Reforms Save Employers Billions

California employers will benefit from a projected savings in claims costs of $15 billion for policies incepting in 2006. This is in comparison to what costs might have been absent the recent California workers compensation reforms according to a study done by Bickmore Risk Services and released by the Division of Workers’ Compensation.

According to the study, it is projected that the approved insurance rates have decreased by 46%. Starting in 2003, average rates of $4.81 per hundred dollars of payroll have decreased to $2.59 per hundred dollars of payroll during this three-year span. Rates now are lower than they were in 1996.

The study also backs up what insurance brokers have been saying: private insurance companies are returning to California, the State Fund’s market share has dropped precipitously, and employers are once again obtaining multiple competitive bids for their insurance programs.

Bickmore was given the study assignment last year following a mandate in one of the reform laws, SB 899. The study was required to determine if rates were dropping sufficiently because of the reforms, or if rate regulation was needed. Despite the good news, Bickmore sounds a note of caution about the uncertainty of the ultimate costs of claims under the reforms.

Applicants’ attorneys are assaulting the reforms in the courts. Workers compensation initiatives designed to roll back the reforms may make the November ballot, and, regardless of the study, proponents of rate regulation may well revisit the issue in Sacramento. For now, however, California employers are enjoying radically reduced insurance rates and increased competition.

It remains to be seen whether employers will continue their strong efforts at loss prevention and claims cost control that resulted from prior years’ high rates. We hope they do.

Don Way
CEO

Business Continuity and Pandemic Influenza

Are we prepared for a flu pandemic?

Secretary of U.S. Health and Human Services Michael Levitt said, as he toured Southeast Asia to coordinate bird flu plans, “the likelihood of a human flu pandemic is very high.”

President Bush in October established the “International Partnership on Avian and Pandemic Influenza” to coordinate a global strategy.

World Health Organization’s director, Dr. Lee Jong-wook, said preparation was key to preventing a flu epidemic like the Spanish Flu epidemic of 1918 that killed 40 to 50 million people.

A pandemic could disrupt the global economy. Business losses will be tough to assess. Until recently, areas covered by business continuity plans included loss of information technology and telecommunications, fire, flood, and earthquake damage, and, in recent years, terrorist strikes, but few businesses have well thought out continuity plans for pandemics. Business continuity plans should include the possibility of a communicable disease having widespread effects on employees, suppliers, and customers. A good plan will mitigate the risk.

Significantly, research shows business continuity plans reduce the impact of major disruptions, and a pandemic would indeed be a major disruption. The impact of a communicable disease on a business’s most valuable asset – its people – is difficult to underestimate. Every business depends on people, yet during a pandemic, they could be sick, quarantined, caring for family members – or dead.

Changes in the insurance marketplace’s perception of risk means that, outside of the life and sickness insurance markets, there usually is little or no insurance protection against most of the risks that accompany a pandemic, especially loss of business. Without insurance, a business’s continuity plan may become its first – and only – defense.

BlackBerry and Patent Liability

BlackBerry’s legal troubles and the threat of a shutdown has highlighted both the growing exposure companies have to patent and other intellectual property litigation and also the lack of readily available affordable insurance protection.

Millions of U.S. BlackBerry users may soon be without their wireless device because of litigation that would force a system shutdown due to Research in Motion, Ltd., the maker of the BlackBerry, allegedly using patented technology belonging to others.

RIM is not the first company to see its business threatened by intellectual property litigation, but it is the most publicized. Many other companies have faced similar threats and it is safe to say this is a growing trend. To further heighten the risk, few businesses carry patent liability insurance protection. Although such insurance has been available for some time, applying for it is time-consuming and purchasing it is expensive. However, for some companies, the insurance may be worth the trouble and the cost. In this information age, intellectual property often is a company’s biggest asset.

SARBOX and Private Companies

Sarbanes-Oxley is becoming a best practice for many private companies. Even though they are outside of the law, many are adopting similar measures on their own. According to a Pricewaterhouse Coopers survey of 340 private companies, 27% reported that their company had adopted Sarbanes-Oxley-like best practices. Among the group, 30% said they applied corporate governance procedures; 26% said they had incorporated transparency; and another 43% claimed to have adopted practices in both areas. Survey participants were CEOs at private companies with revenues between $5 million and $150 million.

There are many good reasons, apart from simple best practices, why private companies should consider having their own individual approaches to SARBOX readiness. These include companies considering a possible future public offering, being acquired by larger companies, or acquiring other companies themselves. To potential sellers or buyers, a company that is Sarbanes-Oxley compliant could find that fact having a significant impact on their valuation, says Tatum Consulting’s Cynthia Jamison. Companies should consider putting in place documentation and testing procedures for at least the high-level controls such as whistle blowing and board governance.

In many states, including California, non-profits may be subject to similar although not as onerous state requirements.

Insured Catastrophes Set Record in 2005

Five storms accounted for 93% of 2005’s record $56.8 billion in insured catastrophe losses, according to the Insurance Services Office, Inc.

Hurricanes Dennis, Katrina, Ophelia, Rita, and Wilma caused about $57.2 billion in insured losses, both personal and business claims, said ISO. In all, there were 24 catastrophe events. The $56.8 billion is more than the record $27.3 billion incurred in 2004.

According to ISO, policyholders filed more than four million catastrophe claims in 2005, mostly from the hurricane states.

Insuring Your Home

Most homes in the United States are significantly underinsured.

According to Marshall & Swift/Boeckh, the dominant residential property valuation modeling company used by most major insurers, the cost of standard residential building materials rose 15-20% last year. On top of that, labor increases drove the total to 28-34%.

Following widespread losses, such as a hurricane, earthquake, or firestorm, shortages typically further increase rebuilding costs another 15-30%.

Are your homes – and other buildings – insured adequately?

Notice of Claim

Reporting an insurance claim is not a simple administrative task. The how, when, and what of claim reporting varies widely from one insurance policy to another, and often the requirements are interpreted strictly. Further, loss reporting provisions typically extend far beyond simply reporting the claim. Many policies contain extensive post-reporting requirements: filing of a detailed proof of loss, cooperation with the insurer, gathering and providing information, and so on. Understanding these requirements is critical in ensuring your policy pays off as intended.

Some policies impose time limitations; the most common is “as soon as practicable.”

This does not mean “when convenient;” it means “right away.” Timeliness is always a concern in reporting losses. Especially if there were no extenuating circumstances for a delay and if the insurer can claim its rights were somehow prejudiced, failure to promptly report a loss may avoid coverage. Although some policies require written notice, and some even spell out how and precisely to whom notice must be given, others permit oral notice and provide no specific guidance.