Blog - Tag: Measured Risk Insurance
Businesses Struggle with Risk Protection Gaps
Nearly half of middle-market businesses feel unprepared for key threats despite implementing various risk management strategies, according to Nationwide Insurance’s latest “Agency Forward” survey.
The survey found that while 90% of businesses have formal risk management policies that are reviewed regularly, 21% lack a business continuity plan, leaving them exposed to potential disruptions that could severely impact their operations.
Additionally, 45% lack a disaster preparedness plan, and only half have a fleet safety program in place.
These shortfalls create vulnerabilities that could lead to financial and operational setbacks.
The survey found that companies allocate an average of 6% of their budgets to risk management and safety. Industries with higher risk exposure, such as construction and manufacturing, dedicate a larger share — 19% and 13%, respectively.
Key business concerns
Middle-market businesses identified their top risks over the next two years as:
- Costs and finances (42%),
- Economic and regulatory factors (40%), and
- Technological disruption (26%).
Economic downturns, supply chain disruptions, cyber-security threats and regulatory changes are the most pressing risk management priorities, each cited by 42% of respondents. However, only 5% of businesses listed natural disasters as a risk management priority, which could be a blind spot given recent climate-related disasters affecting various industries.
Leveraging technology
Technology is playing an increasingly important role in risk management, with 76% of surveyed businesses utilizing some form of digital solution.
Owners reported improved efficiency and compliance to regulations, enhanced data analysis and reporting, and better real-time monitoring of risks as a result of their technology use.
While only 11% have fully integrated technology into all aspects of risk management, 65% use it selectively.
The most common digital tools include:
- Cyber-security solutions (78%),
- Compliance and reporting software (67%), and
- Supply chain management software (58%).
However, technological adoption is not without challenges. Business owners cite the cost of safety measures (38%), maintenance of safety equipment and technology (31%) and keeping up with evolving safety standards (30%) as significant barriers to effective risk management.
How companies can better manage risk
To close these protection gaps and strengthen their resilience, mid-market businesses should consider the following strategies:
- Develop a comprehensive business continuity plan — Organizations without a continuity plan should work with risk management professionals to create one, ensuring they have a roadmap for responding to disruptions.
- Review the company’s compliance with regulations and laws — It’s important that your human resources team stays on top of regulations and legislation to ensure the organization doesn’t run afoul of them, which can result in penalties and fines.
- Enhance disaster preparedness — Natural disasters may be a low priority for many businesses, but proactive planning can prevent severe financial and operational consequences. Developing an emergency response plan can help mitigate potential damage.
- Analyze workplace accident data — Managing workplace safety is key to any company’s risk-management efforts. You should track incidents and thoroughly investigate each accident or near miss to find out what led to the event.
- Invest in technology for risk mitigation — Consider expanding your use of AI, predictive analytics and cloud-based risk management platforms to identify and address vulnerabilities before they become major issues.
- Regularly review and update risk management policies —As regulations and business risks evolve, you should regularly assess your policies to ensure they remain effective and aligned with industry best practices.
- Integrate risk management with business strategy — Risk management should not be seen as a separate function but as a core component of business success. Leaders should align their risk strategies with company objectives to ensure a seamless approach to resilience.
Expect to See Surcharges on Your Policy for the L.A. Fires
Even if you have a business or a home that was not affected by the recent wildfires in Los Angeles, you will likely see a surcharge to help pay for them on your next property insurance policy renewal.
The state-run California FAIR Plan, which is the market of last resort when policyholders are unable to find coverage from private carriers, expects its total loss from the Palisades and Eaton fires to come in at $4 billion.
Under its charter and state law, if it exhausts its funds, the plan can surcharge all commercial property and homeowner’s insurers in the state after approval from the state insurance commissioner.
Commissioner Ricardo Lara approved the Fair Plan’s request in early February to surcharge insurers a total of $1 billion, which will be assessed depending on each insurer’s market share. Under state law, those carriers are allowed to pass half of their assessment on to their policyholders in the state. It’s unclear how much each policy will be surcharged, but the fee will partly be based on the size of each policyholder’s annual premium.
Without the assessment, the FAIR Plan would run out of funds by the end of March and be unable to pay all of the claims from the fires, as well as claims from unrelated or future events and operating expenses, including the cost of increasing staff to respond to the disaster.
The state of play
The L.A. fires are one of the costliest natural disasters in the history of the country. Consulting firm Milliman estimates that the wildfires will cost $23 billion to $39 billion in insured losses.
As of Feb. 11, the Fair Plan had paid out about $800 million in claims, leaving it with about $1.2 billion in cash on hand.
It has also tapped reinsurance, which is basically insurance for insurance companies. It has multiple layers of reinsurance, but it cannot access all of them until it spends more of its funds on claims. It now has access to the first tranche of coverage worth $350 million after it met its $900 million deductible.
The FAIR Plan can access additional layers of reinsurance based on the claims incurred and outstanding reserves up to a $5.78 billion limit. To access all layers of available reinsurance, the plan would have to pay out about $3.5 billion, including the $900 million deductible, and copays. That’s more than its cash in hand.
After accounting for its reinsurance package, the FAIR Plan expects to pay out $2.3 billion of the remaining $3.1 billion reserved for unpaid losses from the fires.
How it will affect your policy
To help the plan pay for the $1 billion shortfall, it will surcharge each property insurer in the state based on their market share two years prior to the assessment. Every carrier that sells commercial property and homeowner’s insurance in the state will be assessed.
Here are the market shares of the top 10 insurers in 2023, the year assessments will be based on:
- State Farm 19.7%
- Farmers 14.7%
- Liberty Mutual 6.5%
- CSAA 6.4%
- Mercury 6%
- Allstate 5.7%
- AAA of Southern California 5.5%
- USAA 5.3%
- Travelers 4.3%
- Nationwide 3.1%
Top 10 laws for 2025
With 2025 now upon us, so is a slew of new laws and regulations that will affect California businesses.
Every year, laws passed by the state Legislature and signed into law by the governor take effect, and 2024 was a busy legislative session in Sacramento. The end result is another round of new legislation that California employers need to stay on top of.
This item is the first of two parts, highlighting the top 10 laws and regulations affecting California businesses in 2025.
1. ‘Captive audience’ meetings barred
Starting Jan. 1, California employers are prohibited from requiring employees to attend “captive audience” meetings where the employer shares its opinions on political or religious matters.
This includes topics such as unionization, legislation, elections or religious affiliations. Under the new law, SB 399, employees who choose not to attend must still be paid for their regular work time during these meetings.
Employers are also barred from retaliating, discriminating or taking any adverse action against employees who opt out.
The law applies broadly to most employers, but does include some exceptions, including religious organizations, political organizations and educational institutions providing relevant coursework. The law also allows for required communications or training mandated under laws related to workplace safety, civil rights or job performance.
Employers who violate SB 399 could face significant consequences, including a civil penalty of $500 per employee, per violation. Workers who believe their rights were violated can file a complaint with the Labor Commissioner, seek injunctive relief (a court order to stop the violation), and potentially claim additional damages through civil lawsuits.
2. ‘Egregious‘ offenders
Cal/OSHA is working on new rules that would crack down and step up enforcement and penalties against California employers that commit “egregious” and “enterprise-wide” workplace safety violations.
The forthcoming rules, expected to take effect this year, would impose substantial penalties on companies that have “shown a disregard towards California workplace safety regulations and the well-being of their employees.”
A business cited for an egregious violation could be fined up to $158,000 “per instance,” meaning it can be applied for each employee exposed to the violation and across multiple locations.
Violations that could be considered “egregious” include, but are not limited to, the following:
- The employer, intentionally, through conscious, voluntary action or inaction, made no reasonable effort to eliminate the known violation.
- The employer has a history of one or more serious, repeat or willful violations, or more than 20 general or regulatory violations per 100 employees.
- The employer intentionally disregarded its health and safety responsibilities, such as by failing to maintain an effective Injury and Illness Program or ignoring safety and health hazards.
3. Expanded paid sick leave
Two bills have expanded the use of paid sick leave.
The more far-reaching measure, AB 2499, expands current state law that allows employees who are victims of crime or abuse to take time off for court appearances, treatment and various other reasons.
The new measure also expands the use of paid sick leave to cover certain “safe time” absences for issues like:
- Domestic violence,
- Sexual assault,
- Stalking, or
- An act, conduct or pattern of conduct that includes:
- An individual causes bodily injury or death to another.
- An individual exhibits, draws, brandishes or uses a firearm or other dangerous weapon, with respect to another.
- An individual uses or makes a reasonably perceived or actual threat of use of force against another to cause physical injury or death.
AB 2499 also permits workers to take time off to help family members who are victims of a crime.
The law protects workers from the threat of discrimination or retaliation for requesting or taking the time off. Under the new law, employees can use vacation, personal leave, paid sick leave, or compensatory time off that is available to them for safe-time absences. It applies to workplaces with 25 or more staff.
The second measure, SB 1105, allows agricultural workers to use accrued paid sick leave to avoid smoke, heat or flooding conditions created by a local or state emergency, like a heatwave, wildfire or flooding.
The measure states that this is a clarification that existing law allows workers to take sick days for preventive care.
4. Freelance Worker Protection Act
Starting this year, California’s Freelance Worker Protection Act imposes new requirements on businesses hiring freelance workers for professional services worth $250 or more.
The law requires employers to provide freelancers with a written contract outlining key details, including the services provided, payment amounts and deadlines for compensation. If no payment date is specified in the contract, freelancers must be paid no later than 30 days after completing their work.
Businesses cannot require freelancers to accept less pay than agreed upon or provide additional services after work has begun as a condition for timely payment.
Importantly, the law also prohibits retaliation against freelancers who assert their rights, such as raising complaints about violations or seeking enforcement of the law.
Noncompliance can lead to significant penalties. If a written contract is not provided, employers may face a $1,000 penalty.
Late payments can result in damages up to twice the amount owed, while other violations may require businesses to pay damages equal to the value of the contract or the work performed — whichever is greater. Freelancers can also file lawsuits to recover unpaid amounts and seek attorney’s fees.
5. Indoor heat illness
These new requirements actually took effect at the end of last summer, so 2025 is the first full year they’ve been in effect.
Cal/OSHA’s indoor heat illness prevention rules require employers to protect workers in indoor workplaces when temperatures reach 82 degrees Fahrenheit or higher. These regulations apply to most indoor settings, but will mainly affect restaurants, warehouses and manufacturing facilities.
At 82 degrees, employers must ensure workers have cool, potable water nearby and access to a cool-down area where temperatures remain below 82 degrees. Workers should be encouraged to take rest breaks to prevent heat-related illness, and monitored for symptoms during these breaks. If clothing restricts heat removal or radiant heat sources are present, these measures apply immediately.
At 87 degrees, employers must take additional steps, when feasible, such as cooling work areas, providing personal heat-protective equipment and implementing work-rest schedules.
Affected employers should evaluate options like installing air conditioning to maintain safe temperatures. While this is feasible for smaller spaces, larger facilities like warehouses may require alternative compliance strategies.
6. PAGA reform
In July 2024, Gov. Newsom signed into law two measures aimed at curbing rampant abuse of the Private Attorney General Act, which has become a costly thorn in the side of businesses in California.
PAGA allows workers who allege they have suffered labor violations, like unpaid overtime or being denied mandatory meal and rest breaks, to file suit against their employers rather than take the more typical route of filing a claim with the state Department of Labor Standards Enforcement.
The new laws aim to reward employers with reduced penalties if they address in good faith issues raised by an employee.
For example, the reforms cap the assessment at 15% of the available penalty for employers that take immediate and proactive steps to bring themselves into compliance with California Labor Code. Employers that take “reasonable” steps to address issues within 60 days of receiving a PAGA notice would face a maximum penalty of 30% of the available penalty under the law.
The new PAGA also requires a worker to personally experience violations alleged in a claim if they want to bring action. It also increases workers’ share of awards to 35%, from 25%. The rest of the funds go to the Labor & Workforce Development Agency.
However, legal pundits predict the changes won’t reduce the amount of PAGA lawsuits being filed in the state.
7. Family leave change
A new law, AB 2123, bars employers from requiring that workers who plan to take time off under the state’s Paid Family Leave Program first take up two weeks of accrued vacation time before benefits kick in.
8. Driver’s license queries
Starting in 2025, employers are barred from listing in help-wanted ads and job applications that having a driver license is a prerequisite for a job, unless the employer:
- Reasonably expects that driving will be part of the job, and
- Reasonably believes that allowing the employee to use alternative forms of transportation (including ride-sharing, taxi or bicycle) would take more time or require the business to incur higher costs.
9. Poster updates
Employers have to update two mandatory work posters this year.
The standard poster that informs employees about their rights under workers’ compensation laws, needs to be updated. The new poster must include language stating that employees may consult with an attorney for advice about workers’ comp law and that they may have to pay attorneys’ fees if they hire a lawyer as part of their claim.
Also, businesses are required to post an updated paid leave law notice to reflect the changes ushered in by AB 2499, the paid leave law for crime and abuse victims discussed above.
10. Minimum wage
California’s minimum wage increased to $16.50 an hour on Jan. 1. This rate is for all areas of the state, except for those jurisdictions that have implemented their own minimum wage to reflect the higher cost of living in their area.
To Avoid Sexual Harassers, Start with Hiring Process
With sexual harassment and other bullying behaviors receiving more attention, and with lawsuits increasing, employers have been busy updating or creating anti-harassment policies and training their employees.
Besides the fallout from having sexual harassment occur in your workplace, employers may be targeted in “negligent hiring” charges if victims of on-the-job harassment file suit. That’s why much of the conversation among human resources specialists and risk managers is avoiding hiring harassers, or potential harassers, in the first place.
But how do you identify a harasser during the hiring process, and how far can you go to make sure that you don’t employ one? Dr. John Sullivan, an HR pundit from Silicon Valley, recommends the following methods for screening out potential offenders, and that these checks should only be done for finalist candidates.
Develop a set of indicators — Dr. Sullivan recommends that you develop a set of indicators — or traits — of previous problem employees in the workplace, particularly their attitudes about certain subjects and workplace culture. Besides your own indicators, you can conduct your own research and learn from other companies and what they have found are signs that point to potential harassers.
Toxic-employee indicators
- Professionals who are notably overconfident about their technical proficiencies are 43% more likely to engage in toxic behavior.
- Self-proclaimed “rule followers” are 33% more likely to be problem employees.
Armed with this kind of data, you can formulate questions that will help you ascertain if a candidate is overconfident about their technical proficiency or claims they are a rule follower.
Source: Cornerstone OnDemand
Employee referrals — You should allow employees to refer candidates they have worked with in the past for open positions. Based on prior experience working with someone, your current employees will know what kind of person the prospect is in the workplace.
Conduct peer interviews — You may want to consider having finalist candidates be interviewed by their future colleagues, particularly the ones who will work closely with them.
Those future colleagues probably have the most vested in identifying harassers, since they are likely the ones to be most affected if they turn out to be toxic.
You can help your employees by asking them to look for the aforementioned indicators that you have developed.
Create social interactions — Companies like Zappos and Southwest Airlines try to put top candidates in social situations that they can observe. Zappos, for example, sets up social events like coffee sessions and after-work activities. Instead of hiring managers watching them, they have other employees observe the candidates in more buttoned-down situations when their guards are down.
Situational questions — For the most part during interviews you will have to finesse the process of trying to extract information.
Dr. Sullivan recommends questions like: “In a situation where you yourself were actually witnessing sexual harassment, what would you do?”
Then you could look for things they didn’t mention, like “reporting the incident.”
Situational questions can reveal a lot about a person’s moral fiber.
Use behavioral and personality tests — Off-the-shelf behavioral and psychological tests aren’t specifically designed to weed out harassers, but they can be indicators of how job candidates treat others. These tests assess people on:
- Civility
- Integrity
- Emotional intelligence
- Values
- Moral character
- Ethics
- Conscientiousness, and more
Some of these factors can indicate a problem employee.
The final step — after hiring
Dr. Sullivan recommends that you continue to assess new employees in the months after they are hired and still on probation. You can better evaluate them during their probation, when it’s easier to let someone go.
You can gauge them to see if they meet your behavior or value standards.
Protect Your Officers with ‘Drive Other Car’ Coverage
Linda is a junior partner in a law firm and drives a car that the firm owns and insures. The firm’s auto insurance covers her as a partner and she doesn’t own another car, so she sees no need to have her own policy.
Most of the time, this is not a problem. However, spring break comes and she takes her kids to DisneyWorld. She rents a car at the Orlando airport and never gives a thought to whether her firm’s insurance will cover her if she has an accident with the rental.
But in this case, a phone conversation with the firm’s insurance agent would have been a great idea.
While driving to her hotel one night, Linda rear-ends a new Lexus. The damage to the other car is extensive; she looks to her firm’s auto liability coverage for the cost of repairing it.
The ISO Business Auto Policy covers the person or organization shown in the Policy Declarations (the information page at the beginning.) In this case, the name shown is that of Linda’s law firm.
The policy goes on to say that, for liability insurance, the firm is an insured and so is anyone else using, with the firm’s permission, a covered auto the firm owns, hires or borrows, with some exceptions.
Unfortunately for Linda, the firm didn’t rent the car; she did … in her own name. Consequently, the firm’s insurance will not cover her liability for this accident. She will be forced to pay for it out of her own funds.
However, there are a couple of policy endorsements that her firm could have purchased that would have solved the junior partner’s problem.
‘Drive Other Car‘ Coverage — Broadened Coverage for Named Individuals
The insurance company will require the insured to list the names of one or more individuals on the endorsement.
The change extends several of the policy’s coverages so that they apply to the listed individuals and their resident spouses. This Drive Other Car endorsement comes with some significant limitations:
- It extends to the listed individuals’ coverages that the policy already provides; it does not add coverages not provided. If the firm’s policy does not provide collision coverage on its vehicles, Linda would not have collision coverage on a car she rents.
- It covers the named individual’s spouse if they live together. If Linda is married to Jim, he automatically has coverage for a car he rents in his name.
- The only family member it automatically covers is the resident spouse. It will not cover any other family members in the household unless the endorsement specifically lists their names.
Individual Named Insured
An alternative to the above endorsement is to list individuals’ names in the Policy Declarations along with the firm’s name and attach an endorsement called Individual Named Insured.
This endorsement covers the individual listed in the declarations and automatically covers the person’s resident spouse and family members. It also covers these individuals should they injure another of the policyholder’s employees.
These policy changes affect several coverages, including liability, uninsured motorist, medical payments and physical damage.
If you are considering this type of extended coverage, you should consult with us to discuss the endorsements’ details and identify the one that will best insure the concerned individual(s).
With the right coverage in place, Linda would have been able to enjoy her vacation without having to worry about who would pay for the fender-bender.
The Holidays Have Their Own Workplace Perils
On-the-job accidents may increase during the holidays as distractions in the workplace increase and decorations can pose safety issues.
Normal routines and schedules are disrupted, and your staff — like everyone else — are also rushing around to crowded and chaotic stores and malls after work and on weekends.
Be aware that accidents may be more likely to happen at this time of the year at the workplace, on the road or at home. Employees tend to take extra physical risks ― such as when hanging lights and lugging trees around. And if you hold a holiday party, it opens up a new set of potential liabilities.
In-office safety
When planning decorations for the office, it is important to keep holiday safety in mind.
Decorating the office helps workers enjoy the spirit of the season together, but remember that proper safety precautions should be observed at all times:
- Be mindful of potential fire hazards when selecting holiday decorations and where you place them.
- Be careful of stapling holiday lights, do not add too many strings of lights and make sure illuminated items are turned off.
- Verify that all fire extinguishers are in place and fully charged and accessible.
- Do not block exits, hang decorations on fire extinguishers, fire alarms or fire hose boxes, or obstruct the view of exit signs.
- Do not hang decorations from sprinkler heads or electrical panels.
- Without proper planning, holiday decorations can create tripping hazards. Extension cords should not be run through traffic areas where they pose trip hazards and, if you have to use an extension cord, use the proper one.
- Avoid placing trees, freestanding decorations and presents in traffic areas.
Holiday party
The holidays bring office parties and, if alcohol is being served, keep in mind the liability involved.
Provide plenty of alternatives to alcohol, such as soft drinks, coffee, tea, water and cocoa. Hire a professional bartender who can cut people off if they have too much.
Enforce the same workplace rules of etiquette at the party as you do in the workplace.
If you serve alcohol, also serve food.
Stop serving alcohol a few hours before the party ends. Offer to cover the cost of an Uber or Lyft ride home for anyone who needs it.
The takeaway
If you keep in mind that the holidays put extra pressure on everyone, it may help you to keep your workplace free of accidents.
By following a few simple safety tips, it will be easy to enjoy the holiday and the events at work without dealing with injuries or damage to property.
When planning for the holidays, incorporate safety precautions into the planning process.
New Class-Action Lawsuits Target Group Health Plan Tobacco Surcharges
A new wave of class-action lawsuits is targeting employers that apply health insurance premium surcharges to employees who use tobacco, accusing them of discrimination and violating the Employee Retirement Income Security Act (ERISA), according to two new blogs by prominent law firms.
The lawsuits, according to a blog by Chicago-based Thompson Coburn LLP, assert that the surcharges are violations of fiduciary duty rules under ERISA, as well as discrimination regulations under the Health Insurance Portability and Accountability Act (HIPAA).
The law firm says these cases are being filed across the country on an almost daily basis and to date no courts have ruled to have the cases dismissed.
The fast-developing lawsuit trend is notable, considering that tobacco surcharges are widely used, and if any of the new lawsuits are successful, they could set a precedent that could expose thousands of employers to legal action. Most of the lawsuits are against self-insured plans, but even employers who purchase health insurance and also impose surcharges for tobacco use could be targeted as they are considered “fiduciaries” under ERISA.
The lawsuits hinge, in part, on a HIPAA prohibition on group health plans and wellness plans discriminating on the basis of health status. For example, health plans are barred by the law from charging higher premiums to group health plan participants with pre-existing conditions.
However, HIPAA has one exception to the rule: It allows plans to charge different premiums for employees who enroll in and adhere to “programs of health promotion and disease prevention.”
You can find HIPAA’s non-discrimination rules for wellness plans here.
The lawsuits target a common practice: requiring employees who use tobacco to pay higher health plan premiums than their colleagues who certify that they don’t use tobacco products (cigarettes, e-cigarettes, chewing tobacco and similar products).
Common themes
The lawsuits have two common themes. They allege that the plan:
- Did not provide an alternative standard for tobacco users to obtain a discount because the premium reductions for participating in the wellness plans are only available on a prospective basis, in violation of ERISA Section 702, and
- Failed to provide information on the existence of such alternatives in “all plan materials.”
The lawsuits typically seek several of the following remedies:
- Declaratory and injunctive relief.
- An order instructing the employers to reimburse all persons who paid the surcharges, with interest.
- Disgorgement of any benefits of profits the businesses received as a result of the surcharges.
- Restitution of all surcharge amounts charged.
It should be noted that as of the end of October 2024, no court has ruled on a motion to dismiss a case, according to the blog. At least one case has settled as a class action and the employer and plaintiffs in another class-action case had informed the court that they were working on a settlement agreement and would both ask the court to dismiss the case.
In addition to these private actions, the Department of Labor has sued several employers targeting premium surcharges, including in 2023 when it brought action against a firm whose health plan was charging tobacco users a $20 per month surcharge, according to a blog by Washington, D.C.-based Groom Law Group.
The takeaway
Thompson Coburn said in its blog that these types of cases are snowballing: “Given the number of complaints being filed weekly — at times daily — it is highly possible that any group health plan that applies tobacco surcharges as discussed faces the possibility of a class action lawsuit.”
The law firm recommends that businesses consider reviewing their health plans to ensure that they comply with HIPAA’s non-discrimination rules for wellness plans, which allow tobacco surcharges when applied properly, such as charging different premiums for workers who enroll in and adhere to a program that’s focused on promoting health and preventing disease.
This is a newly evolving threat to employers. We’ll provide future updates after courts rule on the merits of the cases, which will provide more guidance on when tobacco surcharges can be applied.
Why It Is Important to Review Your Business Insurance Annually
One of the keys to managing risks when you first start a business is getting the right insurance to cover your operations, property and potential liabilities.
Unfortunately, many business owners fail to update their policies and just renew them year after year even if the company has grown, expanded operations and facilities, and added new equipment and property. If this is the case, the old coverage would be insufficient.
Business owners should review their policies every year to catch any omissions and make sure they are not underinsured. It is common for smaller businesses to secure a basic business owner’s policy (BOP) and workers’ comp when they first get started. A BOP includes:
- Property insurance for buildings and contents owned by the company.
- Business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business.
- Liability protection, which covers your company’s legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do or fail to do in your business operations that may cause bodily injury or property damage due to defective products, faulty installations and errors in services provided.
Outgrowing BOP coverage
As your business expands, you may outgrow the BOP and need additional coverage to manage your risks. Some examples include the following:
- Workers’ comp. While you likely added a workers’ comp policy when you made your first hire, you will need to update it as you add more staff. If you don’t, when your insurer audits you, you may face a hefty bill for additional premium. Be diligent about your policy and inform your insurer as you grow.
- Excess umbrella or liability coverage. You should consider this insurance to cover claims that exceed your BOP’s limit, providing you with an added layer of protection to protect your assets.
- Professional liability insurance. These policies provide coverage for mistakes for any professional services you provide. This used to be mainly for doctors, attorneys and accountants, but as our service sector has expanded it includes services provided by coders and software developers, appraisers, consultants, real estate brokers, graphic designers and home inspectors, among others.
- Auto, non-owned and hired coverage. This protects business owners if an employee has an accident while driving a rental or personal vehicle on the job.
- Employment practices liability insurance. This covers human resources issues related to discrimination, harassment and termination.
- Commercial auto insurance. This coverage protects autos that are not under a personal policy.
- Directors and officers liability coverage. This protects officers and directors in the event they are sued for wrongful acts while on duty.
Depending on the business, some or most of these insurance options may be required for adequate protection. Annual reviews with us are ideal for discussing your options. Make sure these elements are considered:
- If computers, equipment or other types of property have been added, this would be reason to increase policy limits.
- While revenue is an important consideration, it is also important to remember that it is a potential liability.
- A general liability or BOP may be affected if the owner has moved, added or closed locations.
- Hired and non-hired auto insurance is necessary if workers are driving frequently in rented vehicles.
- For specific types of work and services, employers may need additional endorsements for their general liability policies.
- People who are serving new industries or clients may have problems with their professional liability coverage if they have large amounts of high-risk industries or customers.
- If you experience an increase in the number of workers you have, or there is a higher turnover rate, it is important to think about employment practices liability coverage. And as mentioned, your workers’ comp policy should be updated to reflect any staffing changes and that you categorize your workers properly.
Businesses Suffer as Employee Theft Grows
Organizations around the world lose an estimated 5% of their annual revenues to occupational fraud, according to a survey by the Association of Certified Fraud Examiners (ACFE).
The association estimates that U.S. businesses lose some $50 billion a year to employee theft, and that 75% of employees have stolen at least once from their employer — and 37% have stolen at least twice. It also estimates that about 33% of business bankruptcies are in part due to employee theft.
So, what can your organization do to avoid falling victim? The U.S. Small Business Administration and the ACFE recommend that companies:
Use pre-employment background checks — Making the right hiring decision can greatly reduce the risk of future heartache.
Basic pre-employment background checks are a good business practice, especially for employees who will be handling cash, high-value merchandise, or having access to sensitive customer or financial data.
But be aware that laws on background checks vary from state to state and if you go too far in your check, you may be in breach of the law and risk being sued. Recently the U.S. Equal Employment Opportunity Commission raised concerns that criminal background checks may disproportionately discriminate against some racial groups.
Check candidate references — It’s surprising how few employers check candidates’ references. Make a practice of calling all references, particularly if they are former employers or supervisors.
If your candidate has a history of fraudulent behavior, then you’ll want to know about it before you hand them a job offer.
While some former employers may be loath to tell you anything bad, they will often give you cues in the conversation that the employee may have had some problems.
Implement a fraud hotline — Occupational fraud is far more likely to be detected by a tip than by any other method.
More than 40% of all cases were detected by a tip — with the majority of them coming from employees of the victim organization. There are several providers of hotline services that can help implement an anonymous tip-reporting system for businesses of all sizes and industries.
Conduct regular audits — Regular audits can help you detect theft and fraud and can be a significant deterrent to fraud or criminal activity, because many perpetrators of workplace fraud seize opportunity where weak internal controls exist.
You should identify high-risk areas for your business and audit for violations on a six- to 12-month basis. Items to look at include business expense reports, cash and sales reconciliation, vacation and sick day reports, and violations of e-mail/social media or Web-use policies.
Recognize the signs — Studies show that perpetrators of workplace crime or fraud do so because they are either under pressure, feel underappreciated or perceive that management behavior is unethical or unfair.
They rationalize their behavior based on the fact that they feel they are owed something or deserve it.
Some of the potential red flags to look out for include:
- Not taking vacations. Many violations are discovered while the perpetrator is on vacation.
- Being overly protective or exclusive about their workspace.
- Employees that prefer to be unsupervised by working after hours or taking work home.
- Financial records sometimes disappearing.
- Unexplained debt.
- An employee living beyond their means.
Set the right management tone — One of the best techniques for preventing and combating employee theft or fraud is to create and communicate a business climate that shows that you take it seriously. You may want to consider:
- Reconciling statements on a regular basis to check for fraudulent activity.
- Holding regular one-on-one review meetings with employees.
- Offering to assist workers who are experiencing stress or difficult times.
- Having an open-door policy that gives employees the opportunity to speak freely and share their concerns about potential violations.
- Creating strong internal controls.
- Requiring employees to take vacations.
You should also treat unusual transactions with suspicion and trust your instincts.
Secure employee theft insurance
Employee dishonesty insurance coverage — sometimes referred to as fidelity bond, crime coverage or crime fidelity insurance — protects a small business employer from a financial loss as a result of fraudulent acts by employees.
The financial loss can be caused by an employee’s theft of property, money or securities owned by the small business.