July 2009

The underlying intent of insurance is to cover larger or significant losses, not minor ones. By sharing risk with the insurer via a deductible, the expensive costs of adjudicating minor losses are avoided, which translates into premium savings. Of course, your deductible also reduces the amount paid by an insurer for the claims you do file, which provides another basis for an insurer to lower your premium.

Most business people understand that a higher deductible results in a lower insurance premium. However, there are several vital points to consider before opting for a higher deductible:

How much risk are you willing to bear?

Not every business owner has the same tolerance toward risk. Risk acceptability should be premised on the general practice of others in your industry and your business’ current and projected cash flow predictions.
Insurance coverage with a higher premium / low deductible might appear to be more expensive and less tempting in the short-term. However, the psychological impact of a significant loss while possessing coverage with a lower premium / high deductible could have serious consequences to your bottom line when you actually suffer a significant loss.

You have to weigh carefully the pros and cons of what you can pay in premiums versus how much deductible you’ll have to absorb in the event of a significant loss.

Not all deductibles are equal.

Savings on premiums are not necessarily proportionate to higher deductibles. Although a $1,000 deductible might save you $200 in monthly premiums and a $2,000 deductible saves you $400 in premiums, a $3,000 deductible might only result in a $450 premium saving which is a smaller ratio in terms of costs versus benefits. The ratio of premium savings relative to higher deductibles will vary among insurance carriers. Consult with our insurance brokers to secure coverage which not only offers the best insurance benefits to cost ratio, but which is practical to the financial realities of your business.

Also, deductibles can be applied differently for different types of policies. The most common deductible types are:

• Aggregate Deductible – the most common type of deductible you will find on a Commercial policy. This refers to a single deductible which applies for all losses during the policy period. If you have $18,000 in total claims and an aggregate deductible in the amount of $7,500, then you would receive $10,500 from your insurance carrier.
  Straight Deductible – the deductible you will pay for each and every claim you make during the policy period. Were you to have a straight deductible for your fleet and you incur three collision claims, then the ascribed deductible would be applied separately to each of the three claims.

Before considering a deductible change, be sure to consult with one of our insurance brokers to fully understand your options.

One of the most significant federal laws of the last 20 years is the Americans with Disabilities Act of 1990. This law’s purpose is to provide full economic opportunity to disabled individuals without discrimination. It forbids employers from discriminating against them on the basis of their disabilities. The law has had a major impact on employers’ practices in job application procedures, hiring, job placement, compensation, promotions, terminations, and other areas. It has also been the source of much litigation against employers. The Equal Employment Opportunity Commission reported that it received nearly 140,000 ADA-related complaints in one seven-year period.

Some employers have worried about the ADA’s apparent effects on hiring and placement of workers. The law appeared to prohibit them from evaluating workers’ physical limitations when deciding their fitness for jobs. Some employers interpreted it to mean that they had to change a particular job to fit a disabled applicant. However, the law exempts an employer from having to do this if placing the person in the position would pose a “direct threat” to himself or other workers. A direct threat is “a significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation.” Because of this provision, employers have not had to make unreasonable job modifications for disabled workers.

In addition, an employer has a variety of hiring and placement procedures available under the law. For example, the employer may still test for drug use. The ADA does not protect a worker’s use of illegal drugs, and the employer may deny or terminate employment for their use. Also, an employer is within its rights to ask about an individual’s abilities. It can require a medical examination of an individual so long as it does so for all applicants for similar jobs. If the person cannot perform the essential functions of the job, the employer does not have to hire them. The employer may also ask an applicant to perform a job demonstration. This technique provides a simulated environment where the applicant can show how they would do a job. It can be useful when applicants have obvious disabilities that appear to interfere with safe and efficient job performance.

Regardless of how an employer conducts its personnel practices, it is always vulnerable to claims of discrimination under the ADA. To protect themselves against financial loss from such claims, employers should consider purchasing Employment Practices Liability insurance (EPLI). This insurance covers an organization’s liability for “wrongful acts,” including discrimination. Most policies define discrimination as including violations of federal, state and local laws that give protected status to certain individuals. Because of these provisions, EPLI policies should cover employers for damages they must pay as the result of violations of the ADA. In addition, the policy will pay the costs of defending the organization against the claim, even if the claim is groundless.

EPLI policies cover claims made during the policy period, but only if the alleged wrongful act occurred on or after a specific date, known as the “retroactive date.” For example, a policy written for the period January 1, 2008 to January 1, 2009 and with a retroactive date of January 1, 2004 will cover a claim made on November 1, 2008 for an act that happened on July 1, 2006. It will not cover a claim made on the same date for an act that happened on July 1, 2003. There is no standard EPLI policy, so the policies will vary by company.

Modern employment laws like the ADA can easily trip up even a well-meaning employer. All organizations should consider buying an EPLI policy. Contact us with any questions about this vital coverage!

In the current weak economic environment, competition for jobs is intense. There might be dozens of candidates for each job opening, and hiring companies will have their pick. Even in times like these, however, employers must be vigilant about obeying the law when they make hiring decisions. Charges of illegal discrimination in hiring can become more likely during a tough job market. It is essential that employers follow federal and state laws that regulate what factors they may consider in the hiring process. Those who focus on the wrong things could find themselves the targets of government inquiries.

Several federal laws address discrimination in hiring:

• The Age Discrimination in Employment Act prohibits an employer from refusing to hire, firing, or otherwise discriminating against employees age 40 or older, solely on the basis of age. For example, it is illegal for an employer to offer a benefit such as vision insurance to younger workers but not to older ones.
• The Americans with Disabilities Act of 1990 forbids discrimination against disabled workers or job applicants. Under this law, an employer cannot refuse to hire a person who has difficulty walking solely on that basis; the employer must have another, legitimate reason.
• The Civil Rights Act of 1964 prohibits discrimination on the basis of race, color, national origin, religion, sex, pregnancy, sex stereotyping, and sexual harassment of workers. Decades ago, an employer could fire a woman for becoming pregnant. The Civil Rights Act outlawed such actions.

Although these laws have been in effect for several years, some employers still try to get around them. In 2008, the federal Equal Employment Opportunity Commission leveled penalties against employers in the amount of $83 million for age discrimination; $57 million for discrimination against disabled workers; $12 million for discrimination against pregnant women; $79 million for race discrimination; $109 million for sex discrimination; and $25 million for discrimination on the basis of national origin.

What are valid considerations for an employer to use in hiring decisions? Instead of focusing on an applicant’s age, the employer should look at their track record of performance, accomplishments and continuous learning. Rather than assuming that they won’t work at a fast rate or will be slow to adopt new technology, the employer should find out through job simulations, reference checking, and testing. Instead of looking at an applicant’s disabilities (difficulty walking, for instance), the employer should look at their job skills, such as ability to calm angry customers and quickly troubleshoot problems. Rather than ask an applicant whether they’re a Christian or a Wicca or an adherent of any other religion, ask what they did to generate leads and close sales when the economy slipped into recession.

Prior to conducting interviews, employers should review with all involved personnel the legal restrictions on what they may ask or say when speaking with applicants. If necessary, training on effective and legal interviewing techniques should be given to these employees beforehand. It should be emphasized that interviewers need to focus on the tasks involved in the job and the applicant’s ability to perform them.

No matter how much preparation and training an employer does, things can still go wrong. It is important that businesses carry Employment Practices Liability insurance from a financially strong insurance company. One of our agents can obtain multiple coverage quotes, give advice on the various coverage features, and discuss the claims-handling performance of different companies.

Hiring new employees is always a difficult and uncertain proposition. Finding the right person for the job can be tricky. Complying with legal parameters can be trickier, but it is essential. By avoiding illegally discriminatory practices, employers can build a strong workforce and stay out of regulators’ crosshairs.