Safety & Risk Control
Yes, but be careful! There is no denying that the use of social media sites such as Facebook, Twitter and LinkedIn has exploded. The explosion includes both personal and business use of social media. It also includes use that is beneficial to employers and use that can be very damaging. Unfortunately, the influx of employment lawsuits that have followed the explosion have had limited practical value in guiding employees and employers on the permissible use and oversight of social media in the workplace. While many questions remain, the California State Legislature's recent enactment regulating employer use of social media does provide some guidance.
California Labor Code section 980 was enacted to prevent employers from (1) requesting an employee disclose usernames or passwords for personal social media accounts; (2) requiring an employee to access his or her personal social media in the presence of the employer; or (3) requiring an employee to divulge any personal social media to the employer. Applicants are protected in the same way as employees. The new statute, coupled with existing privacy laws, limits what employers may monitor when it comes to the personal social media of employees and applicants.
Definition Of Social Media
In what appears to be an effort to account for the ever increasing development of new social media, the new statute broadly defines social media as an "electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, e-mail, online services or accounts, or internet web site profiles or locations."
Background
Burglaries and robberies represent a significant expense to pharmacies in the United States. Beyond direct insurance costs, which are driven by loss experience, pharmacists experience financial, business interruption and psychological costs. Pharmacists are concerned about armed robberies, and even finding that a store has been burglarized overnight can be upsetting and cause the expenditure of thousands of dollars in an effort to prevent reoccurrence. Beyond what is covered by insurance, customers pay deductibles that can easily be exceeded as a result of criminal efforts to gain entrance. Pharmacists that are victimized face hours of dealing with police, the Drug Enforcement Administration, board of pharmacy, contractors and their insurance company. As state and national efforts increase to address the underlying problem of prescription drug diversion, pharmacists face increasing administrative and regulatory compliance costs.
When we seek methods to effectively combat the problem, it is important to understand the larger problem of prescription drug diversion and how it fuels pharmacy burglaries and robberies. Described by the Centers for Disease Control as having reached epidemic proportions in the United States, demand for prescription narcotics, coupled with a widely available supply, create an environment that is ripe for criminal activity.
- While the U.S. represents only 4.6% of the world's population, we consume 80% of the global opioid supply.
- Five million Americans use opioid painkillers for non-medical use.
- We experience almost 17,000 deaths from prescription narcotic overdoses annually. In a 4 year period, that is more deaths than we experienced during the Vietnam War.
- Morphine production was at 96 milligrams per person in 1997. By 2009, that number increased eight-fold.
As smaller captive insurance companies proliferate, so do reinsurance pools or exchanges that attempt to deliver sufficient "risk distribution" to satisfy the requirements of the Internal Revenue Service. Without risk distribution, the captive would not be considered an insurance company for tax purposes and would then lose many of its potential tax benefits, including the election for the exclusion of insurance revenues from income under section 831(b) of the Internal Revenue Code.
Previous articles I have written have explored the mechanics of these pools and have questioned whether the majority in fact meet the risk distribution requirements as a matter of law. This article will explore a more basic issue ... are the funds being held by these pools secure?
Many captive managers have formed risk distribution mechanisms whereby the captives under management "swap" risk by ceding a portion of each captive's risk to the other captives and accepting a "retrocession" of risks from those other captives. Frequently, this exchange of risk is accomplished by a transfer of 50% or more of a captive's annual premium income to an entity that is affiliated with the captive manager, either as a "fronting" company to the captives or as a reinsurance company.
In either event, half of the funds paid by the insured to the captive are held for a year or more by this entity. Once losses are settled for the year in question, the balance, if any, is remitted to the captive. In the meantime, of course, if the captive has renewed its insurance policy to the insured, another annual premium has been received by the reinsurance entity and handled in the same manner.
The potential for abuse is immense. Cash is fungible. Whose money was remitted to the captive? The half that was held from last year or half of the latest premium received? This could create a classic case of a "Ponzi" scheme, where the money held from last year is spent and new money is used to cover the obligations from the previous year. The scheme collapses, of course, if there is a net drop in new captive formations for that captive manager.
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When I think about businesses/people working out of their homes, the first picture that comes to mind are people working on their computers — in virtual offices, remote offices, and oftentimes offices outside of the United States.
That is why it came to me as a surprise when Yahoo recently proclaimed all their employees had to "come back to work." One news line read "work at home and you will be fired." Clearly this is a change, especially for a high tech company. Marissa Mayer, the president and CEO of Yahoo as of 2013, defends her stance and says it will "separate out the truly productive workers from stay at home slackers who abuse the system." Needless to say, the news is buzzing about this, so time will tell if she sticks to her guns.
While Yahoo is "going back to the workplace," more and more people are choosing to work from their home. The current economy has redefined how people cope with the unemployment dilemma, and many businesses encourage staff to work from home to better maximize their production and as a means to better deal with the demands of work and family.
Copper theft presents a significant challenge for loss control.
Unlike other property crimes where "recovery" goes a long way toward mitigating the loss, such as the recovery of a stolen car in an auto theft, the recovery of the stolen copper seldom impacts the size of the claim.
Copper theft is different because the damage done to a building stealing a few hundred dollars' worth of copper can cost insurers tens of thousands of dollars to repair. The typical copper theft claim involves the damage done ripping wires and plumbing out of walls or the coils from a rooftop HVAC system. In vacant buildings, thieves target water lines and sprinkler systems as well as the electrical wiring. Once a vacant property has been hit, thousands of dollars must be spent to bring it back up to code before it can be occupied. It is this "collateral damage" that makes copper theft claims so expensive to an insurance company.
The key to reducing copper theft claims is prompt police response. The faster law enforcement arrives, the less time thieves have to damage the property. Faster police response is what wireless video alarms deliver and why they are a valuable tool for loss control against copper theft.
Copper theft has impacted insurance companies across North America, becoming a mainstream problem covered by television news. The following reports from television news underscore much of what this article is attempting to communicate — a new paradigm to mitigate risk and reduce claims impacting the real world from Virginia to Arizona.
Overview Of The Risk
There were more than 26 million new strains of malware released into circulation in 2011. Such a rate would produce nearly 3,000 new strains of malware an hour! Almost two-thirds of U.S. firms report that they have been the victim of cyber-security incidents or information breaches. The Privacy Rights Clearinghouse reported that since 2005, more than 534 million personal records have been compromised. In 2011, 273 breaches were reported, involving 22 million sensitive personal records. The Ponemon Group, whose Cost of Data Breach Study is widely followed every year, indicated a total cost per record of $214 in 2011, an increase of over 55% ($138) compared to the cost in 2005 when the study began.
Other surveys are consistent. NetDiligence, a company that provides network security services on behalf of insurers, reported in their "2012 Cyber Risk and Privacy Liability Forum" the results of their analysis of 153 data or privacy breach claims paid by insurance companies between 2006 and 2011. On average, the study said, payouts on claims made in the first five years total $3.7 million per breach, compared with an average of $2.4 million for claims made from 2005 through 2010.
And attacks simply don't target large companies. According to Symantec's 2010 SMB Protection report, small busineses:
- Sustained an average loss of $188,000 per breach
- Comprised 73% of total cyber-crime targets/victims
- Lost confidential data in 42% of all breaches
- Suffered direct financial losses in 40% of all breaches
Indeed, according to the 2011 Verizon Data Breach Report, in 2010, 57% of all data breaches were at companies with 11 to 100 employees. Interestingly, it was the Report's opinion that 96% of such breaches could have been prevented with appropriate controls. Bottom line: cyber attacks are here to stay — and in many ways, they are getting worse.
In the past few weeks, we have published two articles by Keith Jentoft, the Partnership Liaison of the nonprofit Partnership for Priority Video Alarm Response, regarding the use of video verified alarms. Recently, David Margulies of the Margulies Communications Group approached us and asked if we would be willing to publish an article which provides a different perspective. David's article appears below.
There is no question today that alarm intrusion systems are often one of the first lines of defense against insured losses from crime. According to the Electronic Security Association, which represents the majority of companies in the alarm industry, the breakdown for intrusion alarms shows them protecting virtually every type of insured business enterprise:
- residential: 40%
- commercial (office buildings, retail, banks, etc.): 30%
- institutional (schools, hospitals, churches, etc.): 11%
- industrial (factories, warehouses, utilities, etc.): 12%
- government (local, state, federal Facilities): 7%
In a national survey of police chiefs, 90 percent acknowledged that alarms both deter burglary attempts and increase the probability of a burglar being apprehended. Of the nation's approximately 18,000 public safety agencies, only a handful require confirmation from a business owner, witnesses or security guard before police are dispatched to an alarm site.
The C3D team are facing a typical entrepreneurial reality. Just when they thought things couldn't get any tougher, yet another challenge presents itself. Thanks to Aaron and Bryn's spontaneous make out session at the bar, Bryn hopped on a plane back to San Fran and it's up to Aaron and Jack to make the TechStars presentation on their own. It might leave a bad taste in their mouths, but subterfuge is now the only way to win this contest, and save C3D. As usual, Jack smooth talks Aaron into going along and then the fun begins.
The sabotage takes many forms, including a Watergate-style meeting in a garage, Aaron as a fake driver and the old glass of water on the keyboard trick. Unfortunately, this is something that's happened by mistake before (the water on the keyboard that is). For example, say you accidentally spilled water, coffee, RedBull or some other liquid on a client's laptop, or even your own equipment. Would you be on the hook for the cost of the laptop and the cost of retrieving their data? Is there a way to protect yourself against these unfortunate circumstances? Of course there's a way to protect yourself. The Electronic Data package as part of your business owner insurance would help pay to replace the damaged equipment, costs to get the data back and any business interruption. A nice, inexpensive safety net to protect against unexpected problems.
Some covert operations, an exploding flour robot and a majorly non-inspiring pep talk from Glenn Cheeky about his childhood pet pig — and now C3D is back in NY. Jack, Aaron and Bryn are back home for the Techstars competition hosted by the still strangely inspiring Mr. Cheeky. With yet another do or die situation confronting them, the team is stumped by Glenn's assignment to create a business plan related to the concept of love. Well, they better come up with a plan quick.
Techstars is just what this company needs right now — a startup accelerator. Techstars is one of the most successful startup accelerators and what they do is help out startups by providing the mentoring, tools and funding (sometimes) that these companies need to grow. C3D is a perfect candidate, and the funding and guidance from Techstars could be just what they need to put them over the top.
Dumpster diving? Exploding flour robots? Eccentric and confusing investors? These aren't things all startups have to deal with, right? It's starting to feel like the C3D crew is really scraping the bottom of the barrel, or dumpster in the case of Derek. All that dirty work and they're no closer to proving that Livefy trashed their offices and drained their bank account. And, they still don't have those stolen prototypes that Bryn worked so hard to develop.
It looks like dumpster diving isn't the only dirty business Derek is involved in these days. That pesky harassment lawsuit his assistant filed against him last season just won't go away, something Josie Hersh interrupted his nice dinner of avocado stuffed avocados to remind him of. Seems like June Pepper caught him at just the right time — he was desperate and her offer seemed like the only way to resolve his issue, especially with the current prospects of C3D.
Unfortunately lawsuits, whether legitimate or spurious, are a major threat, especially to small businesses. That's another way insurance can help small businesses. Instead of draining their cashflow to defend themselves, an insurance policy may cover these costs which will help with liquidity if the suit is effecting operations. Better to be safe than sorry is a good approach. Basically, do the opposite of what Derek's doing these days.
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Dave Dias
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