Good Management Lowers Premiums

How do insurance companies measure good management? And, how does this measurement affect policy premiums?

Insurance companies judge management many ways, including attitude toward safety (cooperation with risk personnel), financially (credit checks), superficially (housekeeping, deferred maintenance), and in depth systems analysis (employee selection process). Positive results earn schedule credits, which reduce premiums.

Schedule credits enable insurance companies to reward those conscientious managements that have a long-term commitment to reduce losses. The insurance company wants to partner with risk-avoiding management, so they lower premiums to attract these risks.

Insurance companies use diagnostic tools to measure the quality of management. Accounting measurements, physical property surveys, human resource surveys, psychological tools and, of course, loss history data combine to paint an overall management picture.

Accounting measurements include reviewing financial statements, credit reports, tax forms, and management control systems. Is everything up to date? Do all the data agree for an easy audit trail? Is the company candid about finances?

Physical risk surveys include a report on management results. An untidy workplace suggests lazy management or an undisciplined workforce. Neither is good for business or loss prevention. If in-house automobile maintenance facilities are not kept neat, management attitude towards maintaining vehicles properly is questioned.

Neat, orderly premises imply pride in ownership and professional management. Deferred maintenance and chaos suggest either poor management, the beginnings of bad credit or absentee, uncommitted ownership.

Sincere interest in loss control surveys, suggestions and recommendations indicates cooperation. Safety is a function of cooperative efforts. Taking corrective actions when asked, keeping OSHA logs up to date, knowledgeable responses to claims questions and having safety equipment on hand and up to date all indicate a safety culture appreciated by insurance companies.

How does the company handle employee recruitment and training, particularly drivers? If this system qualifies employees in terms of knowledge, skill sets and attitude, more appropriate employees will be selected. The insurance company wants evidence of ongoing training for job-specific skills and safety.

The psychology of risk management involves assessing the company’s approach towards safety and loss control. Cooperation, responsiveness to recommendations, forthrightness in interviews, openness to inspections, commitment to safety and good record keeping contribute to management attitude.

The company interested in long-term profitability does not skimp on loss control or maintenance. Easily administered systems remind employees and supervisors of their safety culture.

All these data are collected and reviewed to determine the management input to insurance premium rating: schedule credits. These credits must be rationalized by the underwriter. Schedule credits can impact premiums up to 25%. Good management pays well.

Schedule credits are earned by well-managed, safety-conscious companies. Unfortunately, poorly managed businesses earn debits, increases in premium, the same way.

Take a look around your business today and think about how you can earn a few more credits. And remember, we’re here to help too. 

Worksite Safety Is a Top-Down Process

Most safety programs found on construction sites focus on worker buy-in to accomplish safety objectives and create a safer work environment. The typical methods employed have been to train and re-train workers, provide incentives for achieving safety goals, develop disciplinary consequences for failure to comply and monitor the success or failure of the safety program by auditing worker performance. While this methodology provides some measure of success, ultimately, it will reach a point of diminishing returns.

This type of approach is “bottom-up.” In other words those with the least ability to make decisions that can affect outcomes are given the responsibility for the overall success of the system. For a safety program to function as planned, it must be managed properly. Managing requires the ability to plan and control the effective use of resources, assess risk and make decisions to eliminate or at least minimize that risk. These are “top-down” responsibilities, meaning they fall under the responsibility of those in management. Therefore, the success of any construction site safety program has to start with management buy-in and follow through to the workers.

Management buy-in has to be more than just lip service. Workers follow by example, not words. If management fails to carry out safety program requirements by allowing workers to take shortcuts to meet productivity quotas, they undermine the program at its very core. To create a safe work environment, safety procedures must become an inherent part of operations and workers must be required to follow them at all times, even if they might slow productivity.

The most important management figures in this scenario are foremen because they have direct oversight of work crews. The foreman has the authority to direct how work is performed and make necessary decisions to accommodate changes. They should be held responsible for ensuring that the work has been properly planned, a risk assessment has been conducted, and that only safe work practices are followed on the worksite.

There is often a breakdown in the adherence to safety on this level because newly promoted supervisors are not provided management training in directing work flow or managing change. They must be trained to meet the organization’s goals and objectives by managing performance. To manage performance, foremen need to learn how to establish objectives and create standards that will accomplish productivity goals without sacrificing safety. They also need to be trained in how to communicate these objectives to employees and provide motivation to comply. In this way, both management and workers will have clearly established expectations for which they can be held accountable.

The final component in the success of any safety program is the organization itself. It must provide the resources, knowledge, and tools to enable management and employees to be successful. It is this support that keeps the safety program from becoming a stand-alone incentive and rather integrates it into the overall operation, which is the best way to ensure its success.

Employee Drug Testing: Effective Tool Despite Legal Pitfalls

Drugs and the workplace are clearly a negative combination.  Employers may not only be liable for the negligence of an employee under the influence of drugs but also for negligently hiring an employee with a history of abusing drugs.  Lowered productivity and higher absenteeism are just a few more reasons employers want to keep drugs out of their workplace.  Drug testing can be an effective way to do just that. 

Drug testing can be a useful tool to prevent hiring substance abusers, deter employees from abusing drugs, provide early identification and treatment referral of employees with drug problems and provide a safe and productive workplace for all employees.  While illicit drug users are not protected under the American with Disabilities Act (ADA) and the ADA specifically provides that employers may prohibit the use of drugs in the workplace, drug testing still is full of legal pitfalls.

First and foremost, employers should always consult with legal counsel before implementing any drug-testing program.  Drug-testing restrictions are in place on federal and state levels and employers need to make sure they are in compliance.  State constitutions and statutes vary.  Some limit circumstances where drug testing is allowed and others have set requirements on pre-employment drug testing.  In addition, some states impose specific testing procedures and specific tests for false positive results. 

The Fourth Amendment of the United States constitution, which protects against unreasonable searches and seizures, protects most government but not private sector employees from drug testing.  Federal government employees in “sensitive” positions or essentially those who operate commercial vehicles, carry a firearm or are in contact with sensitive information are generally subject to drug testing.  For unionized workforces, implementation of a drug testing program as well as the disciplinary consequences of testing positive for drugs must be negotiated. 

It is important to know that testing for alcohol is subject to different restrictions.  While a current illegal user of drugs is not protected by the ADA if an employer acts on the basis of such use, alcoholism is considered a disability and is protected by the ADA if the individual is qualified to perform essential functions of the job.  Still, an employer may require that employees not be under the influence of alcohol on the job and has certain rights under certain circumstances to discipline, discharge or deny employment to an alcoholic.  Again, the complicated ins and outs of ADA guidelines and state and federal legislation make it key to consult legal counsel for guidance when developing a testing program. 

When developing a drug program, the following factors need to be considered:  who will be tested (which positions); when will tests be conducted (pre-employment, upon reasonable suspicion); which drugs will be tested for; and how will tests be conducted. Employers should have written drug policies including the circumstances under which an employee or applicant will be denied employment.  To minimize potential liabilities, results of drug tests must be kept confidential and employees should obtain a release from all employees or applicants being tested.

It is also extremely important that employers retain a reputable drug-testing laboratory.  The Drug and Alcohol Testing Industry Association’s website at includes a searchable database of accredited members.

Understanding Enterprise Risk Management as an Approach to Manage and Capitalize on Risks

The concept of Enterprise Risk Management (ERM) has received increased attention in recent years as a fundamental shift in the way companies approach risk.  ERM is an all-encompassing approach to risk management and this can often make implementing ERM seem overwhelming.   To make the process more palatable, the Commission of Sponsoring Organizations of the Treadway Commission (COSO), a voluntary private-sector financial reporting organization, has released the first ERM framework.

When compared to the traditional approach of addressing risks associated with accidental losses, ERM has a holistic approach that covers both insurable and traditionally non-insurable risks including financial, operations, strategic and other risks.  The process applies to managing risk and also capitalizing on it for growth.  Proponents say that ERM may improve capital efficiencies in that it provides an objective measure for allocating resources. 

Sometimes called business risk management or strategic risk management, this systematic approach is attractive in that it ensures uniform risk identification and treatment throughout an organization.   ERM is inherently collaborative and requires a risk team including accounting, marketing, research and development, treasury and operations management. 

Released in September 2004, COSO’s Enterprise Risk Management – Integrated Framework describes the essential components, principals and concepts of ERM for organizations of all sizes.  It establishes a uniform language for identifying risks, avoiding pitfalls and seizing opportunities for growing shareholder value. 

Eight interrelated components outlined in the Framework are:

– Internal Environment – Establishes the entity’s risk culture by establishing a philosophy regarding risk management.

– Objective Setting – Involves setting objectives and forming a risk strategy.  This step forms the risk appetite of an organization, how much risk management and the board members are willing to accept.  Aligned with risk appetite is risk tolerance, the acceptable level of variation around objectives.

– Event Identification – Differentiates risks and opportunities by identifying events, occurring internally and externally, that may have a negative impact and those that may have a positive impact.

– Risk Assessment – Assesses the likelihood and impact that potential events could have on objectives.  Involves qualitative and quantitative risk assessment methodologies. 

– Risk Response – Identifies and evaluates possible responses to risk.

– Control Activities – Lays out policies and procedures at all organizational levels and in all functions, which help ensure that risk responses are carried out.

– Information and Communication – A form and timeframe to broadly communicate pertinent information enabling the risk management team to fulfill their responsibilities.

– Monitoring – Ongoing monitoring activities as well as specific planned evaluations determine the effectiveness of an organization’s ERM.

The Framework also defines the roles and responsibilities of key ERM team members including management, board of directors, risk offices and internal auditors.  For more information about the Framework and to order print or electronic copies, visit

6 Helpful Tips for Preventing Theft & Fraud in the Workplace

Sharing confidential company information, stealing equipment and manipulating data are all serious offenses in the workplace. Employee fraud and theft rates have increased in the past decade. These crimes now equal an average of five percent of a company’s annual revenue. The following tips help prevent fraud and theft in the workplace.

1. Check references thoroughly. Many employers avoid checking candidates’ references. They often make the mistake of assuming that a candidate would not put a reference on the list if that contact would not give a glowing report. However, many candidates provide erroneous phone numbers for personal references. In addition to this, previous employers may reveal important information about that worker’s history and tendency for fraud or theft.

2. Conduct pre-employment background checks. This is an important step for any employer to take. However, it is especially important for employers hiring people who will handle cash or have access to sensitive financial information. Keep in mind that there are only certain pieces of information that can be used in hiring decisions. Since each state’s laws vary regarding the use of criminal history information use, be sure to contact the local EEOC for specific laws and guidelines.

3. Use audits when necessary. Auditing can create suspicion and mistrust among employees, but it may be essential for detecting fraud and theft. When employees know they are being monitored, they are less likely to take such risky steps. Keep in mind that criminals take advantage of weak controls, so audits are a good way to close those gaps. The Association of Certified Fraud Examiners offers helpful tips for areas of the business to monitor and how often to audit various areas.

4. Develop a code of conduct. Telling employees not to do certain things will not ensure obedience. However, a written code of conduct establishes guidelines and gives employees a better idea of the company’s principles. After it is written, this document should be signed by all new and existing employees. There are plenty of great free templates available online. Keep in mind that it is important to include policies specifying company data protection. Be sure to go over the code of conduct during orientation sessions for new employees. It is also important to review the code each year. Some items may change. For example, a company may develop connections with new agencies or businesses, and specific conduct codes may be needed to guide employees in dealing with specific companies.

5. Take management seriously. Creating and communicating a business climate is one of the best ways to prevent fraud or theft in the workplace. This also shows employees that these issues are of the utmost importance. The following steps are easy and help keep employers informed:

-Make sure employees know they can speak freely with employers any time to discuss concerns or report violations.
-Reconcile statements regularly to detect fraudulent activity.
-Implement strong internal controls.
-Always trust individual instincts.
-Offer help to employees when they face difficult times or stressful situations.
-Conduct frequent one-on-one reviews with employees.
-Investigate unusual transactions.
-Make employee vacations mandatory.

6. Know what to look for. Research shows that workplace criminals commit crimes because they feel unappreciated, are under pressure or feel that management practices are unfair. They usually feel that they are owed something for these misinterpreted offenses. With that thought in mind, look for the following red flags:

-Unexpected changes in behavior.
-Employees who prefer to work after hours, take work home or be unsupervised.
-Workers who are exclusive or very protective of their work spaces.
-Employees who refuse to take vacations.
-Financial records disappearing frequently.
-Unexplained debts showing up on financial statements.

An employee who appears to be very dedicated to work may be an honest worker, but some individuals who seem this way have their own reasons for their behavior. Many financial violations show up while an employee is on vacation. Workers using a suspicious individual’s work space may discover incriminating evidence. Employees who take work home or want to work after hours may simply want privacy to perform their dishonest deeds. Diligence and careful monitoring are the keys to preventing workplace fraud and theft.

Managing Diversity – What An Employer Needs To Know

“Managing Diversity” is a critical human resources function for organizations large and small.  All too often, though, executives and managers lose sight of what diversity means from a legal and moral perspective, and the message then gets lost in the translation when it comes to the rank and file employee.

In 1997 the Department of the Interior identified diversity for its workforce as a crucial issue and provided the following definition of diversity for its own management purposes:

“The term ‘diversity’ is used broadly to refer to many demographic variables, including, but not limited to, racial, religious, color, gender, national origin, disability, sexual orientation, age, education, geographic origin, and skill characteristics…  Managing diversity is a comprehensive process for developing a workplace environment that is productive for all employees… The term ‘diversity’ is also used narrowly in employment recruiting and retention efforts to refer to race/national origin, gender, or disability…”

The EEOC (US Equal Employment Opportunity Commission) is the federal watchdog that oversees compliance for legislation such as Title VII of the Civil Rights Act of 1964, which prohibits discrimination on the basis of race, color, religion, sex and national origin.  Discrimination complaints filed with the EEOC have been on the upswing over the past four years, going from 77,444 in 1999 up to 84,442 complaints in 2002.  Small businesses with as few as fifteen employees are subject to Title VII, but determining who qualifies as an employee for the purposes of Title VII and other federal legislation is a tricky proposition and should be determined through consultation with an attorney or by researching the legislation directly. 

Title VII is not the only federal law that applies to employment discrimination cases.    For example, the Immigration Reform and Control Act of 1986, the law that created the I-9 requirements for employers, also furnishes protection against discrimination because of national origin or U.S. citizenship. It applies to any employer with at least four (4) employees. The Civil Rights Act of 1866 (42 U.S.C. 1981) forbids employment discrimination because of race or color and applies to any employer, even if there is only one employee.

State laws such as the Texas Commission on Human Rights Act of 1983 (Texas Labor Code, Chapter 21) also apply to employment matters, so it is important to be aware of the complex patchwork of laws that may or may not apply to any employment situation. 

The national jury-award median for employment-practice liability cases, which includes discrimination and retaliation claims, rose 44% in one year – from $151,000 in 1999 to $218,000 in 2000 – according to Jury Verdict Research’s ® report, Employment Practice Liability: Jury Award Trends and Statistics – 2001 Edition.  

Though these facts and statistics point to the growing need for employers of all sizes to carry Employment Practices Liability Insurance (EPLI), the news is not entirely negative.   According to Risk and Insurance (online at there are more than 70 insurers providing EPLI coverage and companies with fewer than 50 employees can expect to pay as little as $5,000 to $10,000 annually for the coverage.   Also, many EPLI policies come with pre-arranged legal services such as hot lines for attorneys versed in employment practices law, often at no additional charge.  Contact us to explore your EPLI options and to find out more about managing diversity in your workplace.

Recognize the Common Culprits of Safety Program Failure

There are several common, identifiable reasons why safety programs fail.  By being aware of these potential barriers to the success of your safety program, you can modify your program to guard against them.  Commonly culprits of safety programs failure include:

Support from the Top Down

When employees don’t perceive their superiors as visibly committed to their organization’s safety program, they likely will not invest themselves in the program either.  Senior management and department leaders need to epitomize the procedures of a successful safety program.  They also need to be actively involved in both recognizing safety successes and implementing consequences for program violations.


To be committed to a safety program, employees need to understand the critical nature of safety and how accidents impact the organization and its employees.  They need to understand why they are investing their time and energy towards the safety program.   Specific achievable goals should be developed and rewarding employees for success should be considered.  Structuring goals in a manner that produces short-term successes can help build enthusiasm for the program. 


To keep the program in the forefront, safety leaders need to regularly communicate with staff about their expectations, the successes of the program, the consequences of not participating in the program and other key issues.  An ongoing training and education component should be central to the program.  Using multiple communication methods can be very effective. 

Corporate Structure

A highly decentralized organization can be detrimental to standardizing a safety program.  A company needs to find methods to impose uniformity and consistency across various departments and offices of their company. 

The Time Factor

In every organization, time is an extremely valuable commodity.  Management needs to assign priority status to safety and allows its employees to take the time to maintain a successful safety program.