Risk & Business

Image via Wikipedia Based upon an article in www.insurancenewsnet.com it seems that between what individual states have done to bring down workers compensation premiums and the current recession , insurance companies are being forced to be more selective when writing coverage.  Due to the consistent decline in premiums many companies are being even choosier by geographic region and by classification.  Many states seem to have forgotten that insurance companies are in the business to make a buck and if the profit motive is constantly being whittled away then many insurance companies will have no choice but to pull back in order to protect themselves and their financial position.  Of course this will mean more business heading to the various state funds but these funds are heading for trouble themselves due to their constant rate reductions.  Sounds like a recipe for a heck of a mess.

In Philadelphia , a man shot his cousin in a fake robbery in order to split workmans compensation benefits. The insurance company paid the injured cousin $250,000 in a lump sum disability settlement which the two split. A friend of the shooter tipped police and when the jig was up they both confessed. Talk about a desparate act! The word is they split the proceeds 50/50. I think the guy who took the bullet got the raw end of the deal. Until next time be careful out there.  K

After you have Identified and analyzed risk then you have to control risk. There are a few options to look at when deciding how to control risk in your business . You can avoid risk by making the necessary changes in your business to stop a particular exposure. You can reduce risk by changing an operation or procedure or by separating risk and duplicating processes to reduce risk. These are only a few of the steps a business owner can take to get a handle on controlling the risk in their business. In the next post I will discuss financing risk, which is how to pay for retaining risk or the benefits of transfering risk to an insurance company. Until next time be careful out there and know your risks.  K

A recent article in an industry blog, Comp Time, http://www.businessinsurance.com/section/blogs02, cites a large jump in uncollected insurance premiums. Apparently many employers are leaving their work comp carriers around audit time and finding another carrier. This is done to avoid paying any additional premium due. Many employers are signing up for work comp and drastically under reporting their payroll and then seek to avoid paying the premiums when an audit can turn up a higher actual payroll. The problem with this practice is that it drives up premium for everyone else and the employer will eventually be caught, and not only be subject to paying the premiums, but also can face prosecution.

After identifying your business risk the next step for business owners is to analyze the risk issues. You want to look at frequency and severity of identified risk. You want to make an assessment of the maximum possible loss to your organization from identified risks. You want to use some formulas to calculate the probability of loss and the potential impact risk could have on your business. Compare your projections against the loss data from your company's loss history. If this sounds like a lot of work, unfortunately it is. However in my opinion this is the most important step because it determines your action plan against risk. In my next post we will discuss controlling risk which comes after analysis. Until next time be careful out there. K Reblog this post [with Zemanta ]">

In previous posts I reviewed the risk management process as a part of the total Enterprise Risk Management program of a business . To identify potential risks in each segment of your business you should use a checklist or flowchart . There are many websites and resources out there specific to your business to obtain these tools. The use of a checklist will give you questions and references you need to ask yourself each time you identify risk. Also a checklist gives you years of expertise and knowledge developed by others in your business. Finally, everytime you are in the process of identification of risk, the checklist will give you peace of mind that you are not forgetting anything. Until next time be careful out there and know your risks!   K

In previous posts I discussed  Enterprise Risk Management and having to apply a process to determine risk in all phases of your business . What is this process? It is a 5 step approach to help businesses keep risk under wraps. The risk management process is 1) Identification  2) Analysis  3) Control   4)Finance  5) Administration. I will go over each step in future posts. In the meantime become familair with the steps by doing some research on the web. There is tons of information out there. Until next time be careful out there and know your risks. K

I am deviating from my risk management posts to discuss the SB1( Senate Bill 1) work comp law and how insurance companies are starting to enforce the requirments created by the law. If you are an LLC corporation and in the contracting business , you cannot exempt yourself from carrying work comp unless you do the following: 1) sign the appropriate LLC member/officer exclusion form the DCRB provides, and 2) provide a LLC resolution showing the member officers of the LLC. These documents are to be presented at audit time and are also to be given to any entity you are contracting with, such as a general contractor . Insurance company auditors are charging premiums if these two documents (required by SB1) are not present. With Delaware comp rates plummeting, insurance companies are looking for premium. Enforcing the law that was passed two years ago is a way companies can find additional premium, but only if LLC companies do not have their pap...

To establish a " holistic approach to your business risk,  the first step is to start with your goals. In order to achieve your business goals on a consistant basis you then need to keep the risk of the business in control in all phases. Therefore apply the risk management process to sales , marketing , human resources , financial , vendors, suppliers, stockholders , debt , R&D, etc... Enterprise risk management takes a lot of work and is the reason why most businesses do not do it. In my next post I will break down the risk management process that needs to be applied throughout your business. Until next time, be careful out there and know your risks.   K

ERM or Enterprise Risk Management is a holistic view of risk in a business . A lot of attention has been paid to ERM after the financial crisis and meltdown. Experts say that  if AIG had a solid enterprise risk program they would have seen their potential downfall. I will blog about ERM this month and how it can help small business owners. I will also give some examples of steps you can take to establish an ERM approach to your business. Until next time be careful out there and know your risk.  K

Image via Wikipedia The State of California has enacted a new " pay as you drive " directive allowing insurance companies to charge insured drivers based upon the actual miles they drive instead of the industry norm of actuarial based rates. While some have expressed displeasure due to so called privacy concerns, it seems to be a sensible approach to take. There are many who drive very few miles yearly and others who drive considerably more. Both of these classes of drivers tend to pay relatively similiar rates. Insurance companies do question drivers periodically on their mileage but I'm fairly sure most drivers tend to fudge those figures a bit. This seems to be a growing trend with companies such as Progressive taking the lead. It's only a matter of time before this spreads to the commercial side of insurance. Reblog this post [with Zemanta]">

There is a lot of talk coming out of congress regarding the anti-trust exemption for the insurance industry . The McCarren Ferguson act which was passed over 40 years ago, gives the insurance industry the ability to share and pool loss data in order to set rates. Many in congress are saying that this allows price fixing by insurance companies and has contributed to the high cost of health and property/casualty insurance. The insurance industry and State insurance departments refute this accusation. Without the ability to pool loss data smaller insurance companies will not be able to set adequate rates in order to make a profit. The data information from others in the business allows more competition because small and medium companies can do business and compete with larger insurance companies. If this is to be abolished, small to medium insurance companies would not have the customer base , history, or money to get this all important loss data. A repeal of the McCarren ...

Image via Wikipedia According to an article in The Telegraph , an online UK website/newspaper, identity theft has risen by more than a third in that country. Based upon information provided by the article, there have been a total of 59,000 recorded victims of identity theft in Great Britain in the first nine months of the year whereas last year the total for the whole year was 62,658. The article went into further detail explaining that account takeovers , 3rd party hacks into an existing account have more than tripled in the last 2 years. The targets of these attacks are credit cards by more than half with the blame being online purchasing and cardholder carelessness being blamed. As a business owner it's more than likely that you and your employees are making online payments and or purchases using company credit. It would be wise to consult your insurance agent to discuss procuring coverage for this type of risk if you don't already have it.

The Senate is scheduled to vote on health reform as early as next week. The buzz around the insurance industry is that health insurance companies are going to be taxed to pay for it. Right now there is talk in Washington about hitting insurance companies with a "windfall" tax from the profits they are expected to make with 50 million more customers in the system. This again is scaring me a little for my small business owner clients. Usually increase in big corporate taxes and or expenses always seem to trickle down to the business owner's pockets. That is what would happen if the insurance companies are taxed to pay for the health reforms. You can count in it. Until next time, be careful out there and know your risks.  K

A recent report showed that State work comp funds are insuring 25% of the work comp market . This high percentage is a disturbing sign that indicates the standard insurance marketplace is loosing its appetite for work comp. With the increasing costs of medical care and the rate decrease mandates from many States, insurance companies are staying out of the comp market because they can't make money. How this will play out for business owners is hard to tell. It is nice to have low premiums now but a loss of standard market options only bodes unfavorably for business owners in the long run. Stay tuned !   K

Image by Getty Images via Daylife According to an industry source, the souring economy has brought a rise in suspicious claims. The National Insurance Crime Bureau said 41,619 suspicious claims were reported to the organization by member insurance companies, who reported claims based on property, casualty , commercial and vehicle policies. As has often happened in the past, when income goes south, questionable/suspicious claims increase. A word to the wise, insurance companies are aggresively investigating any and all claims that pop up on their radar . Worth remembering that a dip in income overall also leads to a dip in income for insurance companies. In order for them to preserve sufficient surplus to pay out on valid claims they tend to keep a sharper eye out for fraudulent activity during economic downturns.

Image via Wikipedia Recently a Delaware court upheld an insured's claim against an insurance company due to a lack of  uninsured/underinsured coverage on the insured's policy.  The court ruled that although the insured had rejected a $100,000 limit, the policy documents were sufficiently confusing as to lead to a reasonable expectation that at least the minimum limit, $15,000, was included.  The insured had gotten into an accident and had racked up medical expenses.  While the person at fault for the accident had coverage, their limits were used up quickly, leading to a lack of sufficient coverage for outstanding medical expenses.  The upshot here is to never assume and to make sure to read all policy documents carefully.  If you aren't sure then ask, don't ever assume.  This is especially importing in these days of online purchasing of insurance becoming more prevalent.  In this case the court ruled that the insurance company had to provide t...

To follow up from my post yesterday, it seems that health insurers are trying to get all their premium now before the congress passes a health reform bill. Most of my clients are seeing 20%, 30% and even 40% rate increases for their upcoming health plan renewals. This will create a major financial burden on business owners. I will suspect that many will drop their employee health plans.  Stay tuned      Kevin

Areas of northern Ga. that have never flooded are now under water from a deluge of rain. The State climatologist says that Atlanta had not seen rain of the magnitude received in over a century. The Chattahoochee river broke through its banks and wreaked havoc on the surrounding areas. The total estimated damages will be in excess of 300 million dollars. What makes this worse is that only 20% of the claims will be covered by flood insurance . The rest of the damage will not. Many business owners neglect to consider flood insurance for their businesses. Like homeowner policies flood is not covered under business owner policies. A small entrepreneur can be put out of business by a large rain event and not be able to use his property insurance to cover the damage. Assess your area and place of business. If you are in a low lying part of town and vunerable to large runoff after a rain storm , then buy flood insurance. If you are near a riv...

I have posted a few paragraphs regarding the health care debate going on in congress. Today I read an article that congress wants to impose taxes on health insurers to pay for a health care reform bill. I think health care insurers should get a risk management plan. With a stroke of a pen, the whole health insurance industry could be changed and the way health insurers make money could be minimized. It goes to show that no matter how big your company is a risk management plan to deal with the unexpected is always needed. Until next time be careful out there    Kevin