Don’t Forget Insurance for Your Organization’s Cyber Risks

The federal Internet Crime Complaint Center received over 330,000 complaints in 2009, and more than a third of them ended up in the hands of law enforcement. The damages from those referred to the authorities totaled more than a half billion dollars. The Government Accountability Office estimated that cyber crime cost U.S. organizations $67.2 billion in 2005; that number has likely increased since then. With so much of business today done electronically, organizations of all types are highly vulnerable to theft and corruption of their data. It is important for them to identify their loss exposures, possible loss scenarios, and prepare for them. Some of the questions they should ask include:

What types of property are vulnerable? The organization should consider property it owns, leases, or property of others it has in its custody. Some examples:

* Money, both the organization’s own funds and those it holds as a fiduciary for someone else

* Customer or member lists containing personally identifiable information, account numbers, cell phone numbers, and other non-public information

* Personnel records

* Medical insurance records

* Bank account information

* Confidential memos and spreadsheets

* E-mail

* Software stored on web servers

Different types of property will be susceptible to various threats, such as embezzlement, extortion, viruses, and theft.

What loss scenarios could occur? The organization needs to prepare for events such as:

* A fire destroys large portions of the computer network, including the servers. Operations cease until the servers can be replaced and reloaded with data.

* A computer virus infects a workstation. The user of that computer unknowingly spreads it to everyone in his workgroup, crippling the department during one of the year’s peak periods.

* The accounting department discovers a pattern of irregular small funds transfers to an account no one has ever heard of. The transfers, which have been occurring for almost three months, were small enough to avoid attracting attention. They total more than $10,000.

* A vendor’s employee strikes up a casual conversation at a worker’s cubicle and stays long enough to memorize the worker’s computer password, written on a post-it note stuck to her monitor. Two weeks later, technology staff discover that an offsite computer has accessed the human resources database and viewed Social Security numbers, driver’s license numbers, and other personal information.

In addition to taking steps to prevent these things from happening, the organization should consider buying a cyber insurance policy. Several insurance companies now offer this coverage; while no standard policy exists yet, the policies share some common features. They usually cover property or data damage or destruction, data protection and recovery, loss of income when a business must suspend operations due to data loss, extra expenses necessary to maintain operations following a data event, data theft, and extortion. However, each company may define these coverages differently, so reviewing the terms and conditions of a particular policy is crucial. Choosing an appropriate amount of insurance is difficult because there is no easy way to measure the exposure in advance. Consultation with the organization’s technology department, insurance agent and insurance company may be helpful. Finally, all policies will carry a deductible; the organization should select a deductible level that it can afford to pay and that will provide it with a meaningful discount on the premium. Once management has a thorough understanding of the coverages various policies provide in relation to the organization’s exposures, it can fairly compare the costs of the policies and make an informed choice.

Computer networks are a necessary part of any organization’s environment today. Loss prevention and reduction techniques, coupled with sound insurance protection at a reasonable cost, will enable an organization to get through a cyber loss event.

The Many Colors of Insurance Fraud – And How to Prevent It

According to the Coalition Against Insurance Fraud, a division of the Insurance Resource Council, one in five Americans or 45 million people say it is okay to defraud an insurance company in certain circumstances.  Furthermore, according to a 2008 Four Faces study by the IRC, consumer tolerance of of specific insurance schemes has increased over the past ten years. To be more specific, the study says there is a decline in the number of Americans who believe it is unethical to:

  • misrepresent facts on an insurance application to lower their premiums (82 percent today, down from 91 percent in 1997);
  • file a claim for damage that occurred before the damage was covered (85 percent, down from 91 percent);
  • inflate a claim to cover the deductible (84 percent, down from 91 percent); and
  • misrepresent an incident in order to be paid for an uncovered loss (84 percent, down from 92 percent).

Insurance fraud comes in many different shapes, colors and sizes.  The one common denominator is that, regardless of the form it takes, it costs insurers, and ultimately you, the consumer, billions of dollars per year.  What are some of the different types of fraud that take place and what can be done to prevent it?

Insurance fraud cuts a broad swath through the insurance industry and can occur anywhere in the insurance transaction from fraudulent applications for coverage to fraudulent filing of claims.  Insurance fraud is not only committed by the insurance buyer, but by attorneys, physicians, and other third parties to the insurance transaction.  Even insurance company employees have been caught bilking their employers. Following are some sobering statistics:

  • Fraudulent and abusive auto-injury claims are a costly problem. Fraud and “buildup” added $4.8 billion to $6.8 billion in excess payments to auto injury claims in 2007. That means 13-percent to 18-percent increases in payments under private-passenger auto policies from 2002. (Insurance Research Council, Nov. 2008)
  • Auto insurers lost $16.1 billion due to premium rating errors in private-passenger premiums in 2007. Premium rating errors account for 10 percent of the $166 billion in personal auto premiums. Fraud accounts for a portion of these losses. Some drivers will seek to lower their premiums by schemes such as deliberately misrepresenting mileage driven, how the vehicle is used and where it’s registered. (Quality Planning Corporation, 2008)
  • More than $2.4 billion in recoveries for fraud, waste and abuse in federal healthcare programs are expected for the first half of FY 2009 (October 2008 through March 2009). Some 1,415 individuals and organizations also were excluded from federal programs for fraud abuse; 293 criminal actions were brought, as were 243 civil actions. (Semiannual Report to Congress, Office of Inspector General, Department of Health and Human Services, Office, 2009)
  • Medicare and Medicaid lose an estimated $60 billion or more annually to fraud, including $2.5 billion in South Florida. (Miami Herald, August 11, 2008)
  • Medical identity theft comprises about 3 percent (249,000) of 8.3 million overall victims of identity theft. (Federal Trade Commission, Identity Theft Survey Report, 2007)

With the advent of the Internet, an aging population, and other trends making insurance fraud a lucrative business, it will be difficult to completely eradicate the problem. Federal and state authorities, insurers, and consumer watchdog groups are all working diligently to stem the tide of insurance fraud.  Here’s what you can do:

  1. First, and most obvious is to not commit fraud.  The temptation to lie on an insurance application to get a better rate, an example of what is called soft fraud, should be tempered by the fact that it increases the risk of insurers canceling or even rescinding coverage upon evidence of the fraud, not to mention the legal implications.
  2. Ask for detailed medical and repair bills and examine closely for unusual or suspicious charges.
  3. If you are involved in or witness an accident that appears to be of a suspicious nature, and you feel that it may have been staged, report the incident to local law enforcement.
  4. Report fraud when you become aware of it.   If your state does not have a hotline, your insurance company probably does.  So does the National Insurance Crime Bureau.  A hotline exists for Medicare and Medicaid, and you can go on the Coalition Against Insurance Fraud’s website for further information on reporting fraud (www.insurancefraud.org).
  5. As with credit card and social security numbers, guard your insurance identification card numbers and report any theft.

In It for the Long Haul

The market for trucking insurance, like most other insurance markets, has taken a hard left turn since 2001. Under the circumstances, it is best to know and understand what underwriters are looking for when sifting through insurance applications.  Knowing what looks favorable, what looks bad and what looks just plain ugly, can be the ticket to affordable quality coverage. 

One thing that has remained fairly constant over the years is the importance underwriters place on a company’s financial shape.  Motivated in part by concerns about the capacity of insureds to pay high deductibles, underwriters prefer to see solid financial strength.  But there are other reasons too.   The consensus among underwriters is that there is a correlation between financial strength and stability, and attention to detail.   In other words, if you have the financial resources to pay employees more and put more into the upkeep of your fleet, you will experience fewer problems leading to fewer accidents or other types of covered claims. 

It is a simple concept, but one that is complicated by some of the facts of life.  Depending on your company’s size and structure, your financial goals might not be in sync with what underwriters expect to see.  For example, if you choose a Subchapter S corporate structure, your goal might be to show as little profit as possible – a possible red flag to an underwriter.   A financial statement is a snapshot and your accountant, preferably a CPA, is not only your photographer, but your stylist as well.  Look to them for recommendations about balancing your financial goals, tax strategies and the need to present your company in the best possible light.

Because financial analysis of trucking companies can be tricky, there is a company that provides the service to underwriters. Formed as a subsidiary of a Manhattan based truck insurance defense law firm in the 1970s, it uses a select grouping of key financial indicators to rate companies on a six-point scale from “Satisfactory” to “Unsatisfactory.”   This system is not that different from the ratings companies, such as AM Best give insurers.  

How do they get financial information for trucking companies?  For large, public companies like Old Dominion, this data is readily available from public financial disclosures.  For privately held companies, it often comes through voluntary disclosures from trucking firms who are aware of the need to provide such data to secure coverage.

Whether you provide the financial data to your agent, the carrier, or to a third party, the quality of the financial information is as important as the quantity.   A CPA audited financial statement is costly, but the best source of data because it is viewed as the most credible.  An alternative to the audited statement is a CPA compilation, which follows a less rigorous standard, but is the next best thing to an audited statement.  For underwriting purposes, the most important elements of the financial statement are the income statement and balance sheet.  If you have no other alternative, your most recent tax return should have all the elements needed for the review. 

Besides financial statements, providing complete details on your loss history is important.  This might not always be easy, especially if you have been insured with a company no longer in business or that has exited the marketplace.  Ask your agent for help in securing these loss runs or determining alternative formats to provide accurate information.  

Insurers are also swayed by loyalty.  Underwriters may reject a submission out of principle if the trucking firm has been shopping for the best price each year and continually moving around from one insurer to the next.  Exceptions  are granted for the obvious forced move, i.e., insurers exiting the marketplace. 

Besides the above, insurers look for good safety and loss control programs, tight control of owner-operators, if applicable, and a well-maintained fleet of trucks with experienced drivers (with clean driving records).  These are the elements that will invariably get you to the finish line safely and in record time year after year.  

Protect Your Child While Driving

When transporting children in your vehicle (whether they are your own children or others), it is important to ensure that they are properly restrained.  Remember that cars are designed to comfortably and safely seat adult-sized passengers, and child restraints are designed to compensate for this.

In 2003, 5% of all traffic fatalities were children under 14 years old.  Most children were killed because they were not correctly placed in the seat belt, car seat, or booster, or had let themselves out of the restraint. In fact, many had been riding completely unrestrained.

It is extremely important that all children under 12 always ride in the back seat. This was true even before the arrival of airbags, and is especially true now.  Infants and young children should never be in the path of an airbag.  In the backseat, the child is also afforded more distance before they hit anything hard, in the event of a crash. 

Most states have child restraint laws, which specify the ways in which each age group should be restrained in a car.  Unfortunately, many leave a gap for children aged 6-12: children who are too large for child safety seats and too small to fit into vehicle-equipped seatbelts. The best idea is a booster seat, which boosts the child up about four inches, enough for them to fit perfectly into the seatbelt. This is recommended until the child is large enough to fit comfortably and appropriately into an adult-sized chair and seatbelt.

Falling Asleep at the Wheel: Tips for Avoiding Driver Fatigue

There are many dangers that can contribute to car accidents, but driver fatigue is by far one of the largest.  Falling asleep behind the wheel is a serious problem, causing more than 100,000 accidents per year, according to the National Highway Traffic Safety Administration. For most of these fatigue-based crashes, the culprit is monotony on the road. Interstates and high-speed or long, rural highways, for example, are the most frequent areas where drivers fall asleep. Studies done by the NHTSA have proven that driving with fatigue is equally if not more dangerous than driving intoxicated, with very similar results: impaired reflexes, blurred vision, inability to stay focused, etc.  The NHTSA has estimated that drivers falling asleep at the wheel cost about $12.5 billion annually in insurance claims and medical costs.

There are several common-sense tips for staying awake, especially when driving long distances, or at night.

·        Make sure you’re well rested, beginning your trip only after having at least seven to eight hours of sleep.

·         Avoid driving alone on long-distance trips. Passengers can both share in the driving and providing conversation, which can help you stay awake.

·        Be an active driver. Avoiding prolonged use of cruise control. Using it in moderation will help you stay more alert.

·        Allow yourself ample time to reach your destination so you can take advisably frequent breaks. Try to stop about every two hours, or every 100 miles. Make a point of getting out of the car and walking at least a short distance.

·        Driving for long periods at night makes fatigue much more likely. By avoiding traveling during these hours, you escape the glaring dashboard and road lights. That alone will help decrease your risk of highway hypnosis.

·        Finally, if you’re losing the battle against fatigue, stop and sleep at a motel or well-guarded rest stop.

Workers’ Comp Employer Costs Rose Faster Than Benefit Payments in 2004

According to a study released in July 2006 by the National Academy of Social Insurance, employer costs for workers’ compensation grew faster than combined cash and medical payments to injured workers in 2004, the most recent year for which data is available. Combined benefit payments for injured workers increased 2.3 percent in 2004 compared to prior year levels, while employer workers’ compensation costs rose by 7.0 percent for the same period.

Combined benefit payments fell by 3 cents for every $100 of covered wages, from $1.16 to $1.13. The chief contributor to this decline was the state of California, where benefits dropped by 10 cents per $100 of covered wages. Nationally, premiums paid for workers’ compensation insurance rose by 3 cents per $100 of covered wages, to $1.76 in 2004. The increase was the smallest annual increase since 2001.

Despite the recent rise in costs, both costs and benefits in 2004 remain far below their peak levels. Total benefits were at their highest in 1992 at $1.68 per $100 of covered wages, 55 cents higher than the 2004 figure. Employer costs were highest in 1990 at $2.18 per $100 of covered wages, 42 cents higher than in 2004.

Since 2000, the rise in benefit payments has resulted from increased spending for medical care. Spending for medical treatment rose from 47 cents in 2000 to 53 cents per $100 of covered wages in 2004. Spending for cash payments to workers remained the same during this period at 60 cents per $100 of wages.

There are specific actions employers can take to curb workers’ compensation costs. The first step is to examine accident records for the past three years. Take each year’s reports and examine as a whole. While reviewing look for specific accident causes and note hazards that should be remedied. You should also be looking for injury repetition and in which department injuries frequently occurred.

The next step is to conduct a physical analysis of the workplace. Utilize your health and safety committee as the catalyst, but be sure workers are also involved. Look for equipment hazards that need replacement or repair. Then search for environmental hazards such as chemical exposures, noise, temperature and ventilation issues.

The third step is to look for task or ergonomic hazards. Request employee input to encourage workers to take ownership of safety in their departments. When workers provide input, make sure actions resulting from their suggestions are documented in health and safety committee minutes and posted on bulletin boards in common areas. If employees do not feel their suggestions matter, they won’t bother to suggest improvements in the future.

Home Buyers: Make Securing Homeowner’s Insurance a Top Priority

At long last, your loan package has been approved, your closing date is just days away, everything you own has been packed, and all that remains is a quick call to your insurance agent to line up a homeowner’s policy. That’s when the bad dream can begin. 

Your agent may inform you that your new home is uninsurable because of a history of insurance claims filed by the previous owner. Despite home inspections and various required real estate disclosures, this could happen to you.

Securing homeowner’s insurance used to be one of the last tasks a buyer undertook before closing. In reality, it should be one of the first.

Before issuing a policy, insurers always check a property’s claims history. Water damage claims are red flags, of course, but homeowners can also set off alarms simply by inquiring about their coverage, without ever filing a claim.

Most insurance companies research past claims through a shared database called CLUE, which stands for Comprehensive Loss Underwriting Exchange. When you apply for homeowner’s insurance, the insurer will request a CLUE report to ascertain whether you or the seller have filed any claims during the past five years. Even if you currently own a home and have a squeaky-clean claims history, if you buy a house with multiple claims filed against it, you may not be able to obtain insurance coverage.

Regrettably, you cannot order a CLUE report if you are not the homeowner. However, you can ask the seller to order a copy of the report as a contingency to your offer.

If you are ever denied insurance because of past claims, you can request a free copy of your CLUE report. In the event of a dispute with your insurer, you have the right to ask that your account of the events be included in the report. If you are simply curious about your home’s history, you can order a copy from ChoicePoint, the company that manages the CLUE database.

It pays to spend the time and effort to educate yourself about homeowner’s insurance when seeking affordable coverage. Consider the following ideas: 

  • Learn the rules regarding homeowner’s insurance renewals in your state. Regulators of some states exercise   control over when an insurer can refuse to renew your coverage.
  • Pay for small losses yourself. Insurers take notice of customers submitting frequent small claims.
  • Think twice before calling your agent or insurance company. When you place a call, the insurer opens a claims file on you regardless of whether you actually file a claim.
  • Increase your deductible and consolidate insurers. To reduce your homeowner’s insurance premium, consider raising your deductible. Also, most insurers offer discounts if you insure both your car and home with them.

Examine your credit record. In addition to your past claims history, insurers often use your credit score to determine whether to issue you a policy.

Know How to Manage a Chemical Spill to Limit Injury and Exposure

No one plans on a chemical spill but because accidents can occur, the time to figure out how to manage a chemical spill isn’t after a spill happens but before.  Because different chemicals can have different harmful effects and must be handled in a unique way, contingency planning is the best way to minimize potential problems.

It goes without saying that our work around hazardous substances should always be designed to minimize the risk of their accidental release.  Prior to working in a specific environment around specific chemicals, you should make sure you understand the physical, chemical and toxicological properties of the potentially hazardous substances and the appropriate emergency procedures including:

·  How to report the emergency involved (ie. chemical spill, fire and/or injury)

·  The location and use of emergency first aid equipment

·  The location and use of spill control equipment and fire extinguishers

·  Contact information for those responsible for the work site

Handling a spill depends greatly on the scope of the chemical release, other hazardous conditions present and the type of chemical.  Always adhere to the specifics of the safety program.  Some general safety guidelines for small spills that are not immediately dangerous to the environment or individual’s health include:

·  Notifying other personnel in the area about the spill and any appropriate evacuation needs;

·  Attending to any individuals who have been injured or potentially exposed;

·  Taking appropriate measures, without the risk of injury or contamination, to confine the spill; and

·  Cleaning up and disposing of the spill contents using appropriate procedure.

Remember that more widespread or dangerous spills or conditions require a different approach including:

·  Notifying other personnel about the spill and to evacuate the area;

·  Immediately attempting to remove or protect victims in a manner that does not risk additional injury or contamination.  Request help if necessary; 

·  Locating to a safe area and calling 911 to report the emergency; and

·  For dangers that extend beyond the immediate environment, activating any fire or safety alarms, evacuating the wider vicinity and securing any entrances into the area.

If hazardous or regulated materials are unintentionally released to the environment, special regulatory reporting may be required.  Be sure to note as best you can the chemicals involved, the quantities released and the time of the incident so it can be reported accurately to the appropriate environmental agencies. 

While chemical spills are not intended, by taking safety measures, their scope and impact can often be limited.

Protect Yourself from the Risks of Yard Sales

With the arrival of warm, balmy weather, yard sales begin to pop up everywhere. While a yard sale may transform your spring cleaning chores into a profitable day of getting rid of unwanted items, it can also create a setting for a legal nightmare. For example, you’re legally liable if someone at the yard sale slips, trips, or falls and injures themselves. Such scenarios are exactly why you must know what your homeowner’s insurance covers before you take on the responsibility of inviting yard sale-goers onto your property.

Most standard homeowner’s policies will provide $100,000 dollars worth of liability coverage for property damage or bodily injury that is caused to others by those living in the home. The coverage amount can be used to cover your legal defense and any resulting monetary judgments against you.

No-fault medical coverage is another feature of your homeowner’s insurance liability protection. It usually provides between $1,000 to $5,000 dollars worth of coverage. This feature can help you avoid lawsuits from a person injured on your property since it will allow them to directly submit their medical-related bills to your insurer for payment.

The above may seem adequate enough for a yard sale, but given today’s litigious mentality, it may be prudent for you to add to your liability protection. You might consider raising your homeowner’s policy’s liability coverage to at least $300,000 to $500,000, depending on your specific needs and property. An excess liability or umbrella policy can provide additional protection and won’t typically cost more than $350 a year for $1,000,000 worth of coverage.

The Insurance Information Institute has an excellent guide on the insurance needs for various types of yard sale events:

* Charity or fundraiser event – your homeowner’s insurance policy will most likely be adequate coverage during an event to raise money for a charity or non-profit. However, you might also consider contacting the entity to ask if they have any insurance protection to extend to you for the event.

* Occasional or one-time events – the occasional yard sale that’s designed to sell personal items that you no longer want is also typically covered under your homeowner’s policy, but do consult your insurance agent to ensure you’re adequately covered.

* Multiple, frequent yard sales – a separate business liability or in-home business policy should be considered if you’re planning to have multiple yard sales.

When Good Employees Go Bad: Why You Need Employee Dishonesty Insurance

An employee in a high school’s finance department steals $279,000 to support her gambling habit and cover her mortgage payments. A bank employee in Pennsylvania allegedly embezzles $750,000. The former CEO of a Colorado insurance brokerage pleads guilty to stealing $353,400 from the brokerage’s employee benefits plan. The office manager of a Texas law firm gets four years in prison for forging checks and depositing client payments in her personal bank account.

When people become desperate, they may succumb to temptation and turn to crime. The FBI reported that one in 28.2 employees was caught stealing from an employer in 2007, and that was before the worst of the recent economic downturn. Vendors’ employees and other visitors to an organization’s premises may also have the opportunity to steal computer equipment or network passwords.

Most business property insurance policies cover losses resulting from some types of crime. For example, they will cover the cost of cleaning up graffiti that vandals spray paint on an exterior wall or the value of merchandise burglars steal, plus the cost of repairing the damage they did breaking into the store. However, insurance companies did not design these policies to cover money stolen from a cash register or deposits never made to a bank; in fact, the policies almost never cover employee crime. For this reason, every organization should consider buying crime insurance.

Employee dishonesty insurance, often called fidelity coverage, pays for losses due to employee theft of money, securities, and other property. It covers property the organization owns or leases, property of others in the organization’s custody, and property for which the organization has legal liability. Insurance companies can provide one amount of insurance that applies separately to each loss, regardless of how many employees were involved in the theft and regardless of whether the employer can actually identify the responsible employees. Alternatively, the policy can contain a list (known as a schedule) of either employee names or positions with a separate amount of insurance listed next to each one. The policy can cover permanent, temporary and leased employees for up to 30 days or more after they terminate employment. Some companies will extend coverage to certain non-employees who may have the opportunity to commit theft, such as equipment support technicians, consultants, and vendors.

Many policies include a “prior dishonesty” clause. This immediately cancels coverage for an individual employee if the organization discovers that the employee has committed a dishonest act, including acts other than theft and acts he committed prior to his current employment. Even relatively minor dishonest acts will eliminate coverage for that employee. Some insurance companies will amend the policy to cover certain individuals on a case-by-case basis, so the employer should work with the insurance agent and company to arrange coverage.

Insurance companies offer this coverage either as a separate policy or as part of a package policy. If it comes as part of a package, the employer should carefully review the policy to determine whether the amount of insurance provided is adequate. Package policies often come with certain insurance limits built in, and they may or may not be enough for a given situation. For example, a package policy that automatically provides $100,000 coverage may be fine for the smallest of businesses, but it would have been way too small to cover the losses described at the beginning of this article.

Employees can either make a business successful or drag it down. No organization wants to believe that its workers would steal from it, but unfortunately some of them will. To make sure that they have adequate protection, all employers should work with a professional insurance agent and purchase employee dishonesty coverage. With the right insurance, the organization and its trustworthy employees will survive a large loss caused by the untrustworthy few.