Over the next few days, we’ll be taking a look at a few of these issues.

Below are some actions you can take to assess and improve your facility security. Successfully implementing these security measures requires you to effectively engage various groups within and outside of your organization, including supervisors, managers, employees, outside contractors, or municipal services.

• Advise management and employees to report any suspicious persons or activity in or around the facility.

• Establish and follow visitor control procedures such as mandatory sign-ins, name badges, escorts, orientation, etc.

• Survey locks, fences, exterior lights, and other physical security devices to ensure that they are in place where needed and in proper operating condition. Establish a monthly inspection of your security perimeter and key protective features of your facility.

• Pay special attention to areas containing stocks of explosive, flammable, or toxic chemicals. These areas should be properly secured and inventoried, with reduced hands-on contact of these materials if possible.

• Evaluate critical locations in your facility for proper security such as the electric, telephone, and gas units, building entrances, transformers, outside storage units, and computer rooms.
   

• If your facility has a security/fire alarm system, be sure it is operating properly and that key personnel know how to arm/disarm it.

• Make sure that fire suppression systems are inspected and maintained properly. And be sure that a sufficient number of trusted personnel know how to activate, operate, and shut them down.

• Closed Circuit Television (CCTV) can serve as an excellent crime deterrent. When the CCTV system is equipped with a recorder it can help solve crimes.

• Review your procedures for issuing facility keys and access cards. At a minimum, keep lists of who has been issued keys/cards and have a procedure for handling a situation when a troubled employee is terminated without returning them.

• Discuss security with your local police department. Some police departments provide excellent information and support to businesses and industries.

• Have your local fire department conduct a pre-planned visit to your locations. While there, they can identify target hazards and plan fire suppression priorities.

Always review significant facility or process changes with your insurance advisor and loss control representative.

Contamination perils

It’s helpful to understand the three basic contamination perils when designing a risk management program that provides the best protection for the least cost.

• Malicious tampering (intentional contamination) is prone to publicity, so it may seem common. In reality, malicious tampering is rare, but when it strikes it tends to be a very severe loss. Managing this risk exposure can be difficult as motives vary widely.
   
• Accidental contamination is an unintentional error in the manufacturing, packaging or storage of a product. This includes mislabeling of ingredients, contamination by a foreign object or chemical, etc.  This peril is the most common, but the majority of incidents are typically discovered prior to shipment. Therefore, these events receive very little publicity. The opposite of malicious tampering, this peril has very high frequency but relatively low severity. While most accidental contaminations are small events, historically the largest losses have been due to accidental contaminations.
   
• Product extortion is the most difficult peril to characterize. Its frequency is between that of malicious tampering and accidental contamination. Its severity, however, is more difficult to quantify. Most extortions are amateurish hoaxes, but may evolve into outright tampering cases, which can be very costly.

Unlike third party losses, first party loss is often overlooked. In addition to the initial recall expenses, the potential long-term losses from the damage to a company’s reputation and loss of sales may continue for months or even years.

Since these losses can be catastrophic, this article focuses on ways to manage first party incident exposures.

Risk management considerations

It is a common misconception that product recall is covered under a general or product liability policy. Those coverages do a good job of covering bodily injury and property damage, but generally exclude contamination and recall events. The addition of a product contamination or product recall policy protects a company’s bottom line by covering the direct costs of recall, but transferring the risk is only one part of closing the recall exposure gap.

So what to do? Any company, regardless of size, that puts products into the marketplace should establish solid product risk management policies and procedures for handling a recall or contamination event.

Another point to remember: Binders are extremely important. They evidence coverage in lieu of a policy. It’s very important to review binders in detail at the C-Level prior to receiving your policy.

Here’s why: What’s printed on the binder relative to aspects of coverage is your coverage prior to receiving a copy of the full policy.

In addition: If the fully-formed policy appears to differ from what you understood was contained on the binder, then you have the binder to help clarify the coverage issue in question.

A $3.7 billion dollar difference. Most readers of the Guide will be familiar with the headline-making example of the Silverstein Real Estate Group’s involvement with the World Trade Center property. Coverage was in dispute because the terms and conditions of the binders in question were not clearly spelled out regarding the definition of an occurrence.

Lesson learned: If your policy is not written correctly from the start, then you are not making the most effective use of your firm’s time or money because it will not do what it was intended to do.

Always obtain a full and complete binder of insurance with coverage details outlined. Detail, Detail, Detail. It’s the details of coverage that are important!

• Most of the time exclusionary endorsements are clear to all parties prior to binding the policy.
• Other times they are obscure, buried in highly-confusing policy language, not known or fully understood at the C-Level until a loss occurs.

In either case: In the event of a loss, what’s in the contract is what the insurance company will go by. That’s why it is so important to have your policy reviewed and analyzed to make sure that it will do what you believe it’s intended to do.

Case in point:  A prominent real estate firm engaged us to review a property policy for a just-purchased building in Philadelphia. The $30,000,000 building was currently vacant and being renovated. To cover the building their broker sold them a new, separate policy.

Unlike previous policies that had been arranged for the real estate firm, this new policy contained a “protective safeguards” warranty, which required the client to have 24-hour security on the vacant premises and a fence surrounding the property. Lacking that, in the event of a loss there would be no coverage. Until we alerted them, the insured had no knowledge that the policy contained such a warranty.

Had a loss occurred with the above referenced provision in place, the insurance company could decline coverage based on this point and the claim would have been litigated. Not the kind of scenario you want to have happen. It would have been costly and time consuming for the insured to resolve the issue.

In the final article in this series, we’ll look at another important point you’ll want to remember.

If you are using an insurance policy as a means and maybe the only means, to transfer risk, then the answer could be your insurance policy!

Let’s see why…

Every word in this document means something and the insurance company knows what every one of those words mean and how to use them… potentially against you.

The insurance policy is a contract. 

Don’t let the word “policy” fool you into thinking otherwise. What’s contained in the contract will determine how much protection you have when a loss occurs – how, when and how much you will get indemnified (paid). 

Once you have a claim, your “policy” becomes a “contract”. See the difference?

We’ll go into a bit more detail in the next part of this series.

From Pensions and Investments; 1 in 2 insurance investment officers heighten risk control

Just over half of insurance company investment officers surveyed said they’re strengthening their risk management practices, and 35% are changing their investment policies and guidelines.

Also, 27% expect to increase their reliance on third-party investment managers, and 14% plan to rely more on third-party consultants, according to the survey of 112 investment officers by Insurance Asset Outsourcing Exchange, an insurance industry research firm.

From P & C National Underwriter: Survey: Insurers Focus Now On Reallocation, Risk Management

Most property-casualty and life insurers find growing and keeping business their biggest challenge and are reacting to the recession by increasing cash allocation and strengthening risk management, a survey finds.

The research was reported by the Louisville, Ky.-based Insurance Asset Outsourcing Exchange, which analyzes and aggregates confidential insurers’ data for exchange participants.

There have also been a few global stories and speeches about risk management that deal directly with the economic crisis, but we do our best to sort through and provide executive level summaries to information that can have direct impact on your business.

Pay more attention to loss control.

Risk management is all about reducing and mitigating the exposure to risk which in turn reduces costs. Unfortunately we see many companies are not as focused on loss control measures until it is too late. An employee is injured, a fire occurs, an invitee trips and falls. Most of the time with smaller to medium sized companies it is the insurance carrier loss control representatives who point out potential hazards.

Bottom Line:

Over time, by becoming more proactive in your approach to loss control it will serve to help reduce the overall cost of your organization’s insurance and risk management program. By taking a proactive approach to loss control you also place your company in a strong position when it is time to renew your coverage. Insurance company underwriters will look favorably on this and will be better able to justify rate reductions on your account.

In too many situations insurance decisions are made piecemeal … over time … at varying levels of corporate responsibility … without an understanding of needs and coverage, costs and benefits … with little or no sense of how the varieties of insurance-related decisions intersect or interact.

The objective of the book is to inform the executive in often-overlooked opportunities and share insights and strategies for maximizing the benefits of a comprehensive, well-considered insurance plan.

The payoff for a company realized through the application of these strategies include, but are not limited to, the reduction of management time and stress, increased flexibility, reduced risk, cost savings and enhance overall profitability.

The information and ideas contained in the guide are based on more-than-a-quarter-century of experience providing insurance advisory and transaction advice and services to public, private, not-for-profit, domestic and international organizations. The book offers a structured approach to understanding the magnitude and import of issues associated with varied insurance transactions written in a down-to-earth manner.

A soft bound edition of the book may be purchased on Amazon.com Target.com or Bookscapes.com.