Risk Report: August 2012

risk report with Henriott Group, Inc.

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AUGUST 2012

Workplace and Risk Management topics aimed at business owners, managers and other organizational leaders.

“Never be afraid to try something new. Remember, amateurs built the

ark; professionals built the Titanic.” Author Unknown

Sprechen sie Insurance?

A look at Industry & Risk Transfer terms.

Cybercriminals Targeting Small Businesses

Henriott News & Updates

Are you operating a company with less than 100 employees? This quick read should scare any small business owner straight!

 What’s your trigger point??  New! “C’Mon Man!” post

By Rick Davis, CIC , CRM CEO at Henriott Group, Inc.

My 7-year old daughter is learning Chinese and Spanish at school. My wife is fluent in Spanish and can work her way around French pretty well also. In a few years, I will have no idea what they’re talking about when their lips are moving while looking (and laughing) at me! Unfortunately, although I took German for four years in high school, I have no comeback for this treatment since my German skills sort of capped out at being able to order two beers and count to ten!

After further reflection, however, I realized I actually am bilingual and I think I can create the same dumbfounded look in their eyes when I start speaking my language…Commercial Insurance –eeze!

So, these next two editions of the Risk Report, while not quite a Rosetta Stone, will aim to equip you with some important terms and definitions unique to the insurance industry and potentially relevant to your insurance program. We’ve separated these terms and definitions by category for ease of review and will start with some broad insurance and risk management topics and then move into more specific coverage related areas such as Property, General Liability, Workers Comp and so on.

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As insurance agents, we tend to throw these terms around quite frequently, especially when we’re in the office amongst our peers . But it’s not until we’re with a client and we get that “glazed-over, confused look” that we know we’ve slipped into our native tongue and killed our audience - OOPS! So….although there will be no quizzes at the end of this, we wanted to share a few general insurance industry terms that you may have read in our previous editions.

ADMITTED INSURANCE CARRIER: An insurance company licensed and authorized to do business in a particular state.

ALTERNATIVE MARKETS: Nontraditional mechanisms used to finance risk. This includes captives, risk retention groups, self-insurance, etc.

CAPTIVES: A private insurer that is a wholly owned subsidiary of another company. Captives accept the premiums that the company would have paid to a regular insurer and then cover and claims against the parent company.

COMBINED RATIO / LOSS RATIO: Combined Ratio is the percentage of each premium dollar an insurer spends on claims and expenses and is a good, simple gauge of a company’s and the industry’s profitability.

Loss ratio only includes claims, not expenses.

ENDORSEMENT: EARNED PREMIUM: The portion of premium that applies to the expired part of the policy period. Policies can vary in this regard as some have minimum earned premiums, fully earned, etc. and can impact what happens should you need/want to cancel before expiration.

A written form attached to an insurance policy that alters the policy’s coverage, terms or conditions.

EXCESS AND SURPLUS LINES: Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a non-admitted carrier.

HARD MARKET / SOFT MARKET: Used to describe the commercial insurance marketplace. A hard market is a “seller’s” market in which insurance is more expensive and in shorter supply and vice versa for a soft market.

INSURABLE INTEREST: In insurance, a person exhibits an insurable interest in a potential loss if that person will suffer a genuine economic loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful purpose and, thus, is not a valid contract.

NAMED PERIL VS. SPECIAL PERIL: Peril is a specific risk or cause of loss covered by an insurance policy, such as fire, flood or theft. A namedperil policy covers only those risks specifically identified as opposed to a special forms peril which covers all causes of loss unless specifically excluded.

REINSURANCE: Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company.

Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage.

Okay, okay….all kidding aside.

Here are a few more you’ve probably run into that deal with Risk Transfer.

The act of making another "whole" by paying any loss another might suffer. This usually arises from a clause in a contract where a party agrees to pay for any losses which arise or have arisen. There are three basic levels of indemnification as follows:  Limited form – indemnifying party is only responsible for their own negligence  Intermediate form – indemnifying party takes on obligations of another for their partial negligence  Broad form – indemnifying party takes on obligations of another even for their sole negligence (often unenforceable in many states)

A document evidencing the fact that an insurance policy has been written and includes a statement of the coverage of the policy in general terms.

Certificates are simply snapshots of basic policy coverages and limits at the time of issuance of the certificate. Certificates cannot modify coverages or change the terms of the insurance contract.

A person or organization not automatically included as an insured under an insurance policy of another but for whom the named insured desires or is required to provide a certain degree of protection under its insurance policy.

The relinquishment by an insurer of the right to collect from another party for damages paid on behalf of the insured. The waiver of subrogation condition in current standard policies is referred to as "transfer of rights of recovery."

Language typically requested in a contract to (supposedly) make sure that the priority of coverage is such that the Indemnitor’s insurance policy (rather than the Indemnitee’s insurance policy) will respond first and will not seek contribution from the indemnitee’s policy. This is one of the more confusing and misunderstood requests we see in contracts and we’ll cover this in more detail in a future Risk Report on the topic of Certificates of Insurance.

This infographic from VERACODE, highlights the risks faced by small business from hackers as well as gives a few tips to help safeguard against attacks.

“Secure Network” by FreeDigitalPhotos.net

We probably can’t beat the drum loud enough to draw attention to this growing risk management issue. A recent survey conducted by Verizon Communications found that of the 855 data breaches worldwide that were analyzed by Verizon, over 70% were at companies with 100 or fewer employees! A similar survey of 500 U.S. company executives last year found that 76% had some sort of cyber security incident, including the loss of money, data, intellectual property or the ability to conduct business. Smaller businesses make an attractive target for cyber thieves since they typically have limited IT budgets, fewer if any dedicated IT staff, etc.

Often these losses involve the fraudulent transfer of money from the target company’s bank account by attaching a virus to their system and gaining access to these accounts, among other methods.

Many businesses believe that if this were to happen to them, their bank would either be able to recover the funds or cover their loss.

However, the courts are divided on this issue with many finding that banks are not liable for losses that resulted from their clients’ systems being breached, while

others have found the banks at least partially responsible due to their higher security awareness and resources. Either way, assuming banks will come to the rescue is a risky proposition at best!

Here are a few ways to help minimize the risk or impact of a cyber-incident on your company:  Pay for protection. Invest in reliable controls for at least one computer and use it to make all financial transactions.  Use human backup. Require your bank to get verbal authorization for over a certain daily volume of transactions.  Insure your assets. Have adequate limits for Computer Fraud. Hackers are always refining their skills.  Know whom to call. Make a list of those to contact immediately should a breach occur, such as your bank's security team.

In this issue we are highlighting our very own and talented Melissa Richardson as well as her blog, Mistress of Disaster ~Queen of Sarcasm.

Melissa has been with Henriott Group, Inc. for 8 years…initially hired as an intern, and subsequently hired as a Personal Insurance Consultant.

Today, she manages our Personal Insurance Department.

Melissa refers to herself as a “Bona Fide Insurance Nerd” and tends to be very proud of that title! She has achieved the status of Certified Insurance Counselor and has come to terms with the fact that she is a Media Addict – always wanting more information, more resources & continually looking for a “better way.”

Melissa has found a way to make reading about insurance fun…a feat that not many have achieved! Enjoy Mistress of Disaster…you’ll find yourself L.O.L.ing when you least expect it – then call her! She is one of the best at analyzing and protecting your personal insurance needs!

Melissa Richardson, CIC mrichardson@henriott.com 765.838.8605

Check out our website blog series for real-life claims or lawsuits that we hear about in our work and make us sit back and say…C’Mon Man…Really?!

Did you know that we also issue monthly reports for Employee Benefits and Personal Insurance?

For a preview of these, click the following links!  Live Well, Work Well  inSIGHTS: Summer 2012 Installment

If you would like to subscribe to either of these, simple send an email to info@henriott.com and specify which you are interested in receiving!

Henriott Group’s Milestone Risk Management program is aimed at helping your company lower its Total Cost of Risk. Talk to your Henriott professional for more information about this proprietary process.

Client Focused. Results Driven.