Data Breach. California’s new Law

Data Breach. It’s in the news constantly, and there is much confusion about what it is and how much damage it can cause small businesses.

Some of the statistics are staggering, and the false sense of security that the majority of small business have is as staggering.

According to a survey completed in 2010 by Symantec, 73% of small and midsize companies experienced a cyber attack in the past year.  The average cost of cyber attacks last year were $188,242 for small and medium-sized businesses, with down-time costing some small firms $12,500 per day.

According to the Ponemon Institute (2011), data breach incidents cost U.S companies and average of $214 per compromised customer records.

So the financial cost is high. But as troubling is that in the Symantec survey, 85% of owners said their companies were safe from cyber threats; yet 77% had NO formal written internet security policy, and of those, 49% did not even have in INFORMAL policy!

Larger companies are shoring up their defenses, and these unprotected small businesses are now the low-hanging fruit for the cyber criminal.

Next month the FCC will launch the Small Biz Cyber Planner, a new online tool to help businesses customize and create cyber security plans. This is currently being developed as part of collaboration with the FCC and private IT and Security firms, such as VISA, Symantec and the NCSA.  For now, the FCC has released a tip sheet that can help bring more awareness – www.fcc.gov/cyberforsmallbiz.com

An additional step after you implement a cyber security plan is to transfer some of this risk to an insurance company. Today there are more and more new products available to the small business to help mitigate the risk of data breach, and the lawsuits that may stem from these attacks. Even a well implanted plan can fail, largely due to human error. Many of these claims result from a simple mistake. An employee might misplace a laptop, blackberry, or leave them in an unsecured location, such as an unlocked car.

Federal or state law may mandate that your company take (and bear the expense of) certain measures in the event of a security breach.  Here in California, SB 24 was signed into law and will take effect January 1, 2012.  Enacted to protect consumers from identity theft, the bill establishes content for data breach notifications to consumers which must include;

• A description of the breach incident
• What type of personal information was breached
•  What time the breach occurred
•  Contact information for the major credit reporting agencies in California.

The new law also requires that the California Attorney General be notified if a single breach affects more than 500 people.

If we use the average of $214 per consumer, times 500, you are already over $100,000 in expense. The potential loss can greatly exceed this.

With all of the new data and cyber policies available, and this new law starting in January, getting proper coverage has never been more important.

Talk to you agent about how best to protect your company. The hackers are out there and its easy picking’s.

When the Lights go Down in the City

With fall upon us, and in climate weather around the corner, I thought I would mention a real cheap and effective safety tool that can be used in the home.

Many businesses have battery-backed automatic floodlights that illuminate an area when power has been cut to that building. Safety lights are very common in commercial buildings, as well as residential buildings and school dormitories and are most often situated in areas like stairwells and common halls, for safe exiting.

 

 

Now there is a very good and inexpensive way to accomplish this in your home.  Companies like Eveready, Rayovac and Eton have made  small rechargeable LED lights widely available – Home Depot, Walgreens and Amazon have a variety to choose from.  These lights are compact, usually rechargeable LED lights that you plug into any wall socket. When power is cut to that socket, the lights automatically illuminate. Many of the small lights offer sufficient lighting , usually 10-15 lumens and are perfect for bedrooms and hallways.  For homes that have children, or adults that are elderly, the worry of things going bump in night is greatly reduced.  I purchased these lights and have them situated for evacuation and to lessen the fear of total darkness for my children.  Another positive attribute is the low cost – you can get them from $10 and up.

 

Grab a few, plug em in, and know you have a light when you need it

Cost of Managment Liability insurance on the rise

Just a quick note this time. We have been seeing some pricing increases in Employment Practices Insurance, and Directors and Officers coverage for California businesses.  Rates are increasing, deductible options are being forced higher, and the available marketplace for business in California for these lines are shrinking rapidly.  As recently as 6 months ago, we were able to get multiple quotes, with multiple options, like deductible limits, choice of Law firms, etc. Today this is not really an option. Carriers are pulling out of California for EPLI and D&O and its impacting the amount of available coverage. The fact that we are seeing increases here, just underscores the need for these 2 types of coverage.

So expect some rate increases!

iPhone insurance – is there an app for that?

Now that the new IPhone 4S is here, we can all rush out to purchase the new technology with a new 2 year contract!

Among the downsides of locking into a 2 year commitment with your phone company, is what to do if your new phone gets stolen, broken, or accidently flushed down the toilet! Since you are locked into contract, if you want another iphone, you are going to have to shell out more that $600 to be able to text to your heart’s content.

Smart phones are more and more prevalent today, and many of us  rely on them daily. Some homeowners and renters insurance carriers will add coverage to smart phones and other mobile devices  for very small premiums – some as low as $15 per year, with no deductible.

Turning in multiple claims for small amounts like an iphone is not necessarily a good idea long term (read Big jump in homeowners rates!) it is something that may come in handy on occasion.  As we often suggest, talk to your insurance agent about your situation, and have them see if in fact your carrier can add this coverage for you.

Insurance for my Pit Bull?

Just a few weeks ago there was another  tragic loss of life here in California, involving a pit bull attack. We have discussed the prevalence of dog bites, but today we want to discuss insurance implications when you have a dog that is considered a big/problem animal. Most insurance companies will not insure a home that has one of the following dogs;  Akita, Alaskan malamute, Pit Bull, American Staffordshire Terrier, Bull mastiff, Chow Chow, Doberman Pinscher, Presa Canerio, Rottweiler, Staffordshire Bull terrier, Any wolf/hybrid, or any mix of the aforementioned breeds.  So even if you have a dog that is a Golden retriever and an Akita mix, you will have trouble getting coverage.

We have been asked another What if… scenario – What if I purchase a homeowners policy and then after I get a Pit Bull, and it bites someone?    Each company will handle this differently, but a common answer  we revciecved was that the insurance carrier will do an investigation as to when the dog was purchased. If this was an honest mistake, and the owner just forgot to notify the insurance company, the carrier will pay the loss, then non-renew the insurance policy.

As is often the case, the best thing to do is to communicate this information to your agent. Not all insurance companies are the same. One of our carriers will consider insuring a home that has a dog on the above list, but they would have to prove the animal was not a risk.  They would have the dog go to a temperament evaluation preformed by the North American Kennel Club (NAKC) If the dog gets a certificate, they will insure this risk.

Apartment Building Owners – beware of dangerous insurance issue!

There have been recent industry comments and opinions indicating that there will be some hardening (increased pricing) in the next three quarters for property and liability insurance. This is usually driven by the reinsurance market (insurance for the insurance companies) and they have been reporting less capacity and larger payouts in some of the worlds catastrophic events.

 

With hardening of the insurance marketplace often comes some coverage restriction. This is usually done by the insurance companies by way of endorsing a policy with amendments that carve out coverage or limit the amount of risk that a carrier is contractually bound.

 

One very recent development in the Habitation insurance marketplace really warrants some careful review. In policies that cover Lessors risk buildings (usually apartments for rental income) many carriers are now endorsing their coverage with just such an exclusion. It is called a Habitability Exclusion and it strictly excludes any liability coverage (including all legal defense) from claims arising from alleged or actual violations of any health and safety, civil or federal law as it pertains to habitability. The insurance companies are defining habitability to mean – safe living environment and/or fit for occupancy by human beings in a sanitary, healthy, habitable and tenantable condition.

Now this is as usual, nice and vague, but what the companies are trying to do is to not cover any claims that arise from poor upkeep conditions of the apartment – rats, garbage, cockroaches, and the new hot button – bedbugs.

This endorsement is being used by more and more carriers, and I have talked to others that are carefully reviewing this and some that are in the process of scripting their own exclusion. The danger here, is that if this exclusion is on your policy, the carrier will not even defend you in a suit that alleges poor upkeep. And because there is not a clear defined explanation of what is “sanitary” or “habitable” or “tenantable” there will be many grey area claims. Insurance companies have told me that they have seen a rash of these claims lately – akin to last year’s rash of ADA claims. I know of at least one law firm that is combing the streets of San Francisco, talking to tenants looking for claims, and looking to parlay them into a class action.

 

We always, always encourage everyone to read your policy, but if you own a rental income property, look at the entire policy and make sure you do not see this exclusion. We also recommend that you stay up to date with information from the waste management company that services your building and to contract the services of a pest control firm. Our agency has arranged for preferred pricing from certain pest control vendors and can refer you to one that may be in your area.

Love is in the Air

According to a recent poll conducted by insurancequotes.com, almost 1/3 of all drivers kiss or engage in some type of romantic behavior while behind the wheel!

Interestingly, the number climbs to almost 40%  for college grads and high income drivers.

 

The poll revealed that over 90% of all drivers that responded participate in some distracted driving – texting, talking on the phone, or even kissing.

Federal statistics indicated that 16% of fatal crashes in 2009 were attributed to distracted driving.

 

So don’t Kiss & Drive!

Deny, Deny Deny.

Today the Institute of Health and Social -Economic Policy issued a report today that illustrates just how far off track our current Health Care system is.

California’s largest, private health insurers rejected 26 percent of all claims –13.1 million — submitted for the first three quarters of 2010, according to new findings by the Institute of Health and Socio-Economic Policy, the research arm of California Nurses Association/National Nurses United.

According to the report, claims denial rates by the state’s leading insurers included:

• PacifiCare — 43.9 percent
• Cigna – 39.6 percent
• Anthem Blue Cross – 27.3 percent
• HealthNet – 24.1 percent
• Blue Shield – 21.9 percent
• Kaiser Permanente – 20.2 percent
• Aetna – 5.9 percent

Since 2002, these seven firms, which account for more than three-fourths of all insurance enrollees in California, have rejected 67.5 million claims, the report said. Claims denials generally refer to insurance payment rejections.

Cigna, which denied 40 percent of claims, showed the biggest increase from 2009, increasing its rejection rate by 5.3 percent. Kaiser Permanente accounted for the biggest drop, a one year decline of 7.4 percent in denials. Blue Shield, which has attracted recent notoriety for its individual premium rate hikes of up to 59 percent, slightly increased its denial rate by 0.3 percent from 2009.

“These rejection rates demonstrate one reason medical bills are a prime source of personal bankruptcies as doctors and hospitals will push patients and their families to make up what the insurer denies,” said CNA/NNU Co-President DeAnn McEwen. The national reform law signed by President Obama last spring has, to date, had no impact on the high pace of insurance denials, she noted.

“The denials also illustrate the appalling degree of bureaucracy in a wasteful system; for all the handwringing about ‘government,’ health care, a real public program like Medicare is far less wasteful than the bloated private system that so casually rejects such a high number of medical claims,” McEwen said.

CNA/NNU research director Don DeMoro notes the insurers fail to distinguish between “eligible” and “ineligible” claims denied in data they provide the state. And, insurers can choose from a broad list of “ineligibility” criteria offered by the state including disputes over contracts, interest or late payments, benefits “not covered,” and court disputes.

 

Source: CNA/NNU

Top 5 Issues likely to impact Workers Compensation rates

With the past few years of workers compensation reform/rate reduction and the shift in focus to the health care reform issues, workers compensation has quietly fallen off the radar screen. However – there are some things to keep an eye on, as these 5 items can and will shape the coming rates. From our vantage point, the workers compensation carriers are naturally looking for ways to increase rates and increase profits, and these are the areas of concern as we see it.

1.      Medical costs continue to rise

It’s in the news everyday – health care needs to be overhauled and insurance companies are looking to dramatically increase rates each year. Headlines abound. On top of this, the National Council on Compensation Insurance (NCCI) released a statement showing that medical costs of lost-time workers’ compensation claims continue to grow at a faster rate than the medical consumer price index and now represents 58% of claims. In another study, claims involving injuries that don’t have clearly defined treatment pathways are leading to higher costs than those injuries that do. Think of a soft tissue injury (low back pain for instance) vs a fractured tibia. One has a strict protocol, whereas the other can be treated with pills, needles, chiropractic therapy, massage, and other items featured on late night TV ads.

The American College of Occupational and Environmental Medicine has published A Guide to High-Value Physician Services in Workers Compensation – how to find the best available care for your injured workers. It offers some helpful guidelines in finding physicians well versed in workers compensation injuries. http://www.acoem.org/uploadedFiles/Policies_And_Position_Statements/Guidelines/Library_and_Reference_Material/A%20Guide%20to%20High%20Value%20Physician%20Services.pdf

2.      Injured employees are staying out of work longer

The economic downturn has hit almost all of us. Also in the news daily are companies implementing hiring freezes, downsizing and even closing the doors completely. With fewer job prospects, we see fewer return to work opportunities. The NCCI is also seeing trends in longer disability payments, translating into more lost work days. They attribute this to economic conditions, including fewer return to work opportunities. Faced with fewer job prospects, employees have little incentive to get well, when they can just stay home and collect workers compensation benefits. As an employer, if you have a relationship with a clinic or a qualified doctor specializing in workers compensation claims, and a good Return to Work policy, you may be able to lessen this impact.

3.      Misclassification of Independent contractors

Both federal and state agencies have increased enforcement activities dramatically this past year around the topic of classifying employees. Everyone wants to call their employees “independent contractors” for obvious reasons, but with gaping state and federal budget deficits, this is an area of real concern. Kevin Strain, a CPA from Sensiba San Filippo LLP advises “if you do use independent contractors, that you examine the relationship and can support the position.  The IRS knows this is a big issue and is aggressively on the lookout for violators.  The impact is severe and would require pay back of all withholding taxes with interest and large penalties.”

The government is currently estimating that as many as 3 million workers are misclassified costing the Federal government over $4 billion! States are also looking hard at this issue. The Department of Labor forced employers to pay $6.5 million in back wages in 2010 vs $2.6 million in 2009. Lastly according to Littler Mendelson, there was a 50% increase in worker class action lawsuits against employers relating to independent contractors last year. This mess is not going away. Do yourself a favor and get very friendly with a qualified tax advisor.

4. OSHA

Our friends at OSHA significantly increased its enforcement activity last year. Armed with a vigorous agenda, additional staff and increased funding, OSHA is looking for violators with vigor now. OSHA’s top 10 cited violations remained mostly unchanged, with the top 3 violations ( scaffolding, fall protection and hazard communication) all keeping the same position for the past 3 years. Fines however continue to climb, with many $1,000,000+ penalties. Interestingly, CalOSHA’s list is a little different – the top 3 are airtanks, IIPP’s and lockout/tagout.

The trend for 2011 is increased activity, especially in the IIPP area as we have discussed previously

 

5. Technology – social media and telecommuting

Facebook recently took over the #1 spot from Google and the rise in popularity poses a myriad of problems for today’s businesses.

We recently discussed the problems in the area of using these social media sites and the legal challenges HR people face in hiring. There is much information out there that was not accessible to us in days of old. The legal landscape is still being carved – there was a recent New York case in September of 2010 involving a posting on facebook that lead to an arrest and conviction of stealing almost $9000 in workers compensation benefits. The ability to peek into our lives has never been as pervasive as it is today, and how this all pans out will affect many areas of insurance.

 

With the advances of technology, the telecommuting option is easier than ever. It has advantages for both employee and employer, however the employer has little control over the employees home office. Ergonomic issues are popping up with more frequency. Employers today need to know how to train remote employees properly to do their job safely and remain injury free.

 

As these issues evolve, they will undoubtedly impact the workers compensation marketplace. These 5 areas potentially can greatly influence future pricing. As it unfolds, we will keep you informed.

Construction Insurance Pitfalls

The insurance marketplace for construction liability is still pretty “soft” (read cheap!) and there are still many different carriers offering many different types of general liability policies. We are hearing some grumblings that the market is starting to harden and many of the carriers are trending to move in the direction of Workers Compensation, with small increases but there are still great options out there today.

However, with the soft market comes really soft coverage. We are seeing some really dangerous forms out there that can greatly restrict the scope of coverage or the length of coverage. And for a contractor, this is critical.

One example of the restricting the scope of coverage – we have as recently as last month received a quote for an OCIP or Wrap policy with a price of roughly $6000 per door! Sounds great right? Well, this inexpensive wrap quote comes with a hidden gem – defense is included inside the limit of coverage. This is quite a gem indeed – in the event of a large loss, (one that would hit the limit of coverage, usually $1,000,000)  the cost to defend this large claim usually runs in the 40% range. If there were to be a large loss like this, the cost to defend you comes out of the $1,000,000 limit you purchased leaving only $600,000 or so, to pay your judgment of $1,000,000.  Too much out of pocket for most of us.

And remember, this Wrap covers all contractors on the project for a 10 year statue of repose (approximately from completion of the job). If you are in the market for a Wrap, make sure you have a policy that has DEFENSE OUTSIDE THE LIMIT, and really consider the length of time you need the protection before you decide on the limit you purchase.  (Hint – buy more than $1,000,000!)

Another trend that just won’t go away are policies that contain either a Sunset clause or a Manifestation exclusion. Neither of these forms should be on any contractors policy. They are designed in favor of the insurance company to restrict the window of time to have a claim be covered. I have seen 3 and 5 year sunset clause polices recently – this only give you 3 or 5 year of coverage on a completed project, when in most states you are legally on the hook for 10!

The Manifestation clause, like the Sunset clause vary in language and scope, but was essentially designed to preclude coverage for bodily injury or property damage that took place before the policy period, even if you did not know the injury or damage had taken place and even if the injury or damage was continuous or progressive. This policy is usually the cheaper of the 2 and you can see why. No coverage for work you did on that bathroom remodel you did 4 years ago!  Do yourself a favor – if you are contemplating purchasing a policy with either of these forms endorsed to the policy, just save your money and invest it elsewhere. These policies have no place in a responsible contractors risk management program.

Bottom line on this –  take the time to find a qualified insurance broker, and read the policy.