Commercial Insurance Services

 : : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC

Substance Abuse Costs Employers Billions

Substance abuse problems among employees cost businesses billions of dollars each year. According to the 2008 National Survey on Drug Use and Health, in that year, 73% of the nation's adults with alcohol or drug dependence were employed either full- or part-time. This amounts to nearly 13 million Americans working under the influence. Put another way, this data from the U.S. Substance Abuse and Mental Health Services Administration means that 8% of full-time employed adults and 10.2% of part-time employed adults are substance abusers.

For the majority of substance abusers, their problem lies with alcohol.  The same study reveals that slightly more than half of Americans aged 12 or older reported being current drinkers of alcohol (51.6 percent). This translates to an estimated 129 million people, which was similar to the 2007 estimate of 126.8 million people (51.1 percent). According to information published by Ensuring Solutions to Alcohol Problems, a part of the George Washington University Medical Center, alcohol abuse costs American businesses $134 billion in productivity losses annually, and the health care costs for these employees are about twice as high as for those without an alcohol abuse problem. Employees who are heavy drinkers use twice as much sick time as other employees, spend four times as many days in the hospital than the national average, and have higher rates of job turnover. Significantly, light and moderate alcohol users, who are greater in number than heavy drinkers or alcoholics, account for 60% of alcohol-related absenteeism, tardiness, and poor work quality. And, the problems of alcohol abusers go beyond the addicted individual: about 20% of employees say they have been injured by, have covered for, or have had to work harder because of other employees' drinking.

The above data shows that alcohol and other substance abuse takes a toll on workplace productivity, and contributes to higher medical costs both for treatment of the addiction and for substance-related medical issues. Employee substance abuse problems also result in an increased occurrence of workplace accidents and higher disability and workers' compensation costs. It is clearly in an employer's best interests to seek ways to minimize the impact of employees' substance abuse on the workplace. Experts in the field stress the importance of workplace practices that educate employees about the health hazards of substance addiction and encourage employees to seek early treatment of any problems. While stressing the importance of a drug-free workplace, policies that rely primarily on discipline can result in addicted employees hiding their problems out of fear of losing their jobs, and in co-workers enabling such behavior in a spirit of friendship. In that kind of environment, an addicted employee may resist seeking any available help-such as obtaining treatment under the medical plan or taking a leave to enroll in a treatment program-until a crisis occurs.

On the other hand, employees will be more likely to come forward and get the help they need if they believe that by doing so they will receive help, not punishment. The same is true of co-workers, who can be an invaluable resource in encouraging addicted employees to seek help and to stay on track once treatment has begun. Since most medical insurance plans include at least some substance abuse benefits, workplace communications about a business's policies on alcohol/drug use should include this information. Employees are more likely to seek help if they feel it is within their reach, and they may not realize that this benefit is available to them. Employee assistance programs (EAPs) also can offer screenings, counseling, and treatment referrals for employees with substance problems; depending on the EAP, it also may have worksite awareness and supervisor training programs.

Communications to employees about any available benefits should stress that both medical plan and EAP services are confidential. This, along with a supportive (rather than punitive) environment, increases the likelihood that employees will seek the help that they need.
With many dollars in lost productivity at stake, the reasons for businesses to promote substance abuse awareness are compelling. And, because work is such an important part of most people's lives, the workplace can be an effective place for substance abuse intervention to begin.

Commercial Insurance News

: : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC
 
Five Ways to Avoid OSHA Penalties

In a one-week period in September 2010, the U.S. Occupational Safety and Health Administration announced eight citations against employers; penalties totaled close to one million dollars. The agency fined a picture frame manufacturer for not protecting workers' hearing, allowing combustible dust to accumulate, and blocking exit routes. An excavating contractor is paying a six-figure fine for failing to protect workers against cave-ins. A painting contractor's scaffolding was missing railings, bracing and access ladders. Because OSHA had cited the company for these violations before, it levied a fine exceeding $200,000.
Clearly, failing to comply with OSHA regulations can be costly for employers. However, by implementing a few new procedures and attitudes, a company can reduce the chances that its name will end up in an OSHA news release.

Keep in mind that insurance does not cover many of the costs resulting from workplace accidents, such as time spent on investigating the incident, reduced employee morale, productivity lost because of the disruption and the absence of a worker, reporting costs, and the cost of OSHA penalties. 

Improve record keeping. 
Think of good documentation as your first defense against an OSHA inquiry. Inspectors who find information gaps in the OSHA 300 log (the record of work-related injuries and illnesses) may initiate a full-scale safety audit of the business. If your business has deficiencies in its logs for the past three to five years, devote some time to correcting them. Personnel files and workers' compensation loss records can provide much of the missing information.
Focus on ergonomics. OSHA has announced that it will pay special attention to musculoskeletal problems. Businesses that seek out ways to prevent repetitive motion disorders will avoid citations and penalties. They will also pay lower workers' compensation insurance premiums in the long run. Analyze how workers are performing their tasks and look for ways to reduce the strain on their joints, necks and backs.
 
Fix the routine violations first. 
Some safety issues are simple and cost little or nothing to correct. 
For example:

• Blocked exits
• Lack of protective equipment, such as gloves and safety goggles
• Poor housekeeping
• Improper storage of materials such as flammable liquids

These problems can accumulate over time if management is not paying attention. Operations with large numbers of these violations have paid substantial penalties to OSHA, so monitoring and correcting them is essential.

Have a plan for disasters. 
Hurricanes in recent years and 9/11 have taught us that all organizations need to have emergency procedures in place for sudden events like storms and terrorist attacks and gradual events like flu pandemics. 

Disaster plans should include:

• Training for employees on what to do in the event of an emergency
• Procedures for safe evacuation from the building
• Workplace hygiene
• Stockpiling of emergency supplies such as first-aid kits
• Arrangements for operating from remote locations
• Communications with employees, their families, customers and vendors

Although OSHA will not be concerned with some of these aspects of the plan, having them in place will help the business survive the event.

Look at safety as a profit driver, not a cost center. 
Preventing workplace injuries costs money, but it also saves money and can improve a business's profitability. Some project owners and general contractors will consider bids only from contractors with workers' compensation experience modifications lower than 1.0. Firms with a reputation for safe operations will attract better workers. 

Money saved on accidents that never occur goes straight to the bottom line.
Some workplace injuries may occur despite an employer's best efforts to prevent them. However, taking reasonable steps to improve safety in the workplace will reduce the frequency and severity of those injuries, make the business more competitive, and avoid problems when an OSHA inspector visits.

Commercial Insurance Services

: : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC


Never Cut Corners When it Comes to Safety in The Workplace

Some employees are happy to take chances when it comes to safety. They take needless risks in an effort to save time or cut their work load. In reality, all they're doing is subjecting themselves and others to hazards that could cause a serious injury. Workers form bad habits when they repeatedly perform their jobs in an unsafe way and don't get injured. They become convinced that because of their skills they are incapable of being hurt. It's this attitude that usually ends up doing them in, because they take even more chances until eventually a serious accident does occur. Unfortunately, that one accident can turn out to be fatal.

Most of a chance-taker's careless acts can be broken down into one of the following categories:

• Failing to follow proper job procedure
• Cleaning, oiling, adjusting, or repairing equipment that is moving, electrically energized, or pressurized
• Failing to use available personal protective equipment such as gloves, goggles, and hard hats
• Failing to wear safe personal attire
• Failing to secure or warn about hazards
• Using equipment improperly
• Making safety devices inoperable
• Operating or working at unsafe speeds
• Taking an unsafe position or posture
• Placing, mixing, or combining tools and materials unsafely
• Using tools or equipment known to be unsafe
• Engaging in horseplay

Although OSHA does not cite employees for safety violations, each employee is obliged to comply with all applicable OSHA standards, rules, regulations, and orders. Employee responsibilities and rights in states with their own occupational safety and health programs are generally the same as for workers in states covered by Federal OSHA.

Employees should follow these guidelines:

• Read OSHA notices at the jobsite
• Comply with all applicable OSHA standards
• Follow all lawful employer health and safety rules and regulations, and wear or use prescribed protective equipment while working
• Report hazardous conditions to a supervisor
• Report any job-related injury or illness to the employer, and seek treatment promptly
• Exercise these rights in a responsible manner

If you are working with a risk-taker, ask him to stop and consider what jeopardy he is putting himself and others in. Then buddy up with him to find a safer way to perform the task. Remember, unsafe actions don't result in saving time if a worker gets injured in the process. 

Commercial Insurance Services

Review Your Business Interruption Coverage So You Can Stay in Business

: : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC 

 
Business interruption insurance is like disability insurance for a business. Disability insurance covers some of a person's lost income when she is sick and unable to work. Business interruption insurance covers a business's lost income when a fire, explosion, or some other peril causes it to shut down temporarily. A shutdown after a disaster may have more severe consequences for a business than the damage to the property itself. Therefore, it is vital that business owners know whether they need to update their coverage.
 
There are two reasons why reviewing business interruption coverage regularly is important:

• Economic conditions can change. When the economy is down, it is likely that a business's sales will either drop or flatten. Continuing expenses, such as utilities, mortgage payments, and payments on other loans, may not necessarily decrease; in fact, some may increase, particularly if there is a spike in energy prices. Conversely, a rapidly growing economy or one with high inflation may quickly drive anticipated sales much higher than what the owners expected when they bought the insurance.
  
• Regardless of the overall economy, businesses change. They introduce new products or services, expand into new markets, acquire new properties or other businesses, and invest in technologies that increase their productivity. All of these changes affect expected income and may change a business's coverage needs.
  

When a business owner reviews her business interruption coverage, there are several factors to consider:

• Is the market for the business's services expanding or shrinking? Cell phones, at one time seen as a luxury, over time came to be seen as a virtual necessity; millions of buyers entered the market. This increased sales for retailers and service providers.
  
• Has the business launched new products or services? In the year 2000, Apple, Inc. was solely a computer manufacturer. The next year, it introduced the iPod; later in the decade, it introduced the iPhone. These two products now account for a large share of the company's sales.
  
• If the business has coverage for income from dependent properties, how have those properties changed? For example, the business may depend on one major supplier for parts. If that supplier used to have two warehouses but has closed one of them, a fire that shuts down the remaining warehouse will have a significant impact on the business's income.
  
• Are competitors entering or leaving the market? A business that has increased competition will be under pressure to resume operations as quickly as possible to discourage customers from permanently going elsewhere. The business will want to pay whatever is necessary to minimize the shut down.
  
• Has the business's peak season changed? Suppose a company that provides payroll and benefits administration services decides to start offering tax preparation services to its clients. Much of the tax work and its associated revenue occur during the first quarter of the year. A loss that shuts down the business in March will have a much larger impact than it would have before the firm got into the tax business.
  
• Have building codes changed in the business's location? State and local governments are increasingly adopting "green" building codes that require environmentally-friendly construction materials and practices. Meeting these standards may lengthen the rebuilding period and lead to a longer suspension of business.
  
• What is happening to the business's costs? If labor or material costs are rising and the business must raise prices to cover the increases, sales volume may decrease and affect the amount of business interruption coverage needed.

Taking the time to review coverage and the firm's financial statements with a professional insurance agent will pay dividends after a loss. Proper business interruption coverage may make the difference between a business re-opening or closing forever after disaster strikes.

Commercial Insurance Services

: : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC 

Five Questions to Determine Your Business Interruption Exposure

The losses resulting from businesses in the area having to shut down for extended periods of time as a result of Tropical Storm Irene are likely to be huge.

For many organizations, the loss of income coupled with continuing expenses after a fire or natural disaster can be even more devastating than the damage itself. To increase the chances that a loss will not shut operations down permanently, organizations must accurately asses their exposures by asking some questions:

• What is the most the organization could lose from a shutdown?
Commercial property insurance policies define "loss of income" as the sum of the expected pre-tax profit or loss and necessary continuing expenses. For example, if the expected profit is $300,000 and necessary continuing expenses are $100,000, the potential loss of income is $400,000. To calculate their exposure to business interruption losses, organizations should refer to their balance sheets, profit and loss statements and cash flow statements. Insurance companies also have worksheets available to assist with the calculation.

• How much insurance should be carried?
Once the organization knows the dollar amount of its exposure, it must decide how much business interruption insurance to buy. The key considerations are the length of time the insurance is likely to apply and the coinsurance percentage the organization must meet. Coverage usually begins 72 hours following the damage to the property and ends when business resumes at another location or when the building should be repaired with reasonable speed, whichever occurs first. If the organization decided that the coverage period would be around six months, it could buy an amount of insurance that would satisfy a 50 percent coinsurance requirement. If the interruption would last longer, higher coinsurance percentage and limits would be necessary.

• How long will it take business to return to normal?
Even after operations resume, it may be some time before revenue returns to normal levels. Customers who had gone elsewhere during the shutdown may be slow to return. The standard insurance policy extends coverage for 30 days after operations resume, but some businesses may need more time than that, especially if their businesses are seasonal. For example, an oceanside restaurant in New Jersey that makes most of its profits during the summer will need additional coverage even if it can re-open in November.

• How much of the normal payroll expense will continue during the shutdown?
The organization will need the continuing services of some employees while it attempts to re-open, but other employees may not be necessary. For example, accounting staff will be needed to pay mandatory expenses such as property taxes and collect receivables earned before the shutdown. Employees who stock shelves will not be needed if there are no shelves to stock.

• Does the business depend on other businesses for revenue?
A business can suffer a loss even if its own building is untouched. A loss that shuts down a key customer or supplier or damage to nearby property that causes authorities to close off access to the street can devastate a business's bottom line (this happened to many businesses affected by 9/11.) Special insurance coverage is available to protect against this possibility.

Business Interruption Insurance covers direct damage to your property. Enhancements to Business Interruption Coverage include Communication and Transmission Interruption Coverage which will cover off-premises power or communications failure including overhead transmission lines. This is an important safeguard to consider for hurricanes and natural disasters. A professional insurance agent can help a business owner answer these questions and identify insurance companies that can meet coverage needs. With some effort and planning before a loss happens, an organization can emerge from a shut down and return to profitability.

Commercial Insurance News

: : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC

Is Your Business in The Right Insurance Class?
Every business owner who has ever received a bill for an insurance premium has wondered how the insurance company came up with the price, especially if the premium has gone up since the last renewal. While the insurance pricing mechanism can seem mysterious, and may involve a certain amount of discretion by underwriters, the starting point is always the same: The underwriter must answer the question, "What type of business is this?" That may appear to be a simple question, but it does not always have a simple answer. When the underwriter answers the question, they assign the business to one or more classifications; more than any other factor, these classifications determine how much premium the business will pay.


Classifying a business can be straightforward or it can be more art than science.
Most state workers' compensation insurance manuals contain roughly 700 classifications; the commercial general liability insurance manual has a little less than double that. Compare those numbers to the thousands of business types that exist today and the new ones that will exist five years from now, and you get a sense for why classifying a business can be tricky. In addition, while workers' compensation, general liability and property classification descriptions are similar in some cases, in many others they bear no resemblance to each other. The underwriter who knows they have correctly classified the business for one type of policy may find that classification to be of no help for the others. Though it may appear that determining the correct classification is only the underwriter's problem, it also has short- and long-term effects on the insurance buyer. The correct classification ensures that the buyer pays the appropriate rate and that all buyers in that classification receive fair treatment. If the classification is incorrect, the buyer will pay a rate that is either too high or too low for that type of operation. For example, compare two contractors -- one installs plumbing systems in commercial buildings, the other installs automatic sprinkler systems in them. If the plumber's work is faulty, a pipe may leak and cause water damage to furniture and equipment in one or more rooms. If the sprinkler contractor's work is faulty, the sprinklers may not work when a fire breaks out and the fire may destroy the entire building. The risk of a severe loss resulting from completed operations is much higher for the sprinkler contractor than it is for the plumber. If the underwriter classifies the sprinkler contractor as a plumber, the sprinkler contractor pays a much lower rate for completed operations coverage than it should. In the long term, loss experience will cause the rates for plumbers to increase. This is unfair to plumbers and to sprinkler contractors whose underwriters classified them properly.

Also, charging an inadequate premium may cause the business's experience modification to be higher than it should have been. The experience rating formula compares actual losses to the losses a typical business in that classification with that level of payroll or sales would have. If the classification is wrong, the formula will understate the level of expected losses, resulting in a higher debit or lower credit. The rating manual rules require that policies issued to businesses in some classifications carry specific endorsements (policy changes.) For example, the rules for restaurants require the company to attach an endorsement that changes the definition of the products-completed operations hazard. Use of the wrong classification can result in the wrong policy terms for the business.

A business owner should work closely with a professional insurance agent to ensure that insurance companies are using appropriate classifications. While the wrong classification may appear to save the business money in the short run, it may prove to be costly in the long run.