As Cyber Threat Mounts, More Companies Take Measures

cyber attack protection

As attacks on businesses’ networks continue increasing at unprecedent levels, cyber risks have become the top concern among organizations of all sizes for the first time, according to a new survey.

The “Travelers Risk Index” found that 55% of executives surveyed said they worry “some” or “a great deal” about cyber risks. That’s more than they worry about medical cost inflation (54%), employee benefit costs (53%), the ability to attract and retain talent (46%) and legal liability (44%).

And the most common types of attacks, and which pose the biggest security threat to businesses, are phishing and fake e-mails. They are the hardest to combat because of the human factor involved, according to another survey, the “2019 Cyber Security Breaches Survey” published by the U.K. government.

In phishing e-mails, the cyber criminals will pose as colleagues or vendors to dupe an unsuspecting employee to hand over a password or click on a malicious link that will give them access to the company’s network.

In addition, ransomware has brought many businesses and government agencies to a standstill as the same technique is used to freeze an entire network and render it unusable until the company pays a ransom for a key to unlock the network.

As concerns about cyber threats have grown, more businesses say they are taking proactive measures to safeguard against cyber risks – even though a large percentage have not implemented preventive best practices.

The steps that companies are taking, according to the Travelers survey, are:

  • Purchasing a cyber insurance policy (51% of survey participants, up from 39% in the 2018 survey the insurer conducted).
  • Creating a business continuity plan in the event of a cyber attack (47%, up from 38%).
  • Taking a cyber-risk assessment for themselves (49%, up from 45%).
  • Taking a cyber-risk assessment for their vendors (41%, up from 37%).
  • Updating computer passwords (74%, up from 71%).

The fact is that a single cyber attack can put a company out of business. Taking the threat seriously and implementing a risk management program that addresses possible exposures can help a business not only avoid an attack, but also recover from one as quickly as possible.

How to lower the chances of an attack

The insurance company Chubb recommends the following steps to reduce the chances of a cyber attack on your organization:

Identify your sensitive data – Credit card and personally identifiable information is often the target of cyber attacks.

Educate your staff – Instruct your employees about cyber attacks and how to protect the network. The most important thing for them to remember is to not to open attachments from people they don’t know or in e-mails they don’t expect.
You should also post procedures for encrypting personal or sensitive information, and require them to change their passwords regularly.

Have security in place – You should have a web application firewall in place to protect your website, in addition to a firewall for your company’s network. If you accept credit card payments, you should have an e-commerce platform that is compliant with payment card industry data security standards Level 1.

Secure your hardware – Data breaches can be caused by physical property being stolen, too. If your servers, laptops, cell phones or other electronics are not secure and easy to steal, you are taking a big risk. Physically locking down computers and servers is a good idea.

Cyber insurance

As the cyber threat becomes more sophisticated and changes, cyber-insurance policies have evolved to meet businesses’ needs. There are many types of policies in the marketplace that are tailored for specific types of businesses. The key is getting a policy that best fits your organization and covers any eventualities that you may encounter.

Some coverages you may want to consider for inclusion in your cyber insurance are:

  • Business interruption – Covers the loss of business income due a cyber attack.
  • Computer fraud – Covers theft of money, securities and other forms of tangible property through computer fraud and social engineering schemes.
  • Data breach – Covers claims of failure to protect personally identifiable information and protected health information of clients.
  • Property damage – Covers replacement cost of computers damaged by a cyber attack.
  • Identity theft expenses – These are related to the business owner or their employees after identity theft.
  • Advertising and personal injury – Covers damage caused by defamation on website or social media.
  • Transmission of virus or malicious content – Covers failure to stop the transmission of a computer virus or malicious content.
  • Errors and omissions – Covers loss caused by failure to provide proper network security.

Some policies are stand-alone products, while others are endorsements to existing polices like a business owner’s policy.

Harassment Training Deadline Pushed Back for Some Employers

harassment training

As you should already be aware, any employer with five or more workers is required to conduct sexual harassment prevention training for their staff by the end of 2019 under a California law passed in 2018.

Due to concerns that many employers in the state may not be ready to comply, Gov. Gavin Newsom has now signed a bill into law that extends the compliance deadline for some employers.

Under the new law, SB 778, all employees, both supervisory and non-supervisory, must be trained by Jan. 1, 2021, which extends the deadline by a year.

The original law, SB 1343, required all employers with five or more staff to conduct sexual harassment prevention training to their employees before Jan. 1, 2020 – and every two years after that.

Prior to the law that took effect in 2018, employers with 50 or more employees were required to provide only supervisors with anti-sexual harassment training every two years.

Here are the new rules:

  • If you trained your staff in 2019, you aren’t required to provide refresher training until two years from the time the employee was trained.
  • If you trained your employees in 2018, you can maintain the two-year cycle and still comply with the new January 1, 2021 deadline. For example, if you trained your staff in November 2018, you would not have to train them again until November 2020.
  • If you trained supervisors in 2017 under prior law, known as AB 1825, you should train those employees this year in order to maintain your two-year cycle.

The deadline was not extended for employers of seasonal and temporary employees, who are hired to work for less than six months. Starting Jan. 1, 2020, these employees must be trained within 30 calendar days after their hire date or within 100 hours worked, whichever occurs first.

The rest of the law remains intact:

  • Supervisors must receive two hours of training and non-supervisory employees must receive one hour.
  • Training must take place within six months of hire or promotion, and every two years thereafter.

The reason the new law has been enacted is that employers who trained their employees in 2018 would need to train them again in 2019, resulting in those individuals being trained twice within a two-year period, which went against the spirit of the law.

SB 778 was essentially clean-up legislation to correct that problem by extending the training deadline under SB 1343 from Jan. 1, 2020 to Jan. 1, 2021 for those employers.

New Law Significantly Changes When Injuries Must Be Reported to Cal/OSHA

Injury claim report

Gov. Gavin Newsom has signed a measure into law that will greatly expand when employers are required to report workplace injuries to Cal/OSHA.

The new law, AB 1805, broadens the scope of what will be classified as a serious illness or injury which regulations require employers to report to Cal/OSHA “immediately. As of yet, there is no effective date for this new law, but observers say regulations will first have to be written, a process that would start next year.

The definition of “serious injury or illness” has for decades been an injury or illness that requires inpatient hospitalization for more than 24 hours for treatment, or if an employee suffers a “loss of member” or serious disfigurement.

The definition has excluded hospitalizations for medical observation. Serious injuries caused by a commission of a penal code violation (a criminal assault and battery), or a vehicle accident on a public road or highway have also been excluded.

The new rules

The new rules being implemented by AB 1805 are designed to bring California’s rules more in line with Federal OSHA’s regulations for reporting. Here are the new rules:

  • Any inpatient hospitalization (even less than 24 hours) for treatment of a workplace injury or illness will need to be reported to Cal/OSHA.
  • For reporting purposes, an inpatient hospitalization must be required for something “other than medical observation or diagnostic testing.”
  • Employers will need to report any “amputation” to Cal/OSHA. This replaces the terminology “loss of member.” Even if the tip of a finger is cut off, it’s considered an amputation.
  • Employers must still report any serious disfiguration to Cal/OSHA.
  • Loss of an eye must be reported.
  • Serious injuries or deaths caused by a commission of a penal code violation must now be reported.
  • While the exclusion for injuries resulting from auto accidents on a public street or highway remain in effect, accidents that occur in a construction zone must now be reported.

Compliance

Rules for reporting serious injuries and illness or fatalities are as follows:

  • The report must be made within eight hours of the employer knowing, or with “diligent inquiry” should have known, about the serious injury or illness (or fatality).
  • The report must be made by phone to the nearest Cal/OSHA district office (note that a companion bill, AB 1804, eliminated e-mail as a means of reporting because e-mail can allow for incomplete incident reporting).

Because of the “diligent inquiry” component, employers should monitor an injured worker’s condition once they learn of an injury, particularly if they need to seek out medical treatment. A member of the staff should be on hand to monitor the employee and report to supervisors immediately if that person will need to be hospitalized.

Employers should make sure that supervisors are made aware of the new rules so that any time a worker is injured to the point that they need to be hospitalized, they know to notify Cal/OSHA within eight hours.

Also, if you have an employee that suffers a medical episode at work – such as a seizure, heart attack or stroke – you are required to report the hospitalization to Cal/OSHA.

It’s better to err on the side of caution if an employee is hospitalized for any reason. Not doing so can result in penalties for failure to report or failing to report in a timely manner.

Accordingly, it is important to educate management representatives, particularly those charged with the responsibility to make reports to Cal/OSHA, about the nuances of Cal/OSHA’s reporting rules.

One final note: The results of a serious injury or illness or workplace fatality will usually trigger a site inspection by Cal/OSHA.

The Importance of Employment Practices Liability Coverage

law lawyer file

Every employer, no matter how small, faces the specter of being sued by a past, present or prospective employee at some time.

In fact, such employment practices claims are widespread – so much so that most businesses are much more likely to have an employment practices liability claim than a general liability or property loss claim.

Nearly three-quarters of all litigation against corporations today involves employment disputes, which can be extremely costly. The cost associated with an employment practices claim can be significant.

In 2018, the Equal Employment Opportunity Commission resolved 90,558 charges of discrimination and recovered about $505 million in remedies for discrimination plaintiffs.

In addition, the EEOC recovered nearly $70 million for victims of sexual harassment through litigation and administrative enforcement that year, up roughly 50% from $47.5 million in 2017.

The massive jump in sexual harassment claims and recoveries is a direct result of a surge in lawsuits since the start of the #MeToo movement, which has emboldened many victims to come forward and file complaints.

Keep in mind, the above are just penalties and do not include defense costs, which can exceed $100,000 per claim for employers.

For these reasons and more, employment practices liability insurance is crucial for any employer. The risks of being sued by an employee for discrimination or harassment have increased substantially, particularly now in the #MeToo era.

Employers need EPLI coverage because comprehensive general liability policies and workers’ comp policies exclude employment-related claims.

EPLI coverage

Policies cover:

  • Defense costs (court fees, attorney fees and related costs).
  • Payment of settlements and/or judgments up to the policy’s limits.
  • Any fines or penalties levied by government agencies.

EPLI policies cover business owners as well as directors, officers and managers. Some policies also cover employees. Additionally, you can buy third-party policies to cover claims brought by non-employees, such as clients.

Types of action covered include:

  • Discrimination based on gender, race, national origin, religion, disability or sexual orientation
  • Sexual harassment or other unlawful harassment in the workplace
  • Wrongful termination
  • Failure to employ or promote
  • Retaliation
  • Employment-related misrepresentation
  • Failure to adopt adequate workplace or employment policies and procedures
  • Employment-related defamation or invasion of privacy
  • Negligent evaluation of an employee
  • Wrongful discipline of an employee
  • Employment-related infliction of emotional distress

NOTE: Wage and hour claims, or disputes regarding overtime pay for non-exempt employees, have become more expensive in recent years, so most EPLI policies exclude this coverage. Business owners may be able to find endorsements to add wage and hour coverage.

Costs

EPLI claims can be extremely expensive. The average cost of a discrimination claim is $125,000, and 25% of judgments exceed $500,000.

Most businesses are wise to have at least $1 million in coverage. However, higher coverage limits increase your premium cost, so you want to balance your coverage needs and your budgetary concerns.

Call us if you want further information or need help in gauging your EPLI coverage needs.

Newsom Set to Sign in Sweeping Independent Contractor Bill

independent contractor

California Gov. Gavin Newsom has signed legislation into law that will codify a court ruling from last year that set new ground rules for what constitutes an independent contractor, and which expands on that ruling.

There’s been a lot written in the media about the legislation, AB 5, and unfortunately much of it misses the point. Some news reports have said it will spell the end of independent contractors in the state and that anyone a company hires to do a temporary job on contract must be treated as an employee, along with all of the obligations that go with that relationship.

Now that AB 5 is the law, state and federal labor laws will apply to independent contractors who have to be reclassified as employees. That means they would be afforded all of the associated worker protections, from overtime pay and minimum wages to the right to unionize. Employers would have to cover them under their workers’ comp policies, and extend benefits to them as they do to other employees.

The bill also gives the state and cities the right to file suit against companies over misclassification.

In its essence, AB 5 codifies and expands on a 2018 California Supreme Court decision that adopted a strict, three-part standard for determining whether workers should be treated as employees.

Known as the “ABC test,” the standard requires companies to prove that people working for them as independent contractors are:

  1. A) Free from the company’s control when they’re on the job;
  2. B) Doing work that falls outside the company’s normal business; and
  3. C) Operating an independent business or trade beyond the job for which they were hired.

The court explained that the first prong aligns with the common-law test for employment, evaluating the degree of control exercised by the company over the worker. The second prong examines whether the worker can reasonably be viewed as working in the hiring company’s business.

The third prong inquires whether the worker independently made the decision to go into business. The fact that the hiring company does not prohibit the worker’s engagement in such an independent business is not sufficient.

The bill will likely cause many industries to reclassify workers by allowing the state to enforce a stricter standard for independent contractors and freelancers.

Occupations affected

Below is a list of those occupations and the types of companies that would be affected:

  • Rideshare & delivery services – Like Uber, Lyft, DoorDash and Postmates
  • Truck drivers – Heavy duty trucks, Amazon delivery trucks, some tow truck companies
  • Janitors and housekeepers – Commercial cleaning services
  • Health aides – Nursing homes, assisted living facilities
  • Newspaper carriers – The bill’s author agreed to delay implementation by one year in a concession to newspaper publishers.
  • Unlicensed manicurists – Licensed manicurists will get a two-year exemption.
  • Land surveyors, landscape architects, geologists
  • Campaign workers
  • Language interpreters
  • Strippers
  • Rabbis

Occupations that would be specifically exempted by the bill include:

  • Doctors
  • Some licensed professionals (lawyers, architects, engineers)
  • Financial services
  • Insurance brokers, accountants, securities broker-dealers, investment advisors
  • Real estate agents
  • Direct sales (the salesperson’s compensation must be based on actual sales rather than wholesale purchases or referrals)
  • Commercial fishermen (exempt until 2023)
  • Builders and contractors (who work for construction firms that build major infrastructure projects and large buildings)
  • Professional services (marketing, human resources administrators, travel agents, graphic designers, grant writers, fine artists)
  • Freelance writers, photographers (provided the worker contributes no more than 35 submissions to an outlet in a year)
  • Hair stylists, barbers (provided that the person sets their own rates and schedule)
  • Estheticians, electrologists, manicurists (must be licensed)
  • Tutors (must teach their own curriculum, and does not apply to public school tutors)
  • AAA-affiliated tow truck drivers.

What employers should do

Legal experts recommend that employers:

  • Perform a worker classification audit, and especially review all contracts with personnel.
  • Determine which benefits and protections should be provided to any workers who are reclassified from independent contractor to employee (think health insurance and other benefits).
  • Notify any state agencies about corrections and changes to a worker’s status.

Discuss with legal counsel whether they should now also include them as employees for the purposes of payroll taxes, workers’ compensation insurance, federal income tax withholding, FICA payment and withholding.

New Experience Rating and Physical Audit Levels Set

workers' compensation, X mod, physical audit,

Starting in 2020, the threshold for California employers to be eligible for experience rating (X-Mod) has been reduced by order of the state insurance commissioner.

Commissioner Ricardo Lara in September approved the recommendations by the Workers’ Compensation Insurance Rating Bureau to lower thresholds for determining eligibility for experience rating and when a carrier needs to perform a physical audit of an employer’s payroll records.

The threshold for physical audits that takes effect for policies incepting on or after Jan. 1, 2020 will be $10,500 in annual premium, a drop from $13,000. This means that any employer with an annual workers’ comp premium of $10,500 or more will be subject to a physical audit at least once a year.

“Physical audit” is defined as an “audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form), as necessary to determine and verify the exposure amounts by classification.”

Additionally, the threshold for experience rating or to have an X-Mod, has been reduced to $9,700 in annual premium from $10,000.

The eligibility rating threshold is the amount of payroll developed during the experience period in each classification multiplied by the expected loss rates for each class. If the total for all assigned classes is at or above the threshold, then the employer is eligible for an X-Mod.

Changes to dual-wage class codes

The insurance commissioner in September also approved the Rating Bureau’s recommendations for changes to a number of construction dual-wage class codes.

While most workers’ comp classes have one rate, in some classes the difference in claims costs between high- and lower-wage workers is so great that a dual-wage classification is needed. In those cases, the workers above the threshold rate are assigned one rate, while those below that threshold are assigned a higher rate.

This is usually because the higher-wage workers are generally more experienced and tend to suffer fewer workplace injuries compared to those below the threshold.

The new thresholds are for 14 construction classifications, and any workers above the threshold will have a lower rate applied.

CLASSIFICATIONS AFFECTED         

Masonry – 2020 threshold: $28 per hour (+$1 from 2019)
Heating/Plumbing/Refrigeration – 2020 threshold: $28 (+$2)
Automatic sprinkler installation – 2020 threshold: $29 (+$2)
Concrete/Cement work – 2020 threshold: $28 (+$3)
Carpentry – 2020 threshold: $35 (+$3)
Wallboard application – 2020 threshold: $36 (+$2)
Glaziers – 2020 threshold: $33 (+$1)
Painting/Waterproofing – 2020 threshold: $28 (+$2)
Plastering/Stucco work – 2020 threshold: $32 (+$3)
Roofing – 2020 threshold: $27 (+$2)
Steel framing – 2020 threshold: $35 (+$3)
Excavation/Grading/Land leveling – 2020 threshold: $34 (+$3)
Sewer construction – 2020 threshold: $34 (+$3)
Water/Gas main construction – 2020 threshold: $34 (+$3)

Basics of a Strong Lockout/Tagout Program

Engineer check and control welding robotics automatic arms machine in intelligent factory automotive industrial with monitoring system software. Digital manufacturing operation. Industry 4.0

A lockout/tagout program will not be effective if your employees are not properly trained in how it works, and if you don’t have consequences for them if they fail to follow the program.

Every year, hundreds of workers in the United States die because they don’t follow lockout/tagout procedures or their employers did not have them in place – or, if they did, failed to enforce their rules.

Failure to train or inadequate training is one of the top-cited lockout/tagout violations by Cal/OSHA.

Improper training or failing to train all of your workers can have dire consequences, even for staff that are trained in procedures.

In this past year in California, two workers died because of inadequate training. One died on the job at a nut cannery because he had missed lockout/tagout training when he was on layoff.

In the other case, an employee at a clothing manufacturer was killed after a maintenance mechanic who had not been trained in lockout/tagout walked away when his co-worker entered part of the machine to remove finished product. The machine was de-energized but not locked out, and it started up when the worker entered it.

Under Cal/OSHA’s lockout/tagout standard, all authorized and affected employees, plus those who work in areas where energy-control procedures are used, must be trained on lockout/tagout procedures.

Training must include hazards related to:

  • Cleaning,
  • Repairing,
  • Servicing,
  • Setting up and adjusting prime movers, and
  • Machinery and equipment.

“Affected” employees include:

  • Qualified persons who lockout or tag out specific machines for such operations.
  • Those whose jobs require them to operate a machine. They must be instructed on the purpose and use of energy-control procedures.
  • Other employees include those whose work might be in an area where the procedures might be used. They must be instructed about the prohibitions on restarting or energizing machines that have been locked or tagged out.

HECP training requirements

The training provisions of the Cal/OSHA standard require that authorized employees be trained on hazardous energy control procedures (HECPs) and associated hazards.

Affected employees must be trained on the purpose and use of HECPs, and all other workers in the area must be instructed on the prohibition on attempting to restart machines which are locked or tagged out.

Pay especially close attention to training on controlling all sources of hazardous energy. That can sometimes require developing equipment-specific lockout procedures.

Turning off a machine is often not enough. It needs to be disengaged or de-energized. That’s because the control switch can still contain electrical energy. A release of stored energy can start the machine again briefly, but enough to cause serious injury.

If possible, you should also block out moveable parts during lockout/tagout procedures.

You also need to develop, implement and enforce a lockout program.

Cal/OSHA requires that employers must develop and utilize an HECP for cleaning, repairing, etc., and shall clearly and specifically outline the scope, purpose, authorization, rules and techniques to be utilized for the control of hazardous energy, and the means to enforce compliance, including:

  • Shutting down, isolating, blocking and securing machines or equipment;
  • Placement, removal and transfer of lockout/tagout devices;
  • Testing machines to determine the effectiveness of lockout/tagout devices; and
  • Separate procedural steps for safe lockout/tagout of each machine.

All workers involved in lockout/tagout should get their own locks. They should not use someone else’s lock, and they should not install or remove another employee’s lock.

One final bit of advice: Once a machine is locked out, the operator should try to turn it on again to see if it has been effectively disengaged.

As Wildfire Risks Increase, Insuring Businesses More Difficult

home wildfire

Business property coverage is getting more difficult to come by for operations located in areas that are susceptible to wildfires.

The devastating wildfires of the last few years, along with the thousands of homes and businesses that have been burned or damaged due to these events, has resulted in insurers becoming more selective about the properties they are willing to cover. This intense period of yearly wildfires has led to a record $12.8 billion in insurance claims.

As a result, some insurers have started non-renewing commercial property coverage in these high-risk areas – and others have just stopped writing new policies altogether. We are seeing renewals in wildfire-prone areas on a scale we’ve never seen before.

Companies that receive a notification that their insurer plans to non-renew their policies are faced with shopping in a market that is more selective and with insurers requiring that they take certain steps to better safeguard their properties.

What’s going on

More and more homes and businesses in areas susceptible to wildfires are at risk than ever before. The fires are becoming more frequent, hotter and more widespread. Insurers have had to pay out record amounts in fire claims during the last few years, which has taken its toll on many of them.

Some insurers are non-renewing property policies of all sizes in high-risk areas, and the practice has become widespread.

Typically, insurance companies are applying three metrics in evaluating exposure to fire:

  1. Brush mapping – This is a map of the tinder and brush, nearby trees and other natural items that could contribute to your building(s) catching fire. The insurer will use the mapping to see if you are keeping up your property by removing combustible materials from the perimeter and limiting the amount of shrubbery and trees.
  2. The nearby wildland-urban interface – The closer that a building is to wildlands (open spaces with combustible materials), the more likely it is that insurers will balk at writing the policy. A wildland-urban interface is defined by the Forest Services as a place where “humans and their development meet or intermix with wildland fuel.” Communities that are within a half a mile of the zone are included.
  3. Concentration of other properties an insurer covers in your area – If your insurance company already writes policies for many other businesses and homes in your area and they feel they have too much risk concentrated in that zone, they may opt to non-renew policies in order to reduce their exposure.

While we can sometimes work with an insurer to have the property owner clear brush and take measures that would reduce the chances of their property catching fire to satisfy the brush-mapping metric, it’s more difficult to negotiate about numbers two and three.

The options

If you have a business in a wildfire area and your insurer plans not to renew your coverage, and if other companies are not willing to underwrite your policy, we can help you find new coverage. If no admitted insurers (those that are licensed and regulated in California) are willing to cover your building, we have two options:

The non-admitted market – These insurers are not licensed to do business in California, but we can still use them to write policies for businesses. These insurers, which includes Lloyd’s of London, are usually willing to write buildings in higher-risk areas, but they too have increased their underwriting criteria.

The California FAIR Plan – If we are unable to find an insurer in the admitted or non-admitted market, the last choice is FAIR Plan, which is the state-run market of last resort for homeowners and commercial property owners that cannot get coverage in the regular market. Commercial policies are available for:

  • Buildings with five or more habitational units (e.g. apartment buildings, hotels, motels, or home-sharing services such as Airbnb)
  • Retail mercantile
  • Manufacturing risks
  • Office buildings
  • Residential or commercial buildings under course of construction.

Policies cover losses from fire, lightning, and explosion only. Also, policies are limited in what they will pay out, so if you have millions of dollars tied up in equipment and/or inventory, the policy may not be enough to cover all the damage you incur from a wildfire.

The maximum limit for commercial properties is $3 million for structures and $1.5 million for all other coverages, for a combined $4.5 million limit for all commercial properties at one location. But there are some exceptions.

What we can do if you go to the FAIR Plan

If the FAIR Plan coverage is not enough coverage or falls short, we can find another insurer that provides excess coverage that would kick in at a certain dollar amount of damage.

And for the aforementioned risks that are not covered, we would have to also find you a “differences in conditions” policy. Combined with FAIR Plan coverage, adding such a policy can nearly mimic the coverage of a commercial or homeowner’s policy.

CALIFORNIA: Bureau Recommends Workers’ Comp Rates Drop 5.4%

graph growth

Workers’ compensation insurance rates will likely continue sliding in 2020 after California’s rating agency submitted its recommendation that the state insurance commissioner reduce the average benchmark rates by 5.4%.

If the recommendation is approved, it will be the ninth consecutive rate decrease since 2015 (some years had two decreases), which have resulted in the average benchmark rate for all of California’s class codes falling a combined 45% since then.

The Workers’ Compensation Insurance Rating Bureau, which made the filing, said that average claims costs continue falling due to the effects of reforms that took effect in 2014. Rates are still declining because:

  • Claims cost development continues falling.
  • Claims are being settled more quickly.
  • Average pharmaceutical costs continue falling sharply.
  • The number of liens on claims continues dropping.

Offsetting those positive trends are:

  • Increases in cumulative trauma claims (particularly in Southern California).
  • Rising individual claim costs.
  • The cost of adjusting claims is increasing.

The Rating Bureau tracks workers’ comp costs in the state and makes the recommendations for changing the benchmark rates, which insurers use to price their policies. Every class code gets its own rate, which will change depending on the trends in claims costs and numbers for that class code.

Insurers use the benchmark rates as guideposts for pricing their own policies, but in the end, they can price the policies as they wish.

After using the benchmark rate, insurers will add surcharges for various classes or regions, and add on administrative costs to arrive at their own rates. Also, rates will not fall for all employers.

Rates depend on a number of factors, including an employer’s claims history and region. Policies in Southern California, for instance, are often surcharged because of the amount of cumulative trauma claims filed in the region.

The Rating Bureau will review accident-year experience valued as of June 30 once it has the figures, and it could amend the rate filing later. The state insurance commissioner will hold a hearing on the rate filing in September or October, and then make a final decision on the rate change.

What to do

Just because rates have been falling, employers should not waver in their focus on safety.

Here are some mistakes to avoid:

Becoming complacent – Falling rates act as blinders for many employers. When the cost of your workers’ comp policy continues declining, it’s easy to shift focus away from workplace safety, injury management and cost containment to other business matters. This is a mistake and can cost you in additional workplace injuries.

Focusing on just workers’ comp premiums – Premiums are only part of the cost of workplace injuries. Indirect costs – including overtime, temporary labor, increased training, supervisor time, production delays, unhappy customers, increased stress, and property or equipment damage – represent several times the direct cost of the injury.

Expecting rates to stay low forever – Workers’ comp rates always follow a cycle of increases and decreases. As rates fall, employers reap the benefits in lower costs, but their attention to workplace safety may wither and then overall claims numbers and costs start increasing and/or reforms erode, starting a cycle of increasing rates. The key is to ride the low rates for as long as you can through unwavering attention to workplace safety and claims management.

Chasing low rates – One benefit you have from working with us is continuity, and jumping ship to another broker just to save a few thousand dollars on your premium is not always a smart choice, particularly if the new brokerage is not involved in helping you keep claims costs low.

A Lesson in Timely Claims Reporting

file claims

A recent appeals decision denied coverage to a company on its directors and officers (D&O) liability insurance policies for taking too long to file the claim.

In this case, the 5th U.S. Circuit Court of Appeals in New Orleans sided with an insurer that had denied a claim a company had made after being sued for failing to pay overtime wages to nonexempt employees.

The insurance company had denied the claim because the first employees’ claim was made in August 2014, but the company failed to inform the insurer of that and subsequent claims until September 2015.

This case illustrates the importance of filing claims in a timely manner.

When the employer actually got around to filing the claim it had an in-force D&O policy with the insurer, although there was an earlier policy in force when it had received the first claim of failing to pay overtime.

Under the policy in force at the time of the first claim, the insurer would have been obligated to pay all claims made against the company under the policy.

“That earlier policy would have provided coverage except that the insured failed to comply in 2014 with a notice provision. We conclude the district court was correct to rely on this difference,” the three-judge panel in the appellate court wrote in an opinion that upheld a lower court’s ruling.

Timeliness

One of the critical obligations of an insured is the duty to timely report claims or circumstances that may give rise to a claim. Failure to report a claim in accordance with the policy requirements can result in a claim being denied, or worse, having the entire policy voided.

D&O policies are “claims made” policies, meaning that coverage exists only for claims made during the time period the policy is in effect. Claims made while no policy or extended reporting period are in effect are not covered.

Claims-made policies also have retroactive dates. Ideally, the retroactive date is the day the insured started business, but it can also be the day that it first purchased professional liability coverage.

Assuming the retroactive date has not been advanced, the policy in force when a claim is made is the policy that will respond, regardless of when the negligent act, error or omission took place.

However, there is one important qualifier. This insurance applies to claims that took place after the retroactive date, but prior to the end of the policy period, provided that the insured had no knowledge of the claims prior to the effective date shown in the declarations.

In other words, if you knew of a claim prior to the time you renewed your claims-made policy but did not report it, and if a claim is subsequently made, the insurance company can deny coverage. It doesn’t matter whether or not it’s been continuously renewed by one insurance company, the policy excludes it.

This underscores the importance of timely reporting of all claims prior to renewal each year.