Matching liability insurance limits with 100% of the financial exposure is difficult. For example, how do you establish the financial exposure for bodily injury and property damage caused by a vehicle? So many variables influence the outcome. On the other hand, property insurance limits can be precisely judged to determine the amount needed to insure 100% of the financial exposure. For example, the cost to rebuild a building can be precisely measured, though it is always good to factor in an allowance for inflating construction costs. Building a building does not involve a judge and jury!

Liability insurance is purchased to cover the cost of defending and settling lawsuits. Some familiar types of liability insurance coverage include Commercial General Liability, Commercial Auto Liability, Employment Practice Liability, Professional Liability/Errors & Omissions, Management Liability (D&O), and Umbrella/Excess Liability. Each of these coverage areas respond to specific circumstances.

Depending on the nature of the business and the risks associated with it, the typical business will look at several insurance coverage options. The financial exposure for each risk will vary, so the limit of insurance will vary for each coverage. For example, the financial exposure is different for an employment related claim, compared to an auto related claim, or compared to a premise liability claim.

Below are some questions to consider when deciding on limits of liability insurance:

• What is the maximum financial exposure (severity), from a single event, for which insurance is purchased?
• When determining the aggregate limit for all claims, how many occurrences (frequencies) should be contemplated?
• Are there multiple limits, and if so, to which financial risks do they apply?
• To achieve the limit level desired, should excess liability policies be purchased?
• Is the cost of defending a lawsuit included in the liability limit, a separate limit, or is it unlimited?
• Can I structure the insurance policy to have a limit apply to multiple areas of insurance?
• When structuring the limits of insurance, how do I maximize the premium I am paying?
• Am I more concerned about the cost of defending a lawsuit or the cost of settling a lawsuit?

The above questions are not all-inclusive. However, they create a great starting point when deciding the limits for liability insurance coverage.

Please keep in mind that as your business changes it is always prudent to reevaluate the limits of insurance. Whether your business is starting up or is strategizing to reach the next level, Riviera Insurance Services is always available to assist you with your risk management and insurance needs.

Successfully managing risk requires following a process. Business leaders need to protect their businesses from financial disasters. Years of hard work building a company can be wiped out by one event.

The reality for business leaders is that day-to-day operations take precedence. Deadlines, delays, hiring, firing, new opportunities, and surprises are challenges that all businesses face. Planning is a hard task to find the time to do. The phrase “some day I will do that” is a term we have all used when it comes to risk management.

When given the opportunity, Riviera Insurance Services helps businesses focus on risk management. We provide this guidance as part of our overall service that includes the placement of insurance. Insurance happens to be an excellent tool for managing critical risks. However, before insurance is purchased, business leaders should go through the risk management process.

The art of developing a risk management plan includes four distinct areas:

• Risk Identification
• Risk Quantification
• Risk Treatment
• Risk Monitoring

“Risk Identification” requires reviewing all aspects of the business and identifying what threats are lurking. Each business has risks associated with the operations, assets, employees, and vendors. The risk of an event should be broken into two parts. First, can the event cause a financial loss? For example, a fire can cause a financial loss if it destroys property. The second part is the consequence of the event. The consequences of a fire include damage or destruction of property, slow down or shut down of operations, failure to meet customer expectations, injury or worse for employees and other individuals. Putting it all together and using the example of a fire, the risk to a business can be summarized as follows, “A fire can destroy our building, all of our contents, shut down our operations, and cause bodily injury to employees and bodily injury and property damage to third parties for which we will/can be held accountable.”

“Risk Quantification” of each identified risk is the next step. The financial consequence of the risk needs to be assessed along with the event occurring. Below is a simple matrix for prioritization of risks:

Impact

Risks with significant financial consequence (3 or 4) and high probability (3 or 4) are “Critical” events to manage. The next priority “High” is for risks with significant financial consequence (3 or 4) and little probability (1 or 2). The next priority “Medium” is for risks with little financial impact (1 or 2) and high probability (3 or 4). Risks with “Low” rating are those with little financial impact (1 or 2) and little probability (1or 2).

Using an example, let’s explore this concept.

ABC Manufacturing Company is a publicly traded company with 100 employees and sales of $100 million. ABC manufactures high-end lighting fixtures for residential and commercial customers. ABC boasts a strong balance sheet, increasing gross revenue and a pretax profit of 15%. Future expansion plans include possible acquisition of competitors and expanding to the European market.

Applying the impact grid, the following financial consequences are assigned:

After a brainstorming session and further refinement, the following risks are identified as Low, Medium, High, and Critical by the management team.

Risk Treatment is the decision of what to do with the risk. The four optional actions are:

1. Avoidance
2. Transfer
3. Mitigate
4. Accept

Looking at three of the risks identified in the brainstorming session, below are some thoughts on using the risk treatment options.

Looking at the risk “one supplier of a key component” the potential consequence is that the supplier is unable to produce the key component, thus interrupting the production of the final product. Since the rating of this risk is “low,” management has decided to accept the risk. To mitigate the risk, management has identified two other potential suppliers and has increased the inventory of this component.

The “key employees leaving the company” risk is rated medium by management. The potential consequences include loss of leadership and uncertainty of future success. If the event is because of death, then the financial consequence can be transferred using life insurance. To mitigate, the board of directors will look for potential candidates, both within and outside the company to fill future leadership needs. When a key employee leaves the company, there is often a chance that one or more clients will follow the employee or move to another competitor. Management has decided the best approach to mitigate this risk is through semi-annual review of client relations with a focus on team relations. In addition, management will review its employee handbook and other communications related to ABC’s clients’ intellectual property to discourage exiting employees of wrongfully using information to solicit clients.

The “destruction of ABC’s facility” is rated high because it could cause the business to collapse. Causes leading up to this potential event include fire, earthquake, terrorism, and even an aircraft crashing into the building. Management has developed an extensive Disaster Recovery Plan with several mitigating processes and plans ABC purchased insurance to transfer the consequences caused by fire, terrorism, and aircraft; however, ABC is accepting the first $25,000 of any loss. Insurance is purchased to transfer 50% of the maximum possible loss due to earthquake.

Risk Monitoring is the ongoing process of identification, quantification, and treatment. Some businesses go through rapid changes while others remain more stable. Risk monitoring includes setting dates and times to review the current plan. Setting a schedule to review risks helps prevent the negative consequences of risk from catching everyone by surprise.

At Riviera Insurance Services, we enjoy working with businesses that want to manage their risks. Our job is rewarding when we are able to participate with the business owner and key decision makers who are the risk takers. Deciding where to allocate our clients’ precious dollars is one of the ways we successfully retain our clients for the long run.

From a risk management perspective, cell phones and vehicle usage occur in the following three scenarios.
                        1. Company owned vehicles
                        2. Employee owned vehicles used in the business
                        3. Rented vehicles used in the business

   Depending on your business, all three scenarios may apply.  Below are some ideas to consider implementing to control the risk of vehicles and cell phone usage.  In addition, insurance is an important tool we use to help our client’s manage the financial consequences when an accident happens.

1. Require Hands-Free Devices Only

This is the law, so this is a “must policy”.  You may want to go so far as to provide the hands-free equipment for the employee.  Hands-free operation does not guarantee 100% safety but will provide remote workers with less distraction if they must use their cell phone on the road.

2. Warnings in Company Vehicles

Putting notices in all company vehicles reminds employees that the main function of the vehicle operator is to arrive safely at a destination.  Options to the hands-free policy could require either passengers being responsible for handling the cell phone or the driver pulling off the road before using their cell phone.

3. Provide an Answering Service or Forwarding Option

This option gives remote workers the ability to have calls forwarded to another individual or to an answering service.

4. Shut It Off

It may be that you do not want any cell phone usage while operating a vehicle.  To some, this may not seem practical, but, from a risk management standpoint, it is the best policy.    

Whatever you decide, now is the time to do something about this exposure.  In-vehicle cell phone usage does increase the chance of an accident.  If you do not have a written company policy addressing the use of cell phones while operating a vehicle on behalf of the business, now is a good time to change your company’s handbook.  Businesses operating in more than one state, or outside the United States, should be aware of the local laws. 

Changing the way of using your cell phone will become habit over time.  Not changing opens up a host of problems.  Get on board with this early, so when July 1st rolls around, everyone in your business has new habits when using their cell phone.