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Every business owner who has ever received a bill for an insurance premium has wondered how the insurance company came up with the price, especially if the premium has gone up since the last renewal. Although the insurance pricing mechanism can seem mysterious, and might involve a certain amount of discretion by underwriters, the starting point is always the same: The underwriter must answer the question, “What type of business is this?”

That might appear to be a simple question, but it does not always have a simple answer. When the underwriter answers the question, they assign the business to one or more classifications; more than any other factor, these classifications determine how much premium the business will pay. Classifying a business can be straightforward or it can be more art than science. Most state Workers Compensation insurance manuals contain roughly 700 classifications; the Commercial General Liability insurance manual has a little less than double that. Compare those numbers to the thousands of business types that exist today and the new ones that will exist five years from now, and you get a sense for why classifying a business can be tricky.

In addition, while Workers Compensation, General Liability and Property classification descriptions are similar in some cases; in many others they bear no resemblance to each other. The underwriter who knows that they’ve correctly classified the business for one type of policy might find that classification to be of no help for the others.

Although it might appear that determining the correct classification is only the underwriter’s problem, it also has short- and long-term effects on the insurance buyer.

The correct classification ensures that the buyer pays the appropriate rate and that all buyers in that classification receive fair treatment. If the classification is incorrect, the buyer will pay a rate that is either too high or too low for that type of operation. For example, compare two contractors — one installs plumbing systems in commercial buildings, the other installs automatic sprinkler systems in them. If the plumber’s work is faulty, a pipe might leak and cause water damage to furniture and equipment in one or more rooms. If the sprinkler contractor’s work is faulty, the sprinklers might not work when a fire breaks out and the fire might destroy the entire building. The risk of a severe loss resulting from completed operations is much higher for the sprinkler contractor than it is for the plumber. If the underwriter classifies the sprinkler contractor as a plumber, the sprinkler contractor pays a much lower rate for completed operations coverage than it should. In the long term, loss experience will cause the rates for plumbers to increase. This is unfair to plumbers and to sprinkler contractors whose underwriters classified them properly.

Also, charging an inadequate premium might cause the business’s experience modification to be higher than it should have been. The experience rating formula compares actual losses to the losses a typical business in that classification with that level of payroll or sales would have. If the classification is wrong, the formula will understate the level of expected losses, resulting in a higher debit or lower credit.

The rating manual rules require that policies issued to businesses in some classifications carry specific endorsements (policy changes). For example, the rules for restaurants require the company to attach an endorsement that changes the definition of the products-completed operations hazard. Use of the wrong classification can result in the wrong policy terms for the business. A business owner should work closely with one of our professional insurance agents to ensure that insurance companies are using appropriate classifications. Although the wrong classification might appear to save the business money in the short run, it can prove to be costly in the long run.

National Tragedy Affects The Workplace – Many national tragedies are first learned about while people are at work. Just imagine how many people learned of the September 11th attacks or the assassination of President Kennedy while going about their workday. When such events occur, employees gather around computer screens and televisions to watch the events unfold. They share information, sorrow, and concern; look out for each other; and try to empathize or understand how the tragedy affects fellow co-workers and associates. Workers might simply be at a complete loss about what to do.

Personal Tragedy Affects the Workplace – Personal tragedy, such as an employee, co-worker, or family member’s death or illness; an employee filing bankruptcy, or incidences of home or workplace violence, also commonly have an effect in the workplace. These personal tragedies are typically less public than national tragedies, but there’s still the same sense of wanting to help and not being sure what to do.

Regardless of the type of tragedy, it usually has a substantial impact on workers. There are organizations that provide a support system to help people cope with tragedy and the helplessness and grief that often follows. There are also actions that employers can take to help employees as they experience tragedy in the workplace:

Ensure Safety. In cases where the incident occurs in the workplace, safety is the primary concern. The disaster plan should be implemented immediately. Be sure that the disaster plan includes emergency evacuation routes and a designated meet-up location. Be sure to account for the safety of all employees with an attendance call at the designated meet area.

Assess For Personal Involvement. Offer time off, transportation, moral support, assistance getting more information, and such if the tragedy affects a worker on a personal level. There might also be a need for shelter, compensation, or relocation if the tragedy is something that impacts the workplace on a widespread level, such as a local natural disaster.

Be Understanding. Naturally workers can’t instantly return to everyday work after hearing about a tragedy, or at least not in a productive and safe manner. Distracted and distraught workers are very likely to make errors and poor decisions. So, be understanding and tell the workers that it’s okay to focus their attention on what’s happening. In doing so, workers can resume work safely once their need for information is met.

Offer Information. Information can help workers process whatever is going on. If possible turn a radio, television, or computer into an information portal for the employees to stay informed. This might be confined to a break room only, but it’ll still be an information source. Keep employees as up-to-date as possible, without divulging confidential information. Do recognize that employees might want to call friends and family to gain or share information.

Offer a Talking and Gathering Location. Some find comfort in being close to others during a tragedy. A quiet conference room can provide just such a gathering point. It might also be helpful to provide employees an opportunity for interaction, sharing of grief, encouragement, and support by bringing a lunch for employees to eat in a central location. Encourage a brown bag or potluck lunch for the next few days, as some might take longer than others to share their suffering.

Have a Meeting to Share Information. Regarding personal tragedy, it’s crucial that confidentiality isn’t compromised. Keeping that in mind, it’s important to offer as much factual information as permitted. This will not only keep the rumors down, it’ll also mean that employees will spend less time seeking information from other sources. The meeting might also include how employees or the company can help those involved in the tragedy.

Offer Ways to Help. As evidenced by the overwhelming amount of people that volunteered after Hurricane Katrina and 9/11, many take comfort in easing the pain of others and helping to solve issues. Depending on the context of the tragedy, a company fundraiser event, blood drive, charitable donation, offering of flowers or food, and such might be applicable.

Encourage Employees to Utilize Resources. Make sure that employees are aware if there’s an Employee Assistance Program or counseling through the company health plan available.

Have HR Staff and Managers Available. These staff members are critical during a tragedy and should be visible and available. It’s helpful for key staff members to be seen in all work areas and stop to listen and support those that need it.

Be Prepared. All companies should have a disaster plan that includes plans for any disaster that could occur in the area – fire, earthquake, tornado, hurricane, etc. Every employee should be trained to know appropriate disaster and personal injury actions. It’s too late to make the plan once the disaster has occurred!

Include Grief Training As Part the Training Program. Many are unsure what actions to take after a tragedy; for example, employees might be unsure what to say or do once a widowed worker returns to work. Employees should have grief training that includes such points as the stages of grief, dealing with self-grief, and grief of others. Having this training will help support positive workplace morale and decrease the long-term effects of tragedy.

Everyone will experience some sort of tragedy at some point in life, and those tragedies are very likely to find their way into the workplace. Hopefully, these tips will offer an effective starting point for employers to address tragedy as it unfolds in the workplace.

The September 11 terrorist attacks caused immense loss of life, human suffering, and property destruction, particularly at the World Trade Center in New York City. The insurance losses from injuries and property damage were very large. However, the losses resulting from businesses in the area having to shut down for extended periods of time were huge. Businesses filed nearly 5,500 business interruption claims for more than $12 billion following 9/11. For many organizations, the loss of income coupled with continuing expenses after a fire or other disaster can be even more devastating than the damage itself. To increase the chances that a loss will not shut operations down permanently, organizations must assess their exposures accurately by asking some questions.

1. What is the most the organization could lose from a shutdown? Commercial Property insurance policies define “loss of income” as the sum of the expected pre-tax profit or loss and necessary continuing expenses. For example, if the expected profit is $300,000 and necessary continuing expenses are $100,000, the potential loss of income is $400,000. To calculate their exposure to business interruption losses, organizations should refer to their balance sheets, profit and loss statements, and cash flow statements. Insurance companies also have worksheets available to assist with the calculation.
2. How much insurance should be carried? Once the organization knows the dollar amount of its exposure, it must decide how much Business Interruption insurance to buy. The key considerations are the length of time the insurance is likely to apply and the coinsurance percentage the organization must meet. Coverage usually begins 72 hours following the damage to the property and ends when business resumes at another location or when the building should be repaired with reasonable speed, whichever occurs first. If the organization decided that the coverage period would be around six months, it could buy an amount of insurance that would satisfy a 50% coinsurance requirement. If the interruption would last longer, higher coinsurance percentage and limits would be necessary.
3. How long will it take business to return to normal? Even after operations resume, it could be some time before revenue returns to normal levels. Customers who had gone elsewhere during the shutdown might be slow to return. The standard insurance policy extends coverage for 30 days after operations resume, but some businesses might need more time than that, especially if their businesses are seasonal. For example, a seaside restaurant in New Jersey that makes most of its profits during the summer will need additional coverage even if it can re-open in November.
4. How much of the normal payroll expense will continue during the shutdown? The organization will need the continuing services of some employees while it attempts to re-open, but other employees might not be necessary. For example, accounting staff will be needed to pay mandatory expenses such as property taxes and collect receivables earned before the shutdown. Employees who stock shelves will not be needed if there are no shelves to stock.
5. Does the business depend on other businesses for revenue? A business can suffer a loss even if its own building is untouched. A loss that shuts down a key customer or supplier or damage to nearby property that causes authorities to close off access to the street can devastate a business’s bottom line (this happened to many businesses affected by 9/11). Special insurance coverage is available to protect against this possibility.

Our professional insurance agents can help you answer these questions and identify insurance companies that can meet coverage needs. With some effort and planning before a loss happens, an organization can emerge from a shut down and return to profitability.