Preparing for Year-End: Risk Management, Loss Prevention and Insurance Coverage

Managing risk is an ongoing process that becomes especially critical as the economy continues to falter. Businesses may grow, develop new products and services, or exit poorly performing markets, and the value of property and other assets may fluctuate. These changes, in turn, have an impact on a company's business insurance needs and loss-prevention policies. The end of the year is often the time when business leaders take stock of their companies' strengths, liabilities, assets and performance. This period of self-examination is also an ideal time to review insurance policies and risk-management procedures.

Get to Know What Your Policies Insure, and What They Don't

No one has insurance coverage for every risk—the cost of doing so is prohibitive—but everyone endeavors to insure against losses that could impair their ability to continue to conduct business. Thus, the worst time to find out that you don't have coverage is after a serious claim or loss has occurred. The best time to find out, of course, is now. To gain a comprehensive understanding of your coverage, meet with your insurance-coverage lawyer and your broker to complete a risk assessment, which involves evaluating whether your risk-management and loss-prevention programs, and your insurance coverage, are a good fit with your risk profile.

Pay Attention to Insurer Notices and Policy Expirations

Many policies renew at or near calendar year-end. If an insurer is going to raise premiums by more than a modest amount, or impose new exclusions or limitations, the laws of most states require that the insurer provide advance written notice. Pay attention to any policy-modification notices that come in the mail during the next couple of months, and contact your broker or your lawyer as soon as you receive them.

Likewise, some liability policies are written on a "claims made" basis; when these policies expire, so does your right to notify your carrier of claims or potential claims. Reach out to managers and field personnel to make sure that you are aware of any unreported claims, or circumstances that could give rise to a claim, and give your insurer notice before a policy expires. Commercial liability policies—covering personal injury, property damage and the like—typically are written on an "occurrence" basis. Claims may be filed after the expiration of a policy, but must still be delivered in a timely and sufficient manner.

Confirm the Accuracy of Valuations and Coverage

Many business insurance policies are based on the value of the property insured, the volume of sales, the amount of payroll or some combination of the above. For individuals, high-value items (such as fine art or rare automobiles) may require specific policies, separate from those covering other property. Identifying assets and accurately estimating their value prevents penalties for underinsuring your risks, and helps to avoid overpaying on premiums. Now is the time to revisit all pertinent valuations and policies.

Review Workers Compensation Policies and Safety Programs

Since workers compensation insurance is rated retrospectively, it is important to compare your loss run with actual expenditures. If you discover that workers comp reserves are higher than actual expenses, you may be entitled to an adjustment. In addition, year-end is a good time to develop and implement solid workplace safety programs that can help reduce the likelihood of accidents.

Evaluate Employment Policies and Internal Controls

Claims related to employment practices (e.g., sexual harassment; discrimination on the basis of age, gender, sexual orientation and the like; hostile work environment; failure to promote or to hire; and wrongful termination) are a rising source of loss. Also, hard economic times can lead good people to do bad things, from dishonest behavior to outright theft. Effective internal procedures and controls—including employee handbooks and training—can reduce the frequency and severity of claims arising from such activity.

To receive a complimentary copy of the Much Shelist Legal Check-Up™—our comprehensive tool that helps companies and individuals assess the current state of their business, financial and legal affairs—please e-mail checkup@muchshelist.com or contact your Much Shelist attorney.

Neil B. Posner, Chair of the firm's Policyholders' Insurance Coverage group, focuses his legal practice in the area of insurance coverage, with specific emphasis on insurance recovery and dispute resolution, risk management, loss prevention and cost containment. Neil can be reached at 312.521.2623 or nposner@muchshelist.com.