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A Fireside Chat with A Claims Adjuster

Our Claims Advocacy Team got to sit down with a workers’ compensation claims professional who specializes in high exposure claims. They discussed a high exposure claim that wasn’t reported timely to the carrier after the incident occurred.  

 

Please Note: This article has been edited for clarification and to protect the identities of those involved in the interview.

 

We’ve decided to call this interview a “Fireside Chat with a Claims Professional”, please tell me, are you actually in front of a lit fire or a fireplace or at least a match? 

Yeah, I have a nice scented candle lit, some nice ambiance for the room. 

What is your current role in the claims process? 

I oversee about 500 files, not directly managing the day to day activities and tasks to move a claim forward, but looking at it from a strategic standpoint, whether it be return-to-work, a settlement, or the resolution of some litigated matters.  I also assist clients in resolving their existing claims files.

Can you describe what a heavy litigated file/high exposure claim is?

Yeah, high exposure is really like your catastrophic claims. For example, someone who might be a paraplegic, quadriplegic, someone that suffers from a traumatic brain injury, or spinal cord injury. Those are leaning towards your high exposure. 

Heavy litigated are files that are going to essentially set a precedent in future case law and how it can impact lawyers and insurers in the future. 

Is the insured involved in the process at all? Or by the time that the issue reaches your hands is it completely out of the insured hands? 

I feel like most of the time the employers (named insured) are aware that I’m working on their files as a resource. Oftentimes I can be involved in the claims review process to help bridge some of the gaps that may be present, with the knowledge to move that file forward. 

 

However, It depends on the account and the type of policy that’s written because they (the insured) may be hands-off. They may have paid their deductible and then the claim is no longer the named insured’s problem. So they leave the claim up to the carrier going forward. 

 

You mentioned once their deductible is paid they often have a hand-off approach because it is no longer ‘their money’. Does the claim, the amount paid on the claim, and the amount paid from the deductible have an effect on their insurance? 

 

It has an impact on their rating. It affects their E-Mod (Experience Modification factor rating). What this means is when the insured goes out into the market place the following year when they are up for renewal,  that claim may show up. the incurred (paid + reserve) impacts their ability to be written for new insurance and essentially tells them what premium they’ll be paying.

 

From what you just told me, it doesn’t make sense for the insured to take a hands-off approach? Does that sound fair? 

 

I certainly think that they (the insured) should be involved because this directly affects and impacts their future with Mod ratings and what they’re going to pay for in the future. But many people still take the backseat approach. 

 

Though this often depends on the level of comfort they have with their carrier. So while I say it’s a backseat approach. It may seem a little hands-off because they feel confident in their carriers’ ability and what we put forth.  They know that we’re going to mitigate their losses as much as possible to bring it to a resolution. 

 

That’s a great point. I imagine this is true with a long-standing client, a company who’s been insured with you for a long time, they know the team and have the same players handling their claims, and they can kind of step back because they know that your team has their best interest at heart.

 

Seasonal/Winter Claims

 

So you’ve seen it all, as you’ve climbed the ranks in insurance and the claims world. Is there one type of claim you encounter where you just roll your eyes when it comes because it is the most common type of claim? This could be a winter claim, an industry-specific claim. 

 

I call them your classic injuries. The two most common ones that are seasonally driven are your slip and falls. They are the most common denominator in terms of what you see for December, January, February March claim volumes that come in. Slip and Fall will rank really high for what we see. 

 

Aside from that, lifting injuries are common as well. 

 

Are these injuries specific to a particular industry?  Do you only oversee construction, real estate, healthcare or are these claims kind of general and not industry-specific? 

 

I think claims like these are industry-specific. Your transportation carriers/delivery services, you typically see slip and falls from the parking lots or while they’re making a delivery to someones’ home. The same goes for lifting injury, that’s primarily where you see those.

 

 Construction is a fall from heights, that’s typically the most common one.  

 

Then the healthcare we see lifting injuries because your home health aides, they’re typically assisting with a client/patient, having to maybe get them up out of bed. Some of those patients are unable to help themselves get up, and typically these employees have to just lift 150 pounds to 200 pounds by themselves with no assistive device to help them do that. We see a lot of lifting and back injuries & neck injuries from that.

 

It sounds like our essential workforce, especially during COVID times are the ones getting injured the most.

Yes. I can agree with that. 

Most Expensive Claim That You Personally Have Seen 

 

What is the most expensive claim you’ve seen? For clarification when I say the most expensive claim it can be a specific body part that is a high dollar amount.

It depends on how high you’re looking to go. I’ve seen some claims that are multi-million dollars.

 

What was that? A multimillion-dollar claim? What was that Injury? 

 

Without disclosing too much detail, one employee rode in the back of a pickup truck of another employee, as they departed the employer’s location and a severe injury was sustained. It’s a multimillion-dollar claim because this employee needs 24/7 care and will need to live in a facility probably for the rest of their life. 

 

That’s tragic and I don’t think many insureds think about claims on that level. Maybe large corporations, like the transportation organizations we discussed earlier (UPS, FedEx, DHL.) Those companies have a large workforce at a national level, so maybe they’re more familiar with those. But smaller commercial clients, don’t see or even think that this could even happen, and now they’re looking at a multimillion-dollar loss that they didn’t budget for when running their business. 

 

Absolutely, and when we start to look at what happened and gather the facts around the event we start to ask questions like “What is your policy about having employees on site after work?” and if there is any surveillance footage of the location and what was actually happening. 

Having that information and the punch cards to show when they came in and when exactly they left.  in a lot of states, there are a number of “coming and going” rules that would either support the acceptance of or denial of that accident/injury, being considered within the course and scope of employment.

 

This ties into my next question, from your side of things I’m sure it’s frustrating when these claims, and you see that more could have been done from the insured standpoint. How can the client help in the claims process so it doesn’t get to your level? At least so they do everything they possibly can to help your team out, to help the adjuster out before it gets to you and it becomes a multimillion-dollar claim.

 

What we see very often, and in the example, we just talked about this claim wasn’t reported to us until several months after the accident happened.

 

Wow. 

 

It is so important to get it to us, even if they are not sure if it would be covered under Workers’ Comp. Oftentimes they (the insured) might think it’s covered under liability or if it’s a motor vehicle accident they strictly put it in as an auto claim. 

 

My advice would be to file that incident report, that first report of injury as soon as the incident happens. Let the carrier investigate it and be sure to really partner with the carrier to ensure that you’re getting them the information that they’re requesting. Preserving any evidence is crucial as well. 

 

So if you have surveillance footage be sure to take that and send it over right away. Witness statements are critical.  When you speak to someone right after an event happens the event is going to be right fresh in their head.  As opposed to trying to track someone down a few months from now, or even a week from now, their recollection of the event might vary. These witnesses might have also spoken to other employees about things being said around the workplace and you risk getting a skewed version of what actually occurred. 

 

Even include the profile for the employee: what’s going on? Oftentimes you’ll see they’ve run out of vacation time and now they’ve filed this claim. Then, we learn from other employees that this person was just taking a vacation. So all that information about what’s going on in this employee’s life and other things they’re aware of like disability claims that were previously filed for this employee in conjunction with just responding to the investigation as soon as it happens is pivotal.

 

I gather that a lot of times in an instance where this doesn’t happen, the insured is afraid of the repercussions and the carrier is going to penalize them. However, you don’t get penalized for doing the right thing, which is if you know something happened, report it. This way the carrier can work with you and guide you and do the investigation early on instead of 4 months out. 

 

So circling back to the example you gave us. What happened in the time it took for that event to hit your desk? 

 

In this situation, it was a case of “Everything that can go wrong, did go wrong.” The insured originally never put it through to workers’ comp. Why? 1. They were trying to pay for anything out of pocket to avoid having the claim show up on their claim history. Secondly, they heard this employee had passed away. The employer didn’t realize that the employee had survived the accident. 

 

Once we finally did receive the claim, the employees that participated in the internal investigation before it reached the carrier were no longer available for comment. 

 

This sounds interesting.

 

I’m not sure if that answered your question, but I’m not sure if this approach helped anybody because the state where this incident occurred is a state that requires you to get prior authorizations, and the employee already incurred several million dollars worth of care before this claim even reached us. There was no direction and we couldn’t negotiate the rates with the home healthcare. At this point, we’re trying to go backwards to try to project what could occur in the future. 

 

What a mess. 

 

This approach doesn’t work well from the financial standpoint either because it doesn’t help the injured worker and then the carrier is trying to quickly piece together to make a decision before the state’s deadline for when you have to file a decision. There is a lot of scrambling. 

 

This sounds so stressful. The insured may be able to self-pay but those accidents need to be very minor. Even if the insured does self-pay there are still forms that need to be filled out and the insured is required to keep them on hand but it sounds like in this instance it was a major accident, to begin with. 

 

Thank you so much for sharing. This touches on what a lot of clients are asking and are worried about. At the end of the day, they all want the best insurance rates and the best insurance coverage, but the only way to achieve that is cooperation and reporting things timely when an employee is injured. 

 

It sounds like in this instance the insured didn’t try to reach out to the injured employee because they didn’t know if he was still alive.

 

There was no contact made. In fact, it was asked for us to not contact the family until we (the carrier) had the full scope of what was going on because at that point we didn’t want to contact the family and give them unrealistic expectations of what would be covered.  The insured definitely learned a lesson on what not to do next time. 

 

Something as simple as reaching out to the employee who was injured, or reaching out to the family if you can’t get the employee,  and they’re not showing up to work is a big step and a huge help to the claims team and to the employer as well. They should know where their employees are. 

 

I find it very important for the employer to be engaged in this process. Whether they are a short-term or a long-term employee. Following up and showing that area of concern, asking them when they might return to work. It makes that employee feel valued. It could also result in a quicker return to work.

 

A great point you’ve touched on. 

 

The employer/employee relationship  

 

I ran into an issue where I was trying to encourage one of my clients to reach out to an employee that had gone MIA for a little bit. Their response was they didn’t want to because they were afraid that the employee would consider it harassment and the employer’s view was “this employee is out on workers’ comp. We have no right to speak to them.”

 

I think a lot of insureds feel this way:  once the employee is out on workers’ comp they’re not allowed to speak to the employee. But, what you’re telling me is this is not truly the case. 

 

To my knowledge, there is no employment law that prevents the employer from checking in on their employees. Disability does that to check in with their employees to check-in and see how they’re progressing and how they’re healing. The employer may not be able to ask directly “When are you returning to work” but they can ask how they’re progressing. 

 

Depending upon the relationship between the employer and the employee, the employee may be forthcoming with more information. 

 

A lot of times these folks are just home and don’t have many other people to talk with. A lot of them are isolated, working-class individuals. So their family, friends, and everyone else is at work, so they’re longing for social interaction. The employer reaching out shows the employee that they’re concerned about their wellbeing and the employee can be eager to come back.

 

It sounds like this is just the kind thing to do. 

I don’t know of any law that stops someone from doing that so we encourage reaching out to the employee. 

I wasn’t meaning this from any legal standpoint. I just meant a lot of employers are like “Well they’re out on workers’ comp. We’re not talking to them”. They’re still your employees.

Especially when some of these employees have been with the company for 15+ years. How do you let this accident happen and not show empathy or concern for how the employee is doing? I think from the carrier side of this we’re in situations where we can’t have direct contact with the employee because they’re attorney represented. Therefore the employer is our outlet to keep us updated.

 

Oftentimes they (injured workers) go to a doctor’s appointment and they give their employer a call with an update: “I just went to my  Dr.’s appointment and I’m going to be out for another 4 weeks. I need to go to physical therapy and then go back to the Dr.’s.” 

 

As a carrier, it takes us a longer route to get this information because we have to call the provider to get information, and sometimes it takes two weeks plus to get the office notes, depending on how long it takes the physician’s office to have their notes dictated. 

 

It’s often helpful to the carrier if the employer maintains that relationship with the employee. It can help get that person back to work sooner, which benefits the claim. 

 

You’re detailing a really important dynamic which we try to communicate to our clients, and it’s nice to hear the same from you, another claims expert. It’s a group effort and the insured is a key player in how these claims can end up. It starts with keeping in contact. Once the adjuster loses contact with the claimant due to attorney representation it sounds like the employer is the key person to maintain that contact and relay important information to you guys. 

 

I think that this is something a lot of people often overlook because it’s not common knowledge.

 

Exactly what I was saying. 

 

This has given us a lot to think about, to share with our clients. Is there anything else that I didn’t touch on that you were hoping to talk about? Any inside scoops.

 

You know, I gave an example of a catastrophic claim and there are other claims out there. What I think is always a challenge for employers is the accident description itself. Sometimes that’s where they start scratching their head. The employer starts asking themselves “Do I report this? Do I not report this? Should I be taking a hands-on approach? Do I let the claims team just handle it?”

 

The employer may not want to reach out during the investigation period, because the employee may start asking questions that they don’t have the answers to. 

 

Right. 

 

I’ve seen all sorts of things, and the issue is that there are various grey areas in claims that can affect whether or not the claim will be accepted by the carrier. 

 

You mentioned some of the more common areas of claims and can some of those be prevented? 100% Yes, but some will inevitably happen. The other side of this is the quicker we can get these resolved, and the greater involvement we can have earlier on, the more likely we will help the injured employee return to work sooner. The more we can do to prevent these accidents from occurring, the safer the staff is and the better things can be. 

 

Risk Management 101. Preach! Thank you so much for your time. Our fireside, Vanity Fair-esque interview. This was a lot of fun! I may be reaching back out to you for a summer edition of this!  

 

Claims management is an integral part of your insurance purchasing process. If you have any questions or need help with claims management within your organization contact one of our Metropolitan Risk Risk Advisors for information on our available programs. 

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New York State’s Updated Sick Leave Law

New York State’s Paid Sick Leave policies were introduced on April 3, 2020, and went into effect on Sept. 30, 2020.

On January 1, 2021, employees may start using their accrued leave. 

The number of sick leave hours required is based on the number of employees that work within your organization:

0-4 Employees:

If your net income is $1 Million or less, employers must up to 40 hours of unpaid sick leave. If net income is greater than $1 Million, employers must provide up to 40 hours of paid sick leave 

5-99 Employees: 

Employers must provide 40 hours of paid sick leave per calendar year.

100+ Employees:

Employers must provide up to 56 hours of paid sick leave in a calendar year. 

How sick leave is accrued 

Employees begin accruing leave on September 30, 2020. Leave must be accrued at the rate not less than one hour of leave accrued for every thirty hours worked. 

An alternative to the accrual of sick leave by hours, employers may choose to provide the full amount of sick leave at the beginning of each calendar year (ex. An employer with 50 employees may choose to provide 40 hours of sick leave starting Jan.1 of yea year or at the beginning of a 12-month period determined by the employer. NOTE: Upfront sick leave cannot be subject to later revocation or reduction if the employee works fewer hours than anticipated by the employer.). 

Who is eligible

All private-sector employees in New York State are covered, regardless of industry, occupation, part-time status, and overtime-exempt status. Federal, state, local, and government employees are NOT covered, but employees of charter schools, private schools, and not-for-profit corporates are covered.

Permitted Usage of Sick Leave 

After Jan 1, 2021 employees may use accrued leave following a verbal or written request to their employers for the following reasons impacting the employee or a member of their family for whom they are providing care or assistance with care. 

Sick Leave: 

  • For Mental or physical illness, injury or health conditions, regardless of whether it has been diagnosed or requires medical care at the time of request for leave
  • For the diagnosis, care, or treatment of a mental or physical illness, injury or health condition, or need for medical diagnosis or preventative care.

 

Safe Leave:

  • For an absence from work when the employee or employee’s family member has been the victim of domestic violence as defined by the State Human Rights Law, a family offense, sexual offense, stalking, or human trafficking due to any of the following as it relates to the domestic violence, family offense, sexual offense, stalking, or human trafficking: 
    • to obtain services from a domestic violence shelter, rape crisis center, or other services program; 
    • to participate in safety planning, temporarily or permanently relocate, or take other actions to increase the safety of the employee or employee’s family members; 
    • to meet with an attorney or other social services provider to obtain information and advice on, and prepare for or participate in any criminal or civil proceeding; 
    • to file a complaint or domestic incident report with law enforcement; 
    • to meet with a district attorney’s office; 
    • to enroll children in a new school; or 
    • to take any other actions necessary to ensure the health or safety of the employee or the employee’s family member or to protect those who associate or work with the employee. 

Leave Increments 

Employers are permitted to require that leave be used in increments (e.g., 15 minutes, 1 hour, etc.) but may not set the minimum increment at more than 4 hours.

Employers must notify employees of these leave increment policies in writing or by posting a notice in the worksite prior to leave being acured, any restrictions in their leave policy affecting the employees’ use of leave, including any limitations on leave increments 

Rate Of Pay

Employees must be paid their normal rate of pay for any paid leave time under this law, or the applicable minimum wage rate, whichever is greater. No allowances or credits may be claimed for paid leave hours, and employers are prohibited from reducing an employee’s rate of pay for sick leave hours only. 

An employer cannot retaliate against an employee in any way for exercising their rights to use sick leave. Furthermore, employees must be restored to their position of employment as it had been prior to any sick leave taken. Employees who believe they have been retaliated against for exercising their sick leave rights should contact the department of labor’s anti-retaliation unit.

Record Keeping

Employers are required to keep payroll records for 6 years, which must include the amount of sick leave accrued and used by each employee on a weekly basis.

Employers are required to provide within three business days a summary of the amount of sick leave accrued and used by the employee in a current calendar year or any previous calendar year, at the request of the employee.

 

Employees who believe that they have been retaliated against for exercising their sick leave rights should contact the Department of Labor’s Anti-Retaliation Unit at 888-52-LABOR or LSAsk@labor.ny.gov. 

 

If you still have questions, contact a Risk Advisor at 914-357-8444. If they cannot help you they’ll direct you to an employment lawyer that can. 

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How Workers’ Compensation Class Code #8873 “Telecommuter Reassigned Employees” Can Help You Save Money On Your Insurance Premium

The New York Workers’ Compensation Insurance Rating Board (NYCIRB) has released a new class code for ‘Telecommuter Reassigned Employees’.

If you are a business owner you might be wondering how do I adjust my workers’ compensation rates for employees that we kept on the payroll, but did not actually perform their duties? It doesn’t make sense to pay workers comp premiums for an expensive labor class during a workers comp audit when those employees were essentially paid to sit home. 

 

Over the past eight months, we have experienced difficult and trying times due to the pandemic. One critical aspect of the first few months of the pandemic was the ability of employers to keep their employees on the payroll whether or not they were actually performing their duties. The PPP program went a long way in helping employers achieve that important concession. 

 

The question that has come up recently with many employers is how do we properly account for that portion of payroll we paid our workers when they actually didn’t perform their actual duties. In industries like construction or healthcare, the insurance costs basis can generate a lot of insurance premiums because the class codes for those labor components have a high insurance rate tied to it. 

Now there is a relief for workers compensation premiums for these “reclassified” employees.

The New York Workers’ Compensation Insurance Rating Board (NYCIRB) has released a new class code for ‘Telecommuter Reassigned Employees’.

Temporarily Reassigned Employees, which establishes new classification code 8873, Telecommuter Reassigned Employees, requires that it be applied to the payroll of employees who, during New York’s stay-at-home order related to the COVID-19 pandemic (and future stay-at-home orders), are reassigned to either (a) not perform any work duties (idle), or (b) perform clerical work duties at home that they otherwise would not perform. The rate per $100 of payroll for Classification 8873 will mirror the rate for Classification 8810 (clerical office employees).

Further, this provision is applicable at the start of New York’s stay-at-home order and for up to 30 days after its conclusion. Employees who are classified to code 8871, Telecommuter Clerical Employees, are to remain classified as 8871.

In other words, the new 8873 classification only applies to employees who are reassigned and meet one of the two conditions described above. These amendments are effective for all new and renewal policies effective May 1, 2020, as well as to all in-force policies as of March 16, 2020.

We have provided the NYSIF Q&A sheet of commonly asked questions about this new workers’ compensation class code.

We would be happy to review the parameters of the new class codes and the impact it may have on your business. Please contact one of our Risk Advisory to discuss further.

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Who Is Exempt From Workers Compensation Coverage?

The New York workers’ compensation insurance law requires the majority of employers to have appropriate workers comp insurance coverage in place. However, there are three key exemptions.

Sole Ownership

If you run your business alone and don’t have any employees, you may not need to have workers’ compensation coverage.  You should note, however, that in order

not to inadvertently break the law, you must not use the services of volunteers, such as family or friends.

Partnership

Partnerships set up under New York laws may also be exempt, but only where they comply with the provisions applicable to businesses in sole ownership outlined above.

Small Corporation

Where one or two people have set themselves up as a corporation, hold all the offices and own all the stock, they might also be exempt, as long as they have no employees of any kind, as per the other two exempt categories above.

Sub-Contractors

It is important to note that should your otherwise exempt business use the services of sub-contractors, you should make sure they have their own insurance coverage. Otherwise, the New York Workers Compensation Board may rule that they are employees. Similarly, when a sole owner, partner, or small corporation owner works as a sub-contractor, he or she is required to hold personal New York workers compensation insurance.

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Hired & Non-Owned Liability Coverage

As businesses of all sizes and industries are reevaluating how they plan on doing business moving forward, many small businesses have shifted from physical retail locations to online and home delivery services. This is to keep up with customer demand and social distancing guidelines. With this shift in the way businesses are run, they also face new risks. A smaller business may not be able to afford to hire a fleet of vehicles for their employees to drive and may rely on their employees to deliver goods using a vehicle not provided by the company. A hired and non-owned auto policy is one way these organizations can better protect themselves for the auto-exposure.

For example, hospitals and pharmacies may now rely on nurses to do more routine care through home care. This may be instead of outpatient treatment and offer home delivery of pharmacy items and prescriptions. To save money, these businesses may rely on their staff members to drive their own vehicles around the state. 

Restaurants & Insurance

The restaurant industry is another industry affected by these new lifestyle changes. Restaurants who were previously dine-in only are now offering the service of having orders available for take-out and may forgo using UberEats and Grubhub in favor of using their own staff as delivery drivers to keep more of their profits in house. 

If you have a sales team that is always on the road you have exposure. Do you have attorneys that go to court or accountants that go and see clients? How about estimators that go to look at new work, or safety personnel, inspectors that go from job to job? 

We encourage you to think about how you execute your day to day business to assess whether you have exposure. Of note, the commute to and from work is NOT an exposure. If they stop off to execute a task for the business, then go to work. This drive turns into an exposure because it’s no longer a commute. 

These are a few examples where Hired/Owned Auto Liability insurance might be of use to fund a potential liability exposure. 

 

Learn More: Auto Exposure in Home Healthcare Organizations

What is Hired & Non-Owned Automobile Liability?

If you do not own a car but frequently borrow other people’s cars, rent cars or use a car-sharing service, non-owner auto insurance offers you coverage if you cause an accident. Non-owned automobile liability can be extremely severe in many cases.

This type of insurance covers you for damage you cause to someone else’s car in an accident. It also covers liability for injuries to the occupants of the other car or to pedestrians.

You should also consider the coverage if you do not currently own a car but will in the future. Having continuous insurance coverage will help keep your premiums low when you purchase a policy for a new car.

 

Why does my business need this Liability Policy?

Many personal auto policies have exclusions on them regarding driving for businesses. This means the loss that occurs is the responsibility of the business and not the driver.  

If your business is putting drivers on the road during business hours, you are still responsible for their actions. This means that if your driver is in a car accident while driving from one client to another your business would fund the loss and pay the insurance claims before their personal auto coverage. 

Pairing your Hired & Non-Owned Auto Liability Policy with a strong safe driver’s agreement 

Insurance is important, but it is a trailer for all risk management processes. Having a safe driver policy that all of your employees must adhere to is one way to help manage the risks that come with employees driving their own vehicles for work. 

DOWNLOAD: A Sample of A Safe Driver’s Agreement

A safe driver’s agreement is an agreement all of your employees should sign stating that they will practice safe driving behavior while driving on company time. This agreement includes discipline for drivers who get tickets or have points on their licenses and can include safe driver incentives for their employees. Safe driver incentives can be a great way to help motivate your employees to be better drivers. 

 

If your organization lacks a hired and non-owned auto policy you are leaving yourself exposed to the risk of having to fund the entirety of a loss if a loss occurs. If your business is now looking to purchase a hired and non-owned insurance policy, contact a Risk Advisor at 914-357-8444 for more information on how.

 

 

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Business Interruption Insurance Coverage For Business Continuity

Most business owners view the whole insurance purchase and claims process as a black art, which this writer completely understands. After 25 years in the business, I too scratch my head at some of the “spells” insurance carriers concoct.

Let me try and be as succinct as possible as I will focus on three main considerations:

  1. Purpose of business income coverage
  2. Coverage triggers
  3. A brief paragraph on valuations

Purpose of Business Income Coverage:

The main purpose of business interruption insurance coverage is for business continuity. It provides funds to pay for continuing expenses that remain even though the business is not operational at the moment. These necessary expenses keep the business viable for its eventual return. One example would be key staff, such as an executive chef. You wouldn’t want to lose their talents which are intrinsic to the success of your business, thus their compensation remains even though the kitchen is inoperable. There are very specific loss formulas and calculation variables that are used by insurance carriers contained in your policy that determines the amounts. See Item 3 for more information on valuations.

There are essentially three levels of business interruption coverage:

Standard Business Interruption Insurance coverage –

Intended to compensate the insured for income lost during the period of restoration. Continue until owner bring the operations and or facilities back online and fully functioning.

Extended Business Interruption –

Provides additional coverage augmenting the standard business interruption coverage for a specific period of time once the facility or operation has been brought back online. An example of which might be a restaurant that re-opens after 6 months of restoration. It may take time for the public to return, which means their sales will be off until word gets out. Extended Business Interruption would help bridge that sales gap for 30, 60, or 90 days contingent on how much you purchase at the outset.

Contingent Business Interruption –

Provides coverage above and beyond the standard business interruption insurance for damage or loss of income due to a loss for a key supplier, or a key tenant. I’ll give an example. Years ago Corning had a fire at their factory which supplied the majority of the screens for Samsung’s flat panels. Samsung had a significant drop in sales as they could not fill orders. Those customers bought from other manufacturers resulting in a net income loss for Samsung.

These are the three many levels of business interruption coverage. Most businesses have the Standard level. If your business might suffer losses from a time perspective, contingent supplier, or an anchor tenant, consider these enhancements.


What Triggers Business Interruption Insurance?

Great question, glad I asked. Coverage triggers are one of the most important features or mechanisms contained in all insurance policies. When a claim is presented insurance carriers ask two questions: what clause in the insurance contract “triggers” coverage, and what exclusions or limitations contained in the insurance contract “trigger” a claim denial. It’s either one or the other; guess which one they focus on most?

Essentially it comes down to a few critical answers:

  1. Is the event that caused the loss, a “covered peril” as defined in the insurance policy? Hint, fire is a covered peril, flood is typically not.
  2.  Did the business suffer a loss of business income as a result of suspension of operations resulting from that loss?
  3. Did the business suffer property damage from a covered location on the policy?
  4. Is the business being made whole for continuity purposes or is there an economic gain resulting from the coverage?

Examples

These are the main coverage triggers we look at from the outset. There are other more nuanced considerations in certain cases however I didn’t want this to turn into a doctoral thesis.

During Hurricane Sandy, many businesses suffered the loss of business income because their business had shut down for a period of time resulting in a potential net income loss. We fielded hundreds of questions in this vein. Sadly most of the losses were a result of flooding which was not a “covered peril” thus business income was NOT triggered.

In other situations, we made a case that a pre-emptive utility shut down by civil authority or landlord to protect their electrical infrastructure resulted in the loss, and not the flood. This argument only works if you also have the proper utility interruption coverage endorsement on the policy which triggers coverage. In absence of that endorsement, coverage would not apply to business income as losses didn’t result from a covered peril.  Some folks call this confusing, I call it job security. If you are unsure if coverage is triggered or not we suggest you speak to a Risk Advisor for a second opinion on your specific situation.

Business Interruption Valuations:

Here’s where the weeds get really deep. In the vast majority of policies that include business interruption coverage there usually is contained deep in the policy pages a standard formula or calculation that brings certain income and expenses in, and carves certain expenses and income out. An example of such might be utilities or rent that ceases during the period of restoration. Since the expense no longer occurs while the business is dormant the carriers pull this item out of their calculation. Within the methodology, both income and expenses brought in and out contingent on how necessary they are to continue business.

Another example is key staff versus line staff. It’s critical for certain businesses to maintain payroll for key management or staff, but not for everyone. Thus the calculation for payroll reimbursement usually only contemplates critical staff. The rest are furloughed thus the expense does not perpetuate and is not in the calculation.

One of the most valuable services we provide clients is a Pre Loss Analysis whereby we do the business interruption calculation prior to a loss to test the coverage limits and triggers to ascertain how accurate it is if a sizable loss truly occurred. We have found that 98% of businesses are vastly underinsured for business interruption when we actually did the pre-loss calculations.

Why MetRisk

Industries that are susceptible to being underinsured for business interruption are Real Estate (Commercial & Residential), Manufacturing, Hospitality (Restaurants, Hotels), Retail & Wholesale Operations, and Healthcare.

We suggest you contact a Risk Advisor to do a Business Interruption Pre Loss Calculation, or simply order our free worksheet to do the calculation yourself. We believe it’s an enormously important exercise to do preemptively before a loss occurs. The survival of your business may depend on simple math.

 

Construction Practice Group Content, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance

7 Common Insurance Errors Businesses Make

We recently left a meeting with one of the largest construction companies in the country, whose sales are north of a billion dollars annually. The first comment my counterpart made was, “I cannot believe how poor their systems are…” I turned to him and gave him one of my favorite lines because it still rings true to me on a daily basis, “I’m always amazed, never surprised.” Universally, whether you are a billion dollar construction company, a small manufacturer, a non-profit, or a healthcare company, these are the flaws we see in (over 98%) the companies we are invited into. Here are 7 insurance errors commonly made by any and all types of companies.

1. Wrong Goal: 

Most companies set a goal of lowering their insurance spending every year. They see it as a tax. It’s an expense that doesn’t generate value. We suggest this goal is incorrect. Your claims history and risk-based costs drive your insurance costs; not your broker or the insurance carriers. 80% of an organizations costs are outside the cost of the insurance. Furthermore, the cost of your insurance program tends to be a lagging indicator, reset only once a year. Measuring, preventing, and managing your claims and claims-related costs should be the goal, not lowering your insurance cost. If you can demonstrate to the insurance marketplace that your company is historically profitable (claims to premium ratio) then you will have carriers competing for your business, which will, in turn, lower your costs.

Wrong Goal

2. Insufficient Resources for the Goal:

The best companies at least have a safety budget. Many, sadly, don’t even have that. If you want your arms around your biggest cost drivers, you need to dedicate resources towards the solution. We suggest that you start by setting a Risk Budget, not just a safety budget. It’s helpful if you know how much money you’re leaking due to claims. Having this Risk/Reward context will help you sell your budget number to management. Moreover, if you have solid systems (see 4), you can leverage those systems to bring in other resources in a cost-efficient fashion. This allows you to stretch the budget.

Most companies don’t leverage their carrier relationships or their brokers for resources to help them with their cost drivers. Even when they do, it’s too inconsistent to have much impact. Staffing at most organizations is thin at best, whereby a single staff person is also delegated the risk responsibilities on top of all the other hats they wear.

3. Improper to Absolutely No Data:

When we ask prospective clients how they determine success or failure in their insurance program, they almost always tell us insurance premiums. Again, this is flawed. Premiums by themselves indicate nothing and often are also a false read. Instead, premiums should be converted to a rate per sales, payroll, or vehicle. Also, the insurance contracts themselves might exclude or include more risk which swings costs. Our main point is that companies do not have the proper data to reveal their true cost drivers, hot spots, or success spots in an organization. They can’t benchmark themselves over a year’s time. They can’t benchmark supervisory employees, departments, or locations, nor can they tell you what their ROI is on their safety investment. Or they can’t build compensation incentives around the companies cost savings goals.

Without the proper data it’s nearly impossible to change culture, results, or fix cost drivers that you haven’t even identified. Imagine being a doctor trying to diagnose a patient without running tests, looking at charts, and being able to benchmark vitals. Most companies lack this critical ability to gain insight, let alone the ability to select the correct treatment option.

4. Little Strategy:

Here’s a hint, shopping your insurance with 3 competing brokers is not a sound strategy. Yes, it may have worked for you a few times, but, it’s like shooting foul shots backwards. You may get lucky, but it’s not consistently sustainable. If you set the proper goal, you can then test the marketplace with your (1)broker who can (and will) get you competitive pricing. Set your strategy on controlling and lowering your main cost drivers, your insurance costs will follow.

5. Systems:

The best of these companies use spreadsheets to capture data, and then exchange insights via email. Most don’t even have the spreadsheets! If you have a solid system as a nucleus, you can then build both process and staff around this core system. Further you can leverage the system to hire outside specialties to address thorny issues. In absence of a strong core system, it’s very difficult to get a sustained, consistent effort bent towards solving your most vexing claims issues.

 

6. Lack of Process/Protocol:

There is so much low-hanging fruit that costs so little when it comes to managing claims cost drivers, most of which is just knowing the proper protocol when “x” occurs. Then, it’s all about communicating that protocol organization-wide, with a proper system in place to build in accountability, so it becomes natural.

Note: Having a task list is not a system. Closing the execution loop, holding people accountable, is a system. The loop is closed through a random audit process.

7. Price vs Cost:

This is a big one. Too often, we see companies focus on the price of the insurance against the long term costs. Nothing is more expensive than a cheap insurance contract. You finance your risk with operating cash flows, reserves or worse… loans. Contrary to popular belief the correct answer is not insurance. If you had the correct data, contained within a system, then you would understand the real cost drivers in your organization so you can then attack them strategically. That takes too much work, so folks just look at the premium, write the check and hope for the best.

Here’s the good news (sarcasm). There is a new class of competitor coming to your space that understands these seven points and are executing them with ambitious zeal. They understand that to truly lower their unit cost structure they need to look at their cost of risk rather than the price of their insurance. Having this ability is truly an overwhelming marketplace advantage as they will be cost efficient and cost consistent year in and year out. You will know them by their tale tell signs, high growth, more market share, lower costs and higher profits.

Wash, rinse, repeat.

Construction Practice Group Content, Food & Beverage Practice Group Content, HR Challenges, Human Services Practice Group Content, Loss Control, Practice Groups, Risk Financing, Transportation Practice Group Content

A Small Business’ Guide To The CARES Act

On Friday, March 25, 2020, the US Senate passed the CoronaVirus Aid, Relief and Economic Security Act (CARES Act), to help provide financial relief to the people and business of America. This bill is a $2 Trillion dollar relief in response to the economic fallout from the fast-developing Coronavirus pandemic. The CARES Act is meant to provide direct financial aid to American families, payroll and operating expense support for small business and loan assistance for industries affected by the pandemic. Here is a breakdown of some of the topics the CARES Act covers:

What is the Paycheck Protection Program?

The Paycheck Protection Program, one of the largest sections of the CARES Act, is the most important provision in the new stimulus bill for most small businesses. This new program sets aside $350 billion in government-backed loans, and it is modeled after the existing SBA 7(a) loan program many businesses already know.

Who Qualifies for the Paycheck Protection Program?

This program was created as an incentive for small businesses with fewer than 500 employees and select businesses with 1,500 employees to maintain payroll through June and expands the SBA network so that more banks, credit unions, and lenders can issue those loans. The goal is for small businesses to no lay off workers and rehire laid-off workers that lost jobs due to COVID-19 disruptions.

What Is The Maximum Loan Amount A Business Can Recieve Though The Paycheck Protection Program?

The maximum loan amount under the Paycheck Protection Act is $10 million, with an interest rate no higher than 4%. No personal guarantee or collateral is required for the loan. The lenders are expected to defer fees, principal and interest for no less than six months and no more than one year.

What Can These Funds Be Used For?

Businesses can use funds from the Program loans to cover expenses including:

  • Payroll costs, including compensation to employees; payments for vacation, parental, family, medical or sick leave; severance payments; payments required for group health care benefits (including insurance premiums), retirement benefits, and state and local employment taxes
  • Interest payments on any mortgage obligations or other debt obligations incurred before February 15, 2020 (but not any payments or prepayments of principal)
  • Rent
  • Utilities

However, the money cannot be used for compensation of individual employees, independent contractors, or sole proprietors in excess of an annual salary of $100,000; compensation of employees with a principal place of residence outside the United States; or leave wages already covered by the Families First Coronavirus Response Act.

How Are Loans Made Under The Paycheck Protection Program Different From Traditional 7(a) Loans?

Unlike traditional SBA 7(a) loans, no personal guarantee will be required to receive funds and no collateral needs to be pledged. Similarly, the CARES Act waives the requirement that a business shows that it cannot obtain credit elsewhere. In lieu of these requirements, borrowers must certify that the loan is necessary due to the uncertainty of current economic conditions; that they will use the funds to retain workers, maintain payroll, or make lease, mortgage, and utility payments; and that they are not receiving duplicative funds for the same uses.

The SBA will not collect any yearly or guarantee fees for the loan and all prepayment penalties are waived. Payment of principal, interest, and fees will be deferred for at yeast6months but not more than a year.

The SBA has no recourse against any borrower for non-payment of the loan, except where the borrower has used the loan proceeds for a non-allowable purpose.

What Are The Loan Forgiveness Requirements?

Borrowers are eligible for loan forgiveness for 8 weeks commencing from the origination date of the loan of payroll costs and rent payments, utility payments, or mortgage interest payments. Eligible payroll costs do not include annual compensation greater than $100,000 for individual employees.

The amount of loan forgiveness may be reduced if the employer reduces the number of employees as compared to the prior year, or if the employer reduces the pay of any employee by more than 25% as of the last calendar quarter. Employers who re-hire workers previously laid off as a result of the COVID-19 crisis will not be penalized for having a reduced payroll for the beginning of the relevant period. Forgiveness may also include additional wages paid to tipped workers.

Borrowers must apply for loan forgiveness to their lenders by submitting required documentation (as discussed in further detail below) and will receive a decision within 60 days.

If a balance remains after the borrower receives loan forgiveness, the outstanding loan will have a maximum maturity date of 10 years after the application for loan forgiveness.

How Does A Business Apply For A Loan Under the Paycheck Protection Program?

We expect additional guidance from the SBA regarding how to apply for Program loans, including additional resources on the SBA website about how to find a qualified lender. Borrowers who have outstanding SBA loans may also want to contact their existing lenders to inquire about applying for loans under the Program.

Is Relief Available For Businesses With Pre-existing SBA Loans?

Yes. The SBA will pay the principal, interest, and associated fees on certain pre-existing SBA loans for 6 months.

Does the CARES Act Affect Any Other Loans Available To Small Businesses?

Yes. The maximum loan amount for an Express Loan is increased from $350,000 to $1 million.

The CARES Act also expands eligibility for borrowers applying for an Emergency Economic Injury Disaster Loan (EIDL) grant. Under the Act, emergency EIDLs are available for businesses or cooperatives with fewer than 500 employees, sole proprietors or independent contractors, or Employee Stock Ownership Plans (ESOPs) with fewer than 500 employees. Additionally, the Act waives requirements that (1) the borrower provide a personal guarantee for loans up to $200,000, (2) that the eligible business be in operation for one year prior to the disaster, and (3) that the borrower be unable to obtain credit elsewhere. The SBA is also empowered to approve applicants for small-dollar loans solely on the basis of their credit score or “alternative appropriate methods to determine an applicant’s ability to repay.”

Most significantly for borrowers seeking an immediate influx of funds, borrowers may receive a $10,000 emergency advance within three days after applying for an EIDL grant. If the application is denied, the applicant is not required to repay the $10,000 advance. Emergency advance funds can be used for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to revenue losses.

Borrowers may apply for an EIDL grant in addition to a loan under the Paycheck Protection Program, provided the loans are not used for the same purpose. If a borrower received a loan under 7(b)(2) after January 31, 2020, the borrower may refinance the outstanding balance as part of a loan under the Program.

For more resources on the CARES Act:

Claims Management, Construction Practice Group Content, Food & Beverage Practice Group Content, General Liability Insurance, Human Services Practice Group Content, Line of Insurance, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance, Workers Compensation Premium Audits

What A High Experience Mod Means and How It Can Affect You

You’ve just seen your Experience Modification Rating (EMR) and it is high again. Or your worst-case scenario, it has gone up again. Year over year, you’ve spent time shopping for your insurance due to your high EMR. It is time to stop shopping and start proactively working to lowering your EMR because eventually, it will catch up to you.

What Is Your Experience Mod?

Let’s start with a basic definition. What is your Experience Modification Rating or your EMR? A simple definition of EMR is Payroll divided by Claims. The video below explains what your experience mod is and what is expected of your organization. (If the video does not play in your browser click here.)

Remember, an average experience mod is a 1.0, this is like receiving a “C” on your report card. If you’re happy with this, stop reading now. Good luck, you’ll be competing against companies with a greater competitive advantage than you because they’ll have a much lower cost structure, higher profits, and a larger business development budget.  

Some Construction companies bidding on government work are ineligible if their EMR is above 1.0. 

How To Find Your Experience Mod Rate

The NCCI (National Council on Compensation Insurance), is a group that calculates Experience Modification Factors for companies across the entire United States. Some states have their own rating bureaus due to their size and complexity. For example, New York and New Jersey have the NYCIRB & NJCRIB respectively. For a detailed explanation of what your Experience Modification Factor is and how it’s calculated visit this site. 

Why is Your Experience Mod High?

There are a number of reasons why your EMR is high. The biggest factor is the number of open claims. If your organization has a high number of claims or one large claim on your Workers’ Comp policy your EMR may stay high until that claim is closed.

How This Affects Your Organization

What this means is that most companies will see another increase in their Experience Modification Factor following their next recalculation. That takes place on their “Unit Stat Date,” and, if left unchecked, your business could face higher rates, possible penalties, and Labor Department Violations.

What You Can Do To Lower Your Experience Mod:

  1. Track incidents (near misses) not just claims. Most claims can be avoided if you are meticulous about tracking all of the near misses that lead up to the eventual incident. Most claims could have been avoided in hindsight as the employee typically was taking shortcuts long before the ultimate injury occurred. Track these infractions and you will prevent at least one injury a year.

    High Experience Mod

  2. Investigate accidents immediately and thoroughly; take corrective action to eliminate the hazard. If you sense fraud, get aggressive; don’t be an easy target. We suggest Why Analysis follow all incidents. That’s a whole other article that can be accessed HERE.
  3. Report all incidents to your insurance broker or Risk Advisor immediately. Studies show the longer it takes to report a claim, the more expensive it will be. A 4-week delay in reporting an injury drives the cost of that same injury by 48% according to a Hartford Insurance study of over 2 million claims.
  4. Alert your workers’ compensation claims adjuster to any serious, potentially serious or suspect claims. Frequently monitor the status of the claim, and communicate with the adjuster to resolve them as quickly as possible. Too busy to do that,  have our Claims Advocates communicate with the adjuster on your behalf. Our Claims Advocates were insurance adjusters so they speak that language holding the carrier’s adjusters accountable.
  5. Every reported claim to your insurance carrier no matter the line of insurance should have an action plan attached to it to close out the claim. This is a big mistake most businesses make. They report it and then forget it until the policy comes up for renewal. At that point, they are shocked at the increase in the workers’ compensation insurance premium which is always driven by claims experience. Folks forget that workers’ compensation insurance is really a very expensive credit line to the business.
  6. Take an aggressive approach to providing light-duty or transitional to all injured employees upon their release from treatment. Return To Work programs are extremely powerful tools for lowering the cost of a workers’ compensation claim as they give leverage back to the employer, stopping the tail from wagging the dog.  Supervise light duty employees to ensure their conformance with restrictions.
  7. In serious cases that involve lost time, communicate with the claims adjuster to demonstrate your interest in returning the injured employee back to gainful employment.
  8. Set safety performance goals for those with supervisory responsibility. Success in achieving safety goals should be used as one measure during performance appraisals. At Metropolitan Risk this is just one of the K.R.I’s (Key Risk Indicators) we emphasize to establish internal standards and accountability.
  9. Develop a written safety program, and train employees in their responsibilities for safety. OSHA rules dictate for every facility location or job site there must be a competent person. Incorporate a disciplinary policy into the program that holds employees accountable for breaking rules or rewards them for correctly following safety procedures. This should be tied into the employee handbook which each employee receives when they are on-boarded for your org.
  10. Frequently communicate with employees, both formally and informally, regarding the importance of safety keeping safety top of mind at all times.
  11. Make safety a priority – senior management must be visible in the safety effort and must support the initiative.
  12. Evaluate accident history and near-misses at least monthly. Look for trends in experience, and take corrective action on the worst problems first.
  13. Ensure your payroll and class codes are accurate. Over 65 % of workers’ compensation audits have errors. See COMP CHECK .
  14. Ensure the correctness of your mod calculation. Far too often there are errors here as well. See COMP CHECK

You can build all this out organically by yourself OR speak to a Risk Advisor about our COMP CARE PLATFORM. We have this all built. It’s turn-key and ready to be deployed in your organization if you are serious about reducing your workers’ compensation costs. There are no short cuts…

How Metropolitan Risk Can Help

Still looking for more info? Still have question? We have a team of Risk Management specialists who are here to help! Contact a Risk Advisor today for more information on how you can work towards lower workers comp costs by closing claims instead of shopping for insurance.  Click here to book a 5-minute call with a Risk Advisor