Archive for July, 2015

Product Liability + Company Growth

Authored by Brandon Schuh, VP and Product Liability Professional at Hays Companies

Product liability is an area that can rapidly change from the period of time when a company first launches to when they’ve truly penetrated the marketplace.  With consumer products, the reach is to a very large audience.  When the masses begin using a product, especially products that have more inherent risk, claims and litigation follow quickly regardless of how well the product is manufactured.

This scenario creates problems for manufacturers and importers of consumer products because they are not ready for the influx of claims.  Claims are the biggest driver of premium costs.  If your claims are low or non-existent, your premium will likely be small or inconsequential.  If you have an inherently more dangerous product: ladders, power tools, trampolines, sporting goods, outdoor equipment or even office furniture, claims will occur and your premium increases as a result.

This is an unwelcome surprise, suddenly claims are an everyday event and there is a new expense item on the budget.  Many companies, when they first start their business, buy very basic insurance policies with very small deductibles.  Small deductibles are attractive because of the limited financial risk for the manufacturer.  They simply transfer their risk to the insurance company.  The problem with small deductibles in a high frequency claims environment is that insurance becomes something that you use every day instead of something for a worse case scenario.  This is accentuated by the rapid growth of the organization; the more products in the hands of consumers, the more potential for accidents.  When a policy is used frequently, the premium increase year over year become dramatic.   The premium increase is further inflated by high allocated expenses driven by the carrier hiring counsel that are not experts in defending consumer product litigation. Thereby settling claims rather than denying or defending.  This has a downward spiraling effect if not properly contained.

Total Cost of Risk (TCOR) is a term that’s overused in the insurance industry, however, consumer goods product liability is one area it is truly necessary. Your risk cannot be summarized in one line item on your P&L.  The cost of insurance is not your only cost of risk.  A manufacturer of inherently dangerous consumer products should always take retained risk (i.e. they should always have skin in the game).  You know your product better than anyone, therefore you should have more control over the defense of those products with experts that specialize in this area. This is accomplished by maintaining a larger deductible or Self Insured Retention (SIR) where you, as the owner of the company, take a part in the cost of defense.  This creates another line item (defense costs) and should be added to your calculation of TCOR.

The benefit to doing it this way is eliminating some of the carrier losses and doing your part to keep loss runs clean of nuisance claims and litigation.  Again, claims drive the premium; if you positively influence claims by disposing of some yourself, you are in a far better position to keep your premium costs down.

Naturally, this process requires a strong team of legal practitioners, insurance and supporting players.  Defense strategies, policies and procedures are also crucial to effectively producing good results.  However, the end result is dramatically more economical than continuing to pay the premium for a low deductible/high claim frequency fueled by growing sales.  With control over the process, you are in a far better position to affect positive cost savings.

Hays in the News – Risk and Insurance Magazine

In the most recent issue of FOCUS, Hays Companies concentrated on Cyber liability and the ever increasing attention it is receiving in the media. This caught the eye of Risk & Insurance magazine, requesting an expert opinion from our Dave Wasson, Cyber Liability Practice Leader with Hays Companies.

In discussing a recent New York Times article, detailing the prevalence of troll attacks from Russia, Risk & Insurance noted that our FOCUS issue spoke to how “brand terrorism” is becoming a new trend in cyber attacks. Troll attacks are “organized disinformation campaigns augmented by social media posts, [that] create an atmosphere of chaos and economic disruption”.

Dave Wasson provided further detail on this phenomenon, stating “The Internet has provided incredible transparency for sharing information on an anonymous basis that can often be viewed as one of the best attributes of the Internet. But that transparency cuts both ways in that the Internet provides an equal transparency for sharing misinformation.”

As our world is increasingly becoming more mobile and connected, the chances of a company experiencing some form of a cyber attack increases as well. Hays Companies has been a leader in the Cyber liability realm and is proud to participate in this piece.

For more information and the entire article, please click here.

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Employee Benefits Compliance Webinar

Code 6055, Code 6056…The administrative requirements of the Affordable Care Act continue to “roll-out.” On March 5, 2014 the Internal Revenue Service (IRS) issued final regulations on the employer information reporting requirements. Final forms 1094-C and 1095-C for 2014 have been released by the IRS and now we have draft forms for 2015. Now is the time to determine how your organization will comply with this new administrative burden. The webinar will cover:

1. Background and effective date
2. Employers subject to reporting
3. Delivery and filing requirements
4. General reporting method and required information
5. Reporting codes

Hays Companies has scheduled a one hour webinar to cover these issues and more. We are presenting this webinar four times over four different days to allow you to pick the time and date that best fits your schedule.

Ben Graves, Director of Research & Compliance and Nicholas Karls, Associate Director of Research & Compliance, both of Hays Companies, will be presenting this complimentary webinar.

Please click here to register!

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