Workers Compensation Experience Modification 101

Workers' compensation insurance is a major expense for most businesses. If you're an established business, you probably already know about experience modifications (x-mods). Whether experienced or not, you should familiarize yourself with this important and potentially huge premium saving factor.  Please spend a few minutes to read below about what an Experience Modification is an how it can save or cost you thousands of dollars every year. 


The Workers' Compensation Insurance Rating Bureau (WCIRB) is the agency that determines your x-mod based on your actual losses vs. your expected losses. After base rates then your x-mod is then calculated into your premium which will either lower or raise your total premium.


The formula is actually very complicated... For the sake of this intro session, all you really need to know for now is that if you have little or no losses your x-mod goes down. If you have high losses or frequent losses, your x-mod goes up. If you're REALLY interested and love math, read this. (I dare you!)


Yes! An experience modification matters greatly in what you will pay for workers' compensation insurance. This system was designed to reward businesses with favorable claims history and to penalize businesses with poor claim history. Though complicated, it is actually a great system that rewards businesses that are minimizing work related injuries. 


The "pure modification" starts at 100. At 100 you are neither penalized or credited for experience. It is essentially the "break even point". If you have a modification at 80 you would be credited 20%. If you have a modification of 120 you would be surcharged 20%. If you have an experience modification, contact us and we will gladly locate your WCIRB Risk Summary Report and provide it to you at no cost. 


The WCIRB will not issue an experience modification until you have three years of experience and until your premium is at $13,000 per year (base rate). Because it is costly to aggregate loss information from carriers and calculate modifications, the WCIRB will not calculate on small accounts. 


Okay, so you know all about x-mods and have yours. Whether you are over 100 or under, there is always room for improvement... There are several ways to reduce claims and reduce your experience modification. Here are just a few:

  • Implement a safety manual that all staff must adhere to. 
  • Hold routine safety meeting to discuss procedures and change as needed.
  • Perform background checks for new hires to be sure they are not routine offenders of the workers' compensation insurance system. You do not want to be their next victim...
  • Make sure your equipment is regularly checked and replaced if needed. 
  • Designate a manager as an internal loss control coordinator. Give them the classes and skills they need to help you minimize your losses.

Lastly, work with an insurance broker who understands your business and may have some of the above already available for you to utilize... Hint, hint... Contact us to learn more about workers' compensation insurance and experience modification. For extra credit, you can learn more via this link at the Workers' Compensation Insurance Rating Bureau


What Does Surplus Lines Insurance Really mean?

We often need to place insurance through "non-admitted" insurance carriers, but don't worry, non-admitted does not mean non-regulated. Our friends at the Surplus Lines Association of California does a great job defining what it means to do business with surplus lines carriers:

The Policy

Surplus line insurance policies are sold by “nonadmitted” carriers through licensed “surplus line brokers.” Other insurance agents and brokers must go to a licensed surplus line brokerage to access non-admitted carriers. When such companies are on California’s LESLI, (List of Eligible Surplus Line Insurers) they are regulated.

The State Of California

Since 1937, The Surplus Line Association of California, a nonprofit statutory advisory organization, has monitored surplus lines and advised the California Department of Insurance (CDI) regarding non-admitted carriers and surplus line brokers to protect California companies and citizens.

Non-Admitted Or Surplus Line

Non-admitted does not mean non-regulated. Nonadmitted carriers on the LESLI have been reviewed and approved by the California Department of Insurance (CDI) for surplus line insurance in California. Non-admitted carriers on the LESLI are actually “admitted” insurance carriers in their state or country of domicile

other than California. Surplus lines have been written by non-admitted carriers since the 1800’s, and generally are used when a risk is unusual, unusually large or when coverage is not available from carriers licensed in California.

Solvency Regulations

Non-admitted insurers on the LESLI must demonstrate to the State of California their financial stability, reputation and integrity; maintain a minimum of $15 million in capital and surplus at all times; have 3 years seasoning (or qualify for an exception); have a valid license to transact insurance in their domicile; file financial information with the Department of Insurance and adhere to specific capitalization, investment and solvency standards established under the California Insurance Code.

California Law

The California Department of Insurance (CDI) is the official regulatory agency for insurance in California, including the surplus line industry. The Surplus Line Association of California is officially a nonprofit advisory organization, which performs statutory duties for the CDI. The Association’s recommendations

are considered and incorporated into the legally binding decisions of the CDI when appropriate.


California’s LESLI was first issued by the California Department of Insurance (CDI) in 1995. Licensed surplus line brokers are forbidden by law from using non-admitted insurers that are not on the LESLI (with narrow exceptions). Make sure your carrier is on the LESLI!

Non-Admitted Means…

  • Insurance carriers not licensed by the State of California (also called “surplus line carriers”)
  • Carriers on the LESLI (are actually “admitted” insurance carriers, licensed in a state or country of domicile other than California)
  • Carriers that must meet strict surplus line laws and regulations in order to provide insurance to California businesses and residents
  • Carriers regulated by their state or country of domicile, including stringent requirements regarding reputation and integrity, capitalization and solvency, licensing and business practice

What Is The Surplus Line Association Of California?

  • A nonprofit 501(c)(6) organization, the Association has been working with the California Department of Insurance (CDI), since 1937, to maintain a responsive and lawful California surplus line market 
  • The Association performs statutory duties within the California insurance industry under the direction and supervision of the CDI

 What is the LESLI?

  • The "List of Eligible Surplus Lines Insurers"
  • Established and regulated by the CDI
  • Monitored by The Surplus Lines Assiciation of California

Who Regulates Surplus Lines Transactions In California?

  • CDI legally regulates transactions
  • SLA monitors and advises
  • Brokers and agents have strict compliance responsibilities to promote and protect consumer awareness


The Surplus Line Association is charged with and committed to the protection of California consumers of surplus lines of insurance. It is the only organization with an advisory and statutory relationship with the California Department of Insurance (CDI) regarding such transactions. A nonprofit organization, the Association has been working with the CDI, since 1937, to maintain a responsive and lawful California surplus line market. This document is an introduction to the market, its participants, regulations and the role of the Association as it works to protect you. 

You can learn more about the Surplus Lines Association of California here. If you have any questions about Surplus Lines policies or non-admitted insurance carriers, please feel free to contact us.


Employee Fatigue a Silent Risk In the Workplace

How Employers Can Help Prevent Employee Fatigue

Employee fatigue issues should be handled with the same care and attention as other job-related hazards. Here are some helpful tips to keep employees awake, alert and safe on the job.

  • Vary work tasks throughout the day.
  • Offer regular breaks during the workday, so employees can reenergize and refocus on their workload.
  • Switch to blue-enriched white lighting in the office. Research indicates that cognition-enhancing blue light during the day improves mood, concentration, productivity, and the quality of sleep at night.
  • Create a company sleep challenge. Talk about a fun way to engage in friendly competition. Employees can use an activity tracker (e.g., Fitbit) or an app (e.g., Sleep Cycle) and log the number of hours slept each night.
  • Always encourage employees to notify a department manager or supervisor if they feel fatigued during the workday or otherwise not able to complete their work.

Meetings on the Move

Statistics show that when people walk 45-60 minutes per day, they sleep better at night. With this is mind, many companies conduct employee meetings while walking on an indoor track. This novel idea not only increases workplace productivity and employee engagement, it also creates a healthier company culture.

Educate Your Employees

Employers can also minimize the risks of workplace fatigue through employee education. Explain to employees the dangers posed to themselves and others while working when overly tired. Encourage them to develop and maintain a healthy sleep routine with the following tips.

  • Make sleep a priority. Go to bed at the same (and reasonable) time each day.
  • Eat light, nutritious meals and avoid eating or snacking right before bedtime.
  • Drink plenty of water.
  • Minimize their consumption of caffeine and alcohol.
  • Practice relaxation techniques after a long day and before going to sleep.
  • Resist the temptation to read or watch TV in bed.
  • Turn off smartphones, tablets and laptops well before turning off the light.
  • Seek immediate treatment of sleep disorders from a licensed physician.

Employees are likely your most valuable asset for your business. Make sure you take care of them by helping them take care of themselves. Not only will you be helping to avoid work realted injuries, but you will be improving productivity and likely overall job satiffaction. If you can't do all the above yourself as busy business owners, consider bringing in outside consultants to help. 

Five Reasons Bay Area Businesses Fail

Most entrepreneurs go into business thinking they are going to have a jump start, be successful and build their empire. Reality dictates that this is a rare occurrence. Even young companies require time to incubate and grow into thriving businesses, profitable or not... If you are a visionary starting your business you are likely taking time to make the right decisions. At BayRisk Insurance Brokers, we have the opportunity to see many businesses come and go; to succeed and fail. In speaking with some of our clients that have succeeded and learning from those that have failed we have concluded that most wish their hindsight was better in these areas:

  1. Doing Enough Research Before Launching- Every new business is excited to show themselves off and hit the ground running, but without the proper research you could be making a premature move. Your business has plenty of brain power, but hiring independent consultants that are experts in market research and demographics could be the best investment you could make early on. Not only will you learn how to market and to whom, when and why, but you could learn that yourr your demographic is not quite ready for your product or service. Don't be the next Apple Newton (yes, even Apple can make mistakes).
  2. Paying Enough Attention to Market Trends- So you've done your research and launched because the world is ready. All too many businesses have failed because they do not prepare themselves for market trends. If you are selling a product or providing a service, be ready to change. It's easy to get tunnel vision when times are good, but not paying attention and adapting to change is a recipe for failure. One day your widgets may be talk of the town and you go through rapid growth, but unless you plan for constant improvement or added products or features, you may be hosting a garage sale to make money with your widgets in it.
  3. Investing In the Business- Some businesses get off to a great beginning then start spending on new staff, new office space, fixtures and furniture.Before they know it there is no retained earnings and no capital toreally grow the business. They may look for private or angel investors, but then make themselves vulnerable to losing equity and possibly control of their company.
  4. Hiring Practices- Many business owners make great visionaries. However, just because they can start a company doesn't mean they make good Human Resources managers. Hiring the right people can be a science and this is a costly area to make mistakes. Consider using a staffing firm or hiring one person as your HR manager that can assist with hiring, management and firing if necessary. Employees are your most valuable assets, but sure you hire wisely and manage just as wisely.
  5. Having the Right Insurance- Come on you had to know I would throw that in the mix. Many businesses fail because they fail to protect themselves. The cost to defend your company in a lawsuit could be enough to put you out of business. Smart business owners work with smart insurance brokers to get the right coverage. A local and knowledgable insurance broker can help you avoid accidents from happening and protect you if they do.

We rarely see a Bay Area startup go from Bootstrap to Bugatti overnight, but love to see it happen. Don't let hindsight get the best of you and keep you from being the next success story! 

Client Spotlight: Trips For Kids

At BayRisk we are fortunate to work with many non-profits that help our communities in so many ways. This spotlight is on Trips For Kids, a Bay Area based non-profit that teaches at-risk youth all about mountain biking and the world of bicycles. Trips For Kids also has an Earn-A-Bike program where these youth can work on bikes and earn points towards their own. This teaches them job skills and life lessons that they can use for many years to come. They were featured byCNN Heros for their amazing work that has transformed countless young lives over the past three decades. Thank you to Trips For Kids for all your dedication and years of giving back to our communities. You can help Trips For Kids by donating bikes, time or monetary contributions here

Annual Risk and Protection Checklist

The New Year is a great time for reflection, reviewing, and revamping. Local Risk Manager, Charles Wilson of RiskSmart Solutions, does an excellent job reminding business owners to create a checklist to help protect and manage your exposures. Make time to create your checklist and involve your insurance broker for assistance. These tips will help get you started! 


Tip #95: Annual Risk and Protection Checklist


This month's post will serve as your annual reminder! As you organize your priorities for the New Year, remember to include the following.

Below are seven key risk and protection reminders for your checklist. Many of these we know are important, yet they're often not immediately urgent, so they fall to the bottom of the pile. That's why an annual schedule for these updates on your calendar is great for avoiding last-minute panic.

  1. Update asset lists. Inventories can get quickly out of date.  Think about equipment, vehicles, shop and office supplies, computers and software licenses, contact information, etc. Quarterly reviews can keep these top of mind.  Keep updates offsite and secure.
  2. Update values. Asset values - for buildings, equipment, inventory, etc. - can vary from normal inflation for lots of reasons. Don't get caught short in the event of a loss. Review quarterly with your asset lists above and advise your broker if you need increases. If you can't get these done, schedule "project steps" and perhaps a summer or holiday intern to help out.
  3. Schedule key dates. Keep track of renewal dates for licenses, leases, client retainers, service contracts, insurance, certifications, website URLs, etc. on several people's calendars. Add notes about who else needs a "heads up" to be involved.
  4. Insurance protections. Meet with your insurance professional at least once outside of the "renewal" period. Ask about new trends in legal, coverage, and insurance rates. Talk about changes to your business and find out the "hot" risks that need your attention. Then block out time for renewal applications and benefit program updates, employee communication and enrollments. 
  5. Safety. This can be vital to employee morale, customer loyalty and your business survival. Make sure your IIPP (injury and illness prevention plan) is up to date as required by many state laws. Schedule regular safety committee meetings, and get the right equipment (PPEs). Ask your insurance broker about free insurance company services and inspections.  Also get locations of emergency medical clinics nearest you and your work sites: each employee should have an appropriate list immediately accessible.
  6. HR issues and Training. Plan for employee handbook updates, new policies and updated legal postings. Schedule employee group discussions and reminders about expectations and rules. Plan for safety training and defensive driving, equipment certifications, harassment and discrimination courses, etc. The right training, in advance, can save businesses huge hassle and headaches.
  7. Update Emergency plans. These "be ready" plans need review and updates. Ensure you have the basic supplies appropriate to your location and potential circumstances (flood, windstorm, earthquake, etc.).  Encourage employees to have their own supplies and some plans for family as well. Contact info must be accessible to all. 

Finally, think about the big picture: who are the key people you depend on to be responsible for coordinating your overall risk and protection program? Do they clearly understand your priorities and expectations? Make sure you are delegating with knowledge and oversight, and not abdicating without paying attention. 


To view this and other RiskSmart Solution Tips, please click here

About the author: Charles Wilson has extensive experience starting, growing and fixing small business units in Europe, Canada and the US. This hands-on, ground up knowledge of how businesses operate makes Charles a valuable asset both for the advice he can provide and for his ability to work with your organization to get the recommendations implemented quickly. 

Need help with resources or have questions? He can be reached at: 510-685-3883 or email

What is an ERISA Bond, and Why Do We Need One?


What is an ERISA Bond, and Why Do We Need One?

The Employee Retirement Income Security Act of 1974 (ERISA)  is a federal statute governing standards for private pension plans, including vesting requirements, funding mechanisms, and plan design. An ERISA's primary purpose it so protect plan participants from misappropriation of funds by the plan trustee or administrators. 


Stock Throughput Insurance

The recent Napa Earthquake and the harvests that are currently underway for most Agricultural products, may bring about a Stock Throughput situation. What exactly is Stock Throughput Coverage? Simply put, it’s a single policy that covers your raw materials, goods and / or merchandise from the time you have an insurable interest until such time that interest ceases, from “cradle to grave”. This is a fantastic type of insurance coverage for any manufacturing or agricultural risk.  It is often an overlooked and underutilized coverage.  We have access to a tailored version of this coverage that’s specifically designed for wineries and wine makers. The coverage is a valuable tool, a compliment to a property policy that among other things; eases administration, lower retentions,  provides coverage while in transit anywhere in the world, provides coverage at third party processors and third party storage and provides catastrophe coverage like flood, windstorm and earthquake that may not be available from the property carrier.  Also, stock throughput provides coverage for losses caused by war, strikes, riots and civil commotions and transit related terrorism. The expansive nature of this coverage makes it great for all types of food and beverage processors. 

Unlike a property policy, a Stock Throughput policy carries a fixed dollar deductible, not one based on a percentage of your property values. Typical deductibles would be $2,500 for goods in transit and $10,000 for good in storage or processing.  A timeline for coverage for an agricultural product might look this:

  1. coverage starts when harvested / picked
  2. while in transit for processing / packed
  3. while being processed (at any location), while being stored
  4. while being shipped (by any method, anywhere in the world), at transit hubs and distribution centers up until the time the product is received by the buyer. 

You can rest assured knowing that your product is covered at all times, whether or not the carriers,  third party processors or storage provided have adequate coverage. 

Additionally, the finished product, whether it’s at your location or at any location, is covered, again with a small, fixed dollar amount for property losses including Earthquake, Flood or Wind.

If your in the manufacturing business, you have an exposure. If your business is growing and you are not addressing this exposure, one loss could significantly impact your business and your ability to keep your product on shelves. BayRisk Insurance focuses on protecting food related businesses. Please contact us for a quote or to discuss this and other vital coverage for your business. 


Can Business Owners Be Excluded From Workers Compensation Coverage

Certain business owners may elect to exclude themselves from workers' compensation insurance coverage. This applies to officers of a closely held corporation, general partners, and member-managers of limited liability companies. Sole proprietors are always excluded. 

LLC Members and Partners are automatically excluded from the workers compensation coverage, but by written request may elect to be included.Generally, three types of owners will be eligible to elect exclusion:

  • Manager-members of a business operating as a limited liability company
  • Stockholding officers and directors of a corporation owned 100 percent by its officers or directors,
  • General partners or share holding officers of a corporation operating as a general partner (in which case the officers must be the sole shareholders of the corporation) of a business operating as a partnership.

In each of these cases the exclusion must be elected and is not automatic.

If included for coverage these owners are subject to the payroll maximum $109,200 and minimum $42,900 rating rules. 

If election is not made and updated properly, it can be costly. 

The Division of Labor Standards Enforcement will issue and serve a stop order and penalty assessment prohibiting further use of employee labor until Workers’ Compensation Insurance is purchased.  The Workers’ Compensation – Audit and Enforcement Unit may charge penalties and issue an order for unpaid compensation to be paid.Please consult with us if you have any questions regarding your workers compensation coverage.


Your Workers Compensation Final Audit

The ultimate cost of your workers compensation program is determined by a number of factors, not the least of which is your final audit. The workers compensation audit process can be confusing, complex and, if done incorrectly, expensive. It doesn’t help that the audit process is set up so that most errors benefit the insurance company.

The company may simply ask you to send the information needed to perform the audit, or may choose to conduct a physical audit in your office. In either case the auditor will probably want to see your State quarterly wage and withholding reports (DE-6s), payroll journals, and any previously filed payroll reports for the period being audited. Occasionally, other records that relate to your workers compensation policy may be requested as well.

Regardless of what records are requested, it is imperative that the payroll is placed in the appropriate classifications and that any rules that could work to your advantage are employed.

Your premium is based on gross payroll, not net payroll. Gross payroll includes salaries, commissions, bonuses, vacation and holiday pay, sick pay, overtime payments (which can subsequently be deducted), the value of gifts, all substitutes for money earned or paid during the policy period, including meals and lodging in lieu of wages, automobile allowances, and any amount by which an employee’s salary is reduced to fund a pension or deferred compensation plan.

If you subcontract work, you will be asked to supply basic information about the subcontractors, and verification that they have appropriate insurance. Recognize that if they do not carry the appropriate insurance, you will be charged premium based on their exposures.

Some payroll classifications allow you to split an employee’s payroll among various class codes (recognize that many, including clerical, do not allow this). In order to take advantage of such a split, proper payroll records must be kept that specifically identify time worked in each classification.

The following are additional tips that you should be aware of during the course of the audit process:

  1. Appropriate Classifications - Don’t overlook clerical and sales classifications. In addition, if you have several classifications on your policy with various rates, make sure you understand the differences so you can classify your employees in the most favorable category.
  2. Executive Officers and Partners - Executive Officers and Partners are capped for payroll purposes. For 2014, the maximum amount that an executive officer or partner in California can be charged is $109,200. If you have elected to exclude executive officers or partners, make certain that their payroll is not included in the audit.
  3. Overtime - You are not required to pay workers compensation premium on the overtime portion of a wage. In other words, if somebody who normally makes $10 an hour works an hour of overtime and is paid $15, you would pay premium on the $10 but not the extra $5. It is important that your payroll records be maintained to show the regular rate of pay, the overtime earnings by employee, and a summary by type of operation performed so that the auditor can give you credit for overtime excess.
  4. Severance - If you have paid severance to anyone in the past year, you can deduct this from your audit. You are not required to pay workers compensation premium on severance pay.
  5. Payments to Inactive Employees - Payments to inactive employees are not counted when calculating your workers compensation premium.
  6. Third Party Sick Pay - Were there any employees hurt on the job that received disability payments (short or long term) from a disability carrier or provider? If this third party sick pay was included in the employees W-2 and/or payroll register, you can deduct it.
  7. Travel Expense Offset - Did any employees receive additional funds to offset travel expenses? This is not chargeable as payroll.
  8. Form 1099 - If anyone was paid by Form 1099 through your payroll, was this amount deducted for workers compensation purposes?
  9. Uniform Allowance –- Was anything added to individuals’ payrolls to compensate for required work clothes or safety equipment? If so, this can be deducted.
  10. Any Other Additions or Exclusions –- Other than base pay, bonuses and commissions, were there any other additions or exclusions to payroll?
  11. Owner-Controlled Insurance Programs (“Wrap-Up” Policies) –- Were you involved in any owner-controlled insurance programs (“wrap ups”) that extended to workers compensation? If so, you can deduct this payroll from your audit.

Top 20 Electrical Safety Safety Tips For Restaurant Owners

Each year, according to a National Safety Council study, electrical fires lead to approximately 4,000 injuries and over 300 deaths in workplaces, including those which occur in restaurants. Electrical safety does not rest solely on the shoulders of restaurant owners and managers. Safety concerns should also be a responsibility shared by employees. Protect your restaurant from electrical accidents by training yourself, as well as every employee, on how to recognize electrical fire hazards.

  • Always follow manufacturer’s instructions when operating cooking equipment and kitchen appliances.
  • Regularly inspect all electrical cords for cuts, frays and other signs of damage. Replace damaged cords immediately!
  • Never overload electrical outlets or circuits.
  • Avoid using extension cords as permanent electrical solutions.
  • Provide heavy-duty extension cords and power strips for employees to use so a single cord or circuit is not overloaded.
  • Install ground fault circuit interrupters (GFCI) on electrical outlets located near water sources.
  • Only use kitchen equipment that has been approved by an independent testing laboratory.
  • Be certain exposed electrical boxes are made of a non-conductive material, such as plastic.
  • Make sure all circuit breakers and fuses are properly labeled.
  • Switch off circuit breakers at the first sign of equipment malfunction or electrical fire.
  • Never use damaged electrical equipment. Replace the equipment or have a qualified, licensed electrician make necessary repairs.
  • Teach employees how to shut off the power in the event of an emergency.
  • Keep power cords well away from equipment when in use.
  • Make sure workers pull on the plug, not the cord, when unplugging equipment.
  • Do not touch the prongs of a plug when inserting into an outlet.
  • Never plug something into an outlet if the cord is wet, or when an employee is touching or standing on a wet surface.
  • Avoid using extension cords as permanent electrical solutions.
  • Never use extension cords that feel warm when used; as this is an indication they are overloaded.
  • Keep workplace walkways free from tripping hazards by using ceiling outlets when running longer electrical cords.
  • Train employees to never touch or attempt to help someone who is being shocked until the power has been turned off.
  • Hire only licensed professional electricians to service electrical systems.

These tips are courtesy of our carrier partner Capital Insurance Group (CIG), a leader in restaurant insurance. Please contact us for more information on how to protect your restaurant and to get a quote. Little steps can prevent big losses!

Professional Society Recognizes Local Insurance Agent

The Society of Insurance Counselors (CIC) recently honored Denton Christner of BayRisk Insurance Brokers, Inc., Alameda, CA for dedication and leadership in the insurance industry. 

Denton Christner was awarded a certificate of achievement, recognizing five consecutive years of active affiliation with the Society of CIC. The CIC designation carries meaningful prestige in the insurance profession as it signifies commitment to advanced knowledge and customer service. 

The Society's President, Dr. William T. Hold, CIC, CPCU, CLU, cited, "This accomplishment denotes outstanding achievement within the insurance profession. The high standards maintained by Denton Christner will reflect positively on clients, associates and the insurance profession as a whole."

The Society of CIC is the founding program of The Nation Alliance for Insurance Education & Research, the nation's leading source of continuing education programs for the insurance and risk management industries. Other members of the organization include the Society of Certified Insurance Service Representatives (CISR), the Certified Risk Manager Program (CRM), and The National Research Academy. 

We at BayRisk Insurance Brokers congratulate Mr. Christner on this achievement and his dedication professional advancement in the insurance industry.  


What Is Product Recall Insurance?

If you are a manufacturer or importer of manufactured goods or food, chances are that you need product recall insurance. Commercial general liability insurance offers product liability, but not the costs associated with recalling your product. The cost to recall, destroy and the crisis management to "clean up" after a recall could be in the hundreds of thousands or millions depending on the extend of your product in the marketplace. 

Very limited “first-party” product recall coverage is now available from a few insurers providing product liability insurance to the dietary supplement industry. The limits offered are generally quite low (in one case $25,000) and only cover the costs of a recall for the insured company. And even those “covered costs” are limited to a few specific things. Not surprisingly, the premiums are also small. The phrase “better than nothing” would apply to this coverage.

Additionally, eight or so insurers offer a form of “Mercedes” product recall coverage. Historically, they have provided coverage to the food industry and are quite familiar with that industry. They are generally unfamiliar with the supplement industry and tend to lump them in with pharmaceuticals, the latter a prohibited class of business for them. But that is changing. Recently, insurers have been offering product recall coverage, properly tailored to the needs of retailers, contract manufacturers and raw materials suppliers.

It is important to understand the specific coverage offered by these types of policies. Most of them cover three things: extortion, accidental contamination and malicious product tampering. To keep the cost down, extortion coverage, which is arguably not needed or desired for a supplement company, is removed. The two remaining coverage parts are accidental contamination and malicious tampering. Either one of these will trigger what is called an Insured Event. The policy also provides a lot of additional coverage, much of it by endorsements to the main policy form (so each policy can be tailored to the insureds needs or wants). These include:

Costs of a product recall: The core coverage provided for all reasonable costs incurred to recall, remove and dispose of a recalled product. Generally, these include but aren’t limited to media costs, costs incurred to ship the product back, costs of disposal, costs to redistribute any recalled products, and retailers’ and other third-party recall costs incurred.

Loss of sales revenue: If sales decrease after a recall and the decrease is directly attributable to the recall event, this coverage will pay for the difference between what sales would have been and the decrease in sales, for a period of up to 12 months following the recall event. Note this is not loss of net income, which is different than loss of sales revenue (gross revenue). In the event of a major recall, this could be a very large number for a supplement company.

Customer loss of gross profit: Similar to the coverage for the insured company, this provides your customers coverage for loss of their gross profit as a direct and sole cause of the recall; legal liability of the insured company for the recall would have to be evident for the policy to respond.

Government recall: Largely in the interest of clarity, this endorsement states coverage for a recall ordered by a regularly constituted federal, state or local or administrative body is covered. Note, however (and this is important), actual contamination of the product would also have to have occurred to trigger the coverage; so a government recall without actual contamination is not covered. Malicious product tampering coverage can, however, be triggered under the policy without actual contamination of products.

Adverse publicity: Adverse publicity means the reporting of an actual or alleged accidental contamination during the policy period in local, regional or national media (including but not limited to radio, television, newspapers, magazines or the Internet) or any governmental publication where the Insured(s) and the insureds product(s) is specifically named. Example: there would have to be a newspaper article published that said “ABC Vitamins are contaminated with lead.” Coverage would not apply to products made for others under the third-party name (example: the branded products of others made by you for them).

Rehabilitation expenses: This coverage is for additional expenses incurred to restore the reputation and market share that existed prior to the recall. An example would be promotions such as “buy one product and receive two.”

Extra expense: Extra expense would reimburse the insured for expenses in excess of normal for the sole purpose of reducing the cost of the recall. An example is those extra costs to hire a contract manufacturer to manufacture replacement products to replace the recalled products, when the contract manufacturer that manufactured the recalled products is shut down for maintenance/compliance issues following the recall.

Defense costs: This means legal costs and other expenses incurred by or on behalf of the Insured in connection with the defense of any actual or anticipated claim. Defense costs only apply to defense related to a claim for coverage selected for inclusion in the policy. For example, if the Insured does not have loss of gross profit coverage and a claim is made for this coverage neither reimbursement nor defense costs would be covered.

Considering the number of exposures that can be covered, and the potential to rapidly exhaust the limit of liability of the insurance, one thing is clear: Buying a low limit of liability for this insurance is short-sighted. In the event of a serious contamination/recall event, a policy for $1 million (for example) is not going to last long. Companies that are serious about this protection should not only understand the coverage, but be willing to purchase a meaningful amount of coverage so the policy will act as a true safety net if and when it needs to be. Please feel free to contact us for more information or to obtain a quote.


What Is a Waiver of Subrogation?

So you just secured a great job with a major client and are all excited to go to work... Oops, you forgot to look at those insurance requirements didn't you? Don't worry, this happens quite a bit. However, it is important to understand insurance requirements and how they affects your coverage and possibly premiums before you sign contracts...

Now more than ever, companies are requiring complex insurance policy endorsements from their vendors in addition to standard coverage and limit requirements. It is not uncommon for a company to require a Waiver of Subrogation from any entity who performs work on their behalf or comes onto their job site. While most insureds simply ask their insurance agent or broker to add the appropriate language and endorsements to their Certificate of Insurance to meet a job requirement, you should understand how the Waiver of Subrogation affects their insurance coverage.

So what does subrogation mean? The easiest way to describe Subrogation is when it is practiced in the event of an auto accident. If you are in an accident and the other driver is at fault, your insurance company will pay to have your car fixed, and then they will collect from the at-fault driver’s insurance company to recover the amount they had to pay to fix your car. This practice is performed so the insured does not have to wait for a case/dispute to be settled prior to having their car repaired.

A Waiver of Subrogation is an endorsement that prohibits an insurance carrier from recovering the money they paid on a claim from a negligent third party. A client may require this endorsement from you to avoid being held liable for claims that occur on their jobsite. Most carriers can add this endorsement. Some will charge a fee to add so you  may want to consider this when bidding on jobs where it's required. 

A Waiver of Subrogation often comes in two different formats. The verbiage will either specifically name an entity that the carrier waives its’ right to subrogate against, or will be in the form of a Blanket Waiver of Subrogation. If a Blanket Waiver of Subrogation is provided, the carrier must obtain permission from the named insured to subrogate against a third party.

In summary, a Waiver of Subrogation removes an insurance carrier’s ability to recover the money paid on a claim from a third party. Your clients will ask for this to avoid finger pointing after a claim, but by adding a waiver of subrogation, you expose yourselves and your insurance more than you may want to. Therefore, it's important to talk to you broker about complicated insurance requirements. Have questions about this or other requirements you don't fully understand in your contracts, contact us for assistance!


What Does Insurance Subrogation Mean?

Insurance can be complicate. Claims can get even more complicated. Subrogation is a vital part of the claim process. The experts at Risk & Insurance and Engle Martin & Associates provide this great explanation of what exactly subrogation means:

Getting into the details early is one of the critical success factors for claims professionals in maximizing recovery of funds from a third party via subrogation. 

Subrogation may not be as high profile as risk management or underwriting in the insurance process, but it does fill a specialized - and highly welcomed - role: It recovers funds and helps reduce costs for insureds and carriers, delivering a direct impact on the bottom line in both cases. Subrogation, in fact, is second only to premiums in how insurance carriers bring dollars in the door.

Defined in the context of insurance, subrogation occurs after a claim has been paid and the carrier steps into the shoes of its insured to enforce a claim against a third-party tortfeasor responsible for actually causing or contributing to the loss. The end game is to offset claim losses by recovering funds from the tortfeasor or their carrier. Carriers will then be able to charge a premium commensurate with the risk leading to more accurate underwriting and potentially more competitive premiums.

Engle Martin Claim Administrative Services (EMCAS) - a third party claims administrator and wholly owned subsidiary of Engle Martin & Associates, a national independent adjusting firm - serves as a carrier representative in subrogation scenarios. According to Vivian Conley, Senior Subrogation Specialist at EMCAS, it’s unusual for a TPA to offer subrogation services that parallel the first party claim adjustment. However, EMCAS’ comprehensive approach to claims management includes subrogation as another way to go the extra mile for clients and their insureds.

“From the instant a claim comes in, we dig right into the details,” Conley explained, noting that her subrogation unit applies “tenacious pursuit” strategy to every claim it investigates.

“Even with no liability coverage on the part of the tortfeasor, we wouldn’t automatically close the file,” Conley explained. “We keep investigating because there may be alternative recovery sources.” For example, if someone is driving another owner’s uninsured vehicle and causes a collision and loss to a client’s insured property, the driver of the uninsured vehicle might have their own insurance policy that may provide excess liability coverage. READ MORE...



Another Year, Another Renewal: What to Discuss With Your Broker Before Renewal

January 1st is probably the most common renewal date for commercial insurance policies. Sure, it's a nice clean start date and works well with budgets, but it falls right at the worst possible time of year for you and your broker to talk about insurance. Halloween just ended, your sweating over where to go for Thanksgiving then you're hosting Christmas. Oh, and New Year's vacation is thrown right in there as well. 

By not accurately reviewing your insurance with your broker, you could be losing out on premium savings and filling valuable gaps in coverage that could be undiscovered until after a loss. Here are some things that you should be discussing with your insurance agent/broker well before your renewal (whether it's a January 1st effective date or not). 

1. Has anything changed? Did you merge or acquire another business? Was there a change in ownership? Did you alter your business operations since the last renewal? If you answered yes to any of these, your insurance broker and carriers need to know about it and underwrite accordingly. For example, if you are a toy manufacturer and decide to stop making your highest risk product, your premiums should go way down if that exposure has dropped dramatically. 

2. Have you hired or laid off employees? If you payroll has changed drastically, you'll want to tell your broker that as well. Your workers' compensation rates are based on projected payroll. If they don't know the payroll will double, you may be hit with a large audit that is hard to absorb. Conversely, if your payroll goes way down, you don't want to be paying twice as much for coverage and have to wait for an audit refund...

3. Did you reinvest in business property? Maybe you replaced all the office computers, servers, phones, desks or otherwise... A big jump in business personal property without telling your broker could create  gap in coverage and leave you at risk of a potentially having an uncovered or reduced paid claim. 

These are just a few of the common changes that can occur between your insurance renewals that need to be addressed. If you need assistance with your renewal, please contact us for a through review of these and other changes that need to be regularly assessed with your risk management team. Remember that an insurance review is never too early... However, it's always too late if done after a loss. 

From Snail To Scale... Are You Growing Your Business?

I always laugh about my first business venture. It's a great story, but also reminds me of valuable business lessons learned early. When I was 12 years old I was presented a interesting opportunity. There was a family acquaintance in Texas who was selling ceramic escargot culturing pots (I kid you not). His problem was that they don't have a lot of snails in Texas... I was contracted to collect snails, put them in empty milk boxes with enough food to be shipped back to Texas. I was to get 25 cents for the large snails, 10 cents for medium and 5 cents for small. Here are some of the lessons I learned about business and scaling:

1. Take care of your customers. I decided that I would pay for shipping since I wanted to make this as streamlined as possible for my buyer. This was a hard decision for a 12 year old, but with some guidance from my business savvy step-father, it made perfect sense.

2. Take care of your product. If snails died during shipment I would not get paid - simple. Therefore, I made sure to pack the milk containers with fresh lettuce and not over crowd my precious "es"cargo. I also paid for expedited shipping to ensure safe and fast delivery of goods. 

3. Maximize your opportunity (in other word - scale). After a couple of shipments, my buyer was very pleased, in fact he was in need of more snails. Unfortunately my turf was getting dry as I has scoured my neighborhood for snails at peak times. Therefore, I recruited some school friends as sub-contractors. I paid them 50% of the rate I was making and they we able to source their blocks to keep my shipments regular (we were also keeping the neighbors very happy by riding them of garden pests). One of the worst things that can happen in business is not being prepared to grow. 

4. Retain profits. It's easy for a 12 year old to take what might seem like easy money and blow it on baseball cards and video games... I was making approximately $75 per 2 week shipment depending on the pull and this went on for some time. I hate to sound like a geezer, but that was a lot of money at the time and for someone my age. I have always been money conscious and knew it would be smart to save most of my earnings. It was a good move. I bought Microsoft stock at age 13 and held (later, teenage me decided a car was more important than stock so I sold MSFT at age 17, but that's another story).  

Don't get me wrong, I'm no Warren Buffet or business guru. The point is that there are lessons to be learned from every level of business. Even a lemonade stand can implement the concepts above to be successful. Every business should regularly be thinking about how to scale their business appropriately for optimization. If you're not, I guarantee your competitor is. If you're in a field with no competition then YOU are the only thing holding you back. Sometimes even the snail business can move fast if you take the right approach. 

Guide To Workers' Compensation

All business owners with employees need workers' compensation insurance. Our partner carrier, Employers Insurance Group, put together this great informational piece on worker's compensation insurance basics. Please take a moment to familiarize yourselves with this vital coverage for your business. Contact our office if you have any questions.