risk is an insurance term describing the cost of both pure and speculative risk. Additionally, cost of risk is synonymous with price — the price of your risk management program. We at Premier Risk Management take a total cost of risk approach to positively affect your price.” We dig deep to advocate for you.

This Cost of Risk, Price Control Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.

In Business, There is No Avoiding Risk

What is something exceptionally good about mid-market companies? They are agile and hold onto their entrepreneurial spirit … in fact they are even taking lessons from the big Fortune 500’s and looking to gain a financial advantage over competitors through various strategies.

A key point was recently made in a Traveler’s survey: “Business who manage risk report higher performances!”

What is evident is that the big boys’ (fortune 100 & 500 companies) have in-house risk manager’s that provide a level of knowledge that can’t be matched internally by other department heads. Thus a best business practice for mid-market companies seeking a financial advantage is to consider integrating similar risk management strategies and policies no matter your size of business.

The survey also points out: large firms continue to outpace their midsize counterparts in relying on third-party consultants for risk mitigation and prevention advice though mid-market companies’ risk mitigation strategies are beginning to equal strategies used by their larger counterparts.

The use of an Independent Outsourced Risk Manager is becoming an industry standard and if you don’t have an in-house or outsourced risk manager, you might not be taking full advantage of your opportunities.

The risk management department serves a vital role as it must understand the various silos within an organization whether it is operational, financial, or human resources. A structured approach helps create a risk-aware culture thus mitigating risk across an entire organization.

The biggest difficulty we see on a continual basis is that the typical company does not know how to utilize the resources available from an insurance carrier or broker or customize needed services according to specific operational units within an organization. Independent Outsourced Risk Manager’s can oversee the daily business operations and truly utilize the valuable services of those offered by the insurer and broker.

While there is No Avoiding Risk, you certainly can be better prepared.

End of Year Risk Tip: Review Contracts Up For Renewal

As we move into a new year…a number of business related contracts come up for renewal. With that in mind, we suggest that you spend the time to review, in detail, your contracts such as leases, purchase agreements and services contracts.

Comment: Many times contracts are signed without a proper review and understanding of the liability being assumed and insurance implications. Most contracts and leases require you to assume a variety of liability. The pertinent clauses and wording are not always reviewed and addressed properly placing you in breach of contract as soon as it is signed. Unfortunately these are not addressed until after the fact, placing you in a very difficult position. We see this happen more often than not in construction contracts. The haste to get projects underway precludes proper review of the documents defining the projects terms and conditions. This can be a most costly mistake.

Bottom Line: Have your contracts reviewed by your attorney and insurance advisor prior to signing them. Hopefully this will serve to avoid taking on any unnecessary liability or exposure.

Contact us for a FREE consultation