Business Briefs

• Scientists at AIR Worldwide Corp. think they know why the United States wasn’t hit by one of the major hurricanes of the 2007 season, and why hurricane predictions are often wrong. The researchers found that using Atlantic basin activity as a proxy for landfall activity can lead to erroneous estimates of both landfall risk and potential insured losses. AIR researchers found that a storm’s starting point greatly influences its probability of making landfall along the North American coastline. The pattern of hurricane starting points changes from year to year. By comparing the pattern for a particular season to long-term patterns, one can better understand why in some years the proportion of storms making landfall is high, while in other years it is low. By looking at where they started, it was never likely that the two biggest storms of the season, Category 5 hurricanes Dean and Felix, would have ever hit the United States.
• Last year was one of the safest years in aviation in almost half a century. The Geneva-based Aircraft Crashes Record Office reported 136 accidents occurred around the world in 2007, 28 less than 2006. That’s the lowest number of crashes since 1963. The vast majority of the crashes, 74 percent, involved non-jet aircraft. Only three accidents involved more than 100 fatalities; almost half the crashes involved no fatalities. No major accident occurred in Europe during 2007, making the continent the leader in airline safety. North America accounted for the highest number of accidents with 32 percent of all crashes. The group includes all accidents in which the plane involved is never able to fly again.
• In yet another positive sign on torts, U.S. tort costs totaled $247 billion in 2006, which is approximately $825 per person and $57 less per person than in 2005, according to the Tillinghast insurance consulting practice of Towers Perrin. The $13.4 billion decrease over tort costs in 2005 marks the first downward trend since 1997. Much of that change is because of the drop in losses related to asbestos lawsuits. But there are clouds on the horizon. With the housing crisis and the economy teetering toward a possible recession, Russ Sutter of Towers Perrin predicts tort costs will rise in the coming years. “To put it bluntly, when people lose money, litigation tends to follow,” he said.

The trouble with temps

Almost every business must, from time to time, hire temporary workers to fill in for absent employees, cover unexpected needs or add manpower for special projects. But the flexibility and obvious advantages of hiring temporary employees can come at a cost if employers are not careful about how they contract for their services.

Temporary staffing agencies are big business and employers are turning to them in greater numbers to fill their needs. The U.S. Bureau of Labor Statistics found that in 2005 there were about 2 million temporary agency and contract company workers in the United States, making up about 1.5 percent of all workers in the country. These workers do everything from office work and administration to manufacturing and construction. A survey of 150 executives by OfficeTeam, a company that provides temporary workers, showed that 71 percent of companies were incorporating the use of temporary workers into their staffing budgets.

“The need for companies to be more agile and responsive to changing circumstances has prompted them to more frequently rely on temporary employees,” said Diane Domeyer, executive director of OfficeTeam.

But before you try to tap into all that agility and responsiveness, be sure to do your homework on temporary staffing.

Most of the problems with temps arise from ambiguities in the law over what exactly an “employee” is. As far as the courts are concerned, does the temporary employee work for you or the staffing agency? Whose workers compensation benefits cover the employee, yours or the agency’s? And does your liability insurance cover any damage caused by a temporary worker or any injuries they might sustain on the job?

Unfortunately, the answers to most of these questions are: it depends. It depends on the laws in your state. It depends on how your agreement with the staffing agency is structured. It depends on the circumstances of the incident. It depends on what kind of insurance you hold and what kind of insurance the staffing agency has.

With so many variables it is important to get answers to these questions before you hire temporary workers. Gaps in coverage can usually be closed and a lawyer can tell you where you stand as far as state laws are concerned. The important thing is to ask.

Tips on pre-employment testing

Depending on the job, testing can be an important part of the hiring process. Some are physically demanding and require an applicant to demonstrate a certain level of strength, others require special skills. Many companies also require drug tests and background checks. But companies that require these tests must be careful not to open themselves up to discrimination lawsuits.

The U.S. Equal Employment Opportunity Commission recently issued guidelines for hiring tests and other selection procedures. The commission said the number of discrimination cases based on pre-employment tests and screening, while still small, has increased greatly since 2003. Here are some suggestions from the commission on how to keep your company out of trouble:

• Every applicant must face the same testing and screening. If the job requires fluency in English, you must test everyone, not just Hispanics. If you do strength testing, you can't test only those older than 50.
• You must avoid testing that has a “disparate impact” on the protected groups. For example, does your physical agility test disproportionately screen out women? The testing can have a disparate impact if you can show that the skill being tested for is job-related and a business necessity. This is opposed to simply testing for general skills that may not be needed to perform the job.
• You must be sure not to ask any questions about disabilities or require medical examinations until after a conditional job offer is made. And any questions or examinations must be given to every employee, not only those with disabilities.
• Reasonable accommodations must be made, including in the administration of tests, to the known physical or mental limitations of an otherwise qualified individual with a disability, unless such accommodation would impose an undue hardship.

But, as always, if you have any questions about a particular test or screening process, it is always best to seek professional legal advice.

Terrorism insurance backstop renewed

With only days before the Terrorism Risk Insurance Act was set to expire, President Bush signed a seven-year extension of the federal backstop on the day after Christmas. The final product was a compromise between a more broad bill pushed by the House of Representatives and the president, who wanted a more modest measure.

The act was originally passed in 2002 to help insurers cover major losses in the event of a terrorist attack. Many insurers were reluctant to provide the coverage because of the potentially catastrophic losses that are possible in a major attack and the inability of insurers to accurately assess the risk of an attack. The law provides a backstop to help insurers pay claims on any terrorist attack. For businesses, the backstop should make it possible for more insurers to provide the coverage at more reasonable prices. And the seven-year extension should provide some long-term certainty for businesses looking to purchase the coverage.

“This seven-year extension brings unprecedented certainty and stability to the terrorism insurance market and keeps in place an extremely successful and important public/private partnership that helps commercial insurance buyers and the entire economy protect themselves from the financial devastation of a future terrorist attack,” the Property Casualty Insurers Association of America said in a written statement.

Here are the major provisions of the new law:

• It keeps in place most of the provisions of the law that was extended in 2005. This includes government payments when losses reach certain limits set by the law. It also maintains a trigger of $100 million in losses before the program kicks in.
• The law expands the definition of terrorism to include domestic as well as international terrorism.
• The law does not cover chemical, biological or nuclear attacks. Coverage for these events was pushed for in Congress, but the president opposed them. The law does provide for the Government Accountability Office to study expanding the coverage in the future.

New rule on retiree benefits

The U.S. Equal Employment Opportunity Commission recently approved a rule that allows businesses to continue the practice of reducing or eliminating the health benefits of retirees older than 65 who are eligible for Medicare without violating age discrimination laws. This longstanding practice had been called into question by court decisions that made it illegal for businesses to vary the amount of compensation they give to employees based on their age. If the rule hadn’t been put into place, some feared that many businesses would simply scale back or eliminate health benefits to all retirees.

“Implementation of this rule is welcome news for America’s retirees, whether young or old,” said EEOC Chair Naomi C. Earp. “By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits that are increasingly less available and less generous. Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law.”

The decision by the EEOC was supported by many business groups and labor unions, including the ALF-CIO. But not everyone was happy with the move. The AARP was among the groups that lobby on behalf of older Americans that found fault with the commission’s ruling, calling it a bid to “legalize discrimination.”

"This is far more than an age issue. The costs of health care are skyrocketing for everyone, from the corporate board room to the kitchen table. By transferring health care costs, the EEOC merely passes the buck to those who can little afford it.,” said AARP Legislative Policy Director David Certner.

Judicial hellholes

The American Tort Reform Foundation has released its annual list of “Judicial Hellholes.” The list is topped by South Florida, which the group says has “a reputation for high awards and plaintiff-friendly rulings that make it a launching point for class actions, dubious claims and novel theories of recovery.” The yearly list seeks to draw attention to what the group believes are the most unfair jurisdictions in which to be sued.

New to this list are Atlantic County, New Jersey, and Clark County, Nevada. The foundation was especially critical of Atlantic City. "Atlantic City has long been one of America’s hottest destinations for gamblers, and now its county courts are attracting personal injury lawyers who are also looking to get rich quick," noted foundation president Sherman Joyce.

Also on the list of six jurisdictions were: the Rio Grande Valley and Gulf Coast, Texas; Cook County, Illinois; and West Virginia. The group also put Madison County, Illinois, St. Clair County, Illinois, Northern New Mexico, Hillsborough County, Florida, Delaware and California on its “watch list.”

Even without major disasters, losses up

In a reminder that you don’t need to have a major disaster to experience major losses, Munich Re’s annual natural catastrophe report shows that there was far more damage from disasters in 2007 than in 2006. This is despite the fact that there were relatively few major natural catastrophes in 2007.

Economic losses for 2007 reached $75 billion worldwide; that’s compared with $50 billion in 2006. However, the loss figures were well short of 2005’s record $220 billion. The number of natural catastrophes recorded in 2007 was 950, compared with 850 in 2006, the highest figure since 1974, when Munich Re began keeping systematic records.

And what is true on the macro level, also holds up at the other end of the spectrum. Businesses should remember to prepare for small as well as large-scale problems. It’s easy sometimes to worry about hurricanes but forget about smaller problems that can do just as much damage to the bottom-line. A fire caused by improper maintenance is just as threatening to your company as a major storm carried live on CNN.