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Dining Out Becomes Pricier with Minimum Wage Hike

Restaurant owners and consumers, alike, are being affected by the recent minimum wage increase.  While employees welcome the extra income, many restaurants are being forced to raise menu prices.  Expect to see price hikes at fast food chains, as well as fine dining establishments.



Is Your Business Prepared for a Product Recall?

From vehicles to pharmaceuticals to food products, what might risk managers learn from mass media coverage of product recalls? For manufacturers of all types of consumer goods, they might serve as a wake-up call to the potential impact of a product recall event and a lesson in what should be done immediately to prepare for potential exposures. According to the U.S. Consumer Product Safety Commission, there were nearly 39,000 consumer product-related injuries in 2010, resulting in numerous lawsuits.

The federal government mandates more than 1,000 recalls each year. Not including voluntary recalls, which are unrecorded, that’s an average of almost four recalls a day. Costs from a product recall or contamination can easily become many millions. In addition to the physical expense of a recall, falling sales due to poor consumer confidence, brand rehabilitation expenses and potential shareholder lawsuits may also contribute to long-term losses.

Despite recall frequency and the potential for extraordinary costs, most companies don’t adequately plan, prepare and practice for – or buy insurance to protect against – product recall events. In addition to proper insurance coverages, careful planning is essential in managing the risk of a recall.

Types of Exposure

There are two categories of exposure for a company faced with a product recall incident: first-party operational losses to the company and third-party liability losses to injured persons.

Unlike third-party losses, first-party loss is often overlooked. In addition to 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.

Misconceptions and 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 your bottom line by covering the direct costs of recall, but transferring the risk is only one part of closing the recall exposure gap.

Regardless of size, every company offering consumer products – and sometimes those that offer products intended for commercial and industrial use – should establish solid product risk management policies and procedures for handling a recall or contamination event.

Understanding Three Basic 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 discovered prior to shipment. Therefore, these events receive very little publicity. As opposed to malicious tampering, this peril has very high frequency but usually 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.

Pyramid Defense

Think of your risk management plan as a pyramid that outlines a series of defenses to counter the threat of a product incident. The first line of defense is the base of the pyramid. What actions can be taken to eliminate the majority of threats, such as unwanted bacteria, disgruntled employees, malfunctioning equipment, sloppy suppliers or lax testing? Put that in the first tier (bottom) of the pyramid. Any threats that escape being eliminated by the first tier should be addressed by the second, and so on. As the pyramid rises, the plan becomes more specific and more effective at isolating and eliminating product incident threats.

Tier 1 – Total commitment to quality. The good news is that most of what can be done to protect against a product incident occurs in the area of product quality assurance and control. Commitment to turning out the highest quality products day after day is the best countermeasure to the threat of a product recall crisis. This dedication to quality should be evident in every aspect of business, from manufacturing to marketing. The logic is simple: If the product can’t leave the plant in a contaminated state and the packaging is designed so that tampering is difficult to accomplish or obvious once done, the odds of experiencing a major incident are considerably reduced.

Tier 2 – Prepare with a contingency plan. It is essential to have a plan in place before a crisis arises. Research indicates that the first 48 hours of a major product incident are more crucial than the next 48 days. Every company should have a workable product recall and crisis management plan.

Tier 3 – Focus with training. Contingency plans aren’t of much use if they haven’t been tested and honed under simulated conditions to ensure the plan works.

Tier 4 – Respond with expertise and decisiveness. Even with a good team and a good plan, there is a place in a recall crisis for professional consultants.

Tier 5 – Transfer risk where possible. Even the best companies who are prepared for a recall can suffer substantial financial losses. In spite of all precautions, a large-scale public recall may cost millions of dollars in extra expense, lost profits, lost inventory, lost shelf space and lost market share. If it comes to this, the last line of defense is a solid product recall insurance program – one that indemnifies for the host of extra expenses and losses in revenue that come with product withdrawals.

Product Recall Insurance

Insurance for first-party losses caused by product tampering and contamination incidents are broadly labeled as product recall insurance. Product recall policies help to cover the additional costs of a recall, including product loss, costs to withdraw the product from market, product disposal, product testing, overtime wages and crisis management — costs that can be devastating because they arise at a time when a company’s revenues are typically hardest hit.

There are several coverage forms, each designed to isolate some component of first-party product exposure. SCM works with you to ensure your product recall policy provides indemnity for:

Recall expense. This out-of-pocket expense is associated with executing a large-scale product withdrawal. It includes costs like extra temporary employees, overtime, public safety messages, special testing and handling, destruction and disposal costs and crisis management and/or PR consulting fees.

Replacement cost. As the name implies, this is the cost of replacing any product that had to be destroyed. This includes the cost of materials, labor and overhead directly associated with producing the product.

Lost profits. This indemnifies the insured for profits, which would have been earned on the withdrawn products and also for profits that would have been earned on future product sales but which were not earned because of resultant future sales declines. This is usually limited to a specified time period.

Brand rehabilitation expense. Most underwriters will also indemnify the insured for necessary rehabilitation of the recalled product’s consumer image. This includes costs like extra advertising, extra expense to rush a new product to market and special promotions to rebuild public trust in the manufacturer and its products.

In addition to transferring risk, thorough risk management practices are essential to minimize the exposure and the cost of a recall event. The product recall insurance marketplace is highly specialized. Our team of experts can help secure the coverage you need and collaborate with you develop a business contingency plan that meets your specific needs.

Employing Minors in Construction

Minors between the ages of 15 and 17 who are employed in construction have a seven times greater chance of being fatally injured than their peers working in other industries. Because of the dangerous nature of the field, the Department of Labor (DOL) imposes restrictions on the type of work and number of hours that minors are permitted to perform in construction. Become familiar with these regulations to stay in compliance with federal law. Of course, state laws may have stricter laws regarding the employment of minors. Always consult your local jurisdiction before beginning employment.

Minors Under 16 Years of Age

Those under 16 years of age may only perform office or sales work in the construction industry. They may not be employed on a construction site. The federal rules also limit the number of hours and times of day that such youth may be employed.

Minors Age 16 and 17

Those employed at age 16 or 17 may work on construction sites, but there are several tasks or jobs that are deemed hazardous for them to perform, such as:

  • Working in occupations involving mixing, handling or transporting of explosive compounds
  • Driving a motor vehicle or working as an outside helper (17 year olds may drive automobiles and trucks on an incidental and occasional basis if certain criteria are met)
  • Riding on most construction elevators and operating or assisting in the operation of cranes, hoists, forklifts, Bobcat loaders, front-end loaders, backhoes and skid steer loaders
  • Loading, operating and unloading most trash compactors and balers
  • Operating power-driven woodworking machines and metal forming, punching and shearing machines – including portable machines
  • Operating power-driven circular saws, band saws, chain saws, reciprocating saws, guillotine shears, wood chippers and abrasive cutting discs – including portable machines
  • Working in wrecking, demolition and shipbreaking
  • Working in roofing and on or about a roof
  • Working in excavation

This is not a complete list of hazardous occupations, and there are some exceptions provided for 16- and 17-year olds who are apprentices and bona-fide student learners.

Those Over 18

Individuals age 18 and older may perform any work in construction.

Recommendations for Employers

In addition to understanding labor laws, there are additional steps you can take to protect young workers:

  • Recognize potential hazards
  • Eliminate any issues present in your workplace that could injure a young worker
  • Make sure that equipment used by workers is safe and legal
  • Supervise young workers
  • Be certain that young workers are appropriately supervised at all times
  • Inform supervisors and adult workers of the tasks that teens should not perform
  • Make sure that young workers are appropriately supervised at all times
  • Label the equipment that teens cannot use, or color-code their uniforms so that others know they may not perform certain tasks
  • Periodically verify through supervisors that teens are obeying safety practices
  • Provide training
  • Educate young workers to ensure that they recognize hazards and are competent regarding safe working practices
  • Training should include how to prepare for fires, accidents, violent situations and protocol for injuries. Teens need to know that they have a right to file a claim to cover their medical benefits and lost work time if they are injured
  • Have young workers demonstrate that they can perform assigned task safely and correctly
  • Use the buddy system
  • Implement a mentoring or buddy system for new young workers. Have either an adult or an experienced teen worker act as a buddy, and answer questions to help the inexperienced worker learn the ropes of the new job
  • Check equipment safety
  • Develop an injury and illness prevention program
  • Work with supervisors and experienced staff members to create a comprehensive safety program that includes an injury and illness prevention initiative
  • Identify and solve safety and health problems that arise or typically have been an issue in the past

Please visit www.youthrules.dol.gov for more information about employing minors in construction.

Source: DOL

The Repercussions of GM’s Recall

GM’s recall of 3.4 million cars will likely put a little extra cash into the pockets of auto dealers, however, re-sale values are sure to drop for consumers :


Food for Thought

Grocery stores are stocked with thousands of products that claim to be “all natural,” but today’s stringent requirements are forcing manufacturers to be more selective in their choice of words when promoting food products – see the following article. Mislabeled products can cost a company millions of dollars and a damaged reputation. SCM’s Food Industry experts are available to assist with managing the inherent risks faced by the food industry.

All-natural claims become risky business





ACA Deductible Limits Repealed

On April 1, 2014, President Obama signed the “Protecting Access to Medicare Act of 2014″ into law. The new law mainly focuses on Medicare reimbursement rates for doctors. A small, easily-overlooked provision of the law retroactively eliminates the Affordable Care Act’s (ACA) annual deductible limit for health plans in the small group market.

The ACA’s annual deductible limit was effective for plan years beginning on or after January 1, 2014, but many small employer plans were not required to comply with the limit due to an actuarial value exception created by the Department of Health and Human Services (HHS). The repeal of the ACA’s deductible limit is retroactively effective to the date of the ACA’s enactment in March 2010. Due to the repeal, small employers will have more flexibility to select health plans with higher deductibles. The new law does not affect the ACA’s out-of-pocket maximum, which applies to all non-grandfathered health plans for plan years beginning on or after January 1, 2014.

Source: Zywave Communications


Shake, Rattle and Roll!

Many Southern Californians were definitely rocking and rolling after the 5.1 earthquake that was centered in La Habra this past Friday night, March 28th.   Not only did it shake up a few items around the house, but it also served as an important reminder:  Are we adequately prepared for the “big one?”  The fact is, a 5.1 earthquake is only considered moderate, yet many homes and buildings close to the epicenter experienced quite a bit of damage.  The following article provides great tips on how to get ready for California’s next big quake —  definitely worth the read:


Yin & Yang: Workers’ Compensation & Employee Health

Every employer strives to increase productivity and profitability. Every employer hopes to decrease workers’ compensation costs and absenteeism. Yet, most employers cling to the traditional approach of handling their workers’ compensation and employee benefits programs separately. To gain control of soaring workers’ compensation and healthcare costs, however, employers need to adapt a more pro-active approach.

New research and studies continue to prove that workers’ compensation costs and employee health are incredibly intertwined. Like yin and yang, these two areas may at first seem opposite or contrary to one another, while in reality they are interconnected, and even complimentary to one another. A healthy employee is always more productive than an unhealthy employee, thus a workforce made up of healthy individuals is less prone to the challenges of absenteeism and presenteeism. While most people are familiar with the term “absenteeism,” the term “presenteeism” may require additional explanation. Presenteeism is when an employee reports for duty in a limited capacity due to injury, illness or behavioral issues, often resulting in reduced productivity and increased risk on the job.

So, which is worse? While no employer wants the burden of absenteeism or presenteeism, research conducted by Kaiser Permanente indicates that presenteeism can have more long-term negative effects. When an employee reports to work despite illness or injury, he becomes a substantially greater risk. Illnesses can spread to other employees and lack of awareness can result in accidents and oversights, potentially costing your company thousands of dollars in claims and lawsuits. Employees with chronic conditions, such as diabetes, depression, back pain or obesity are at an especially high risk and more likely to file a workers’ compensation claim. Ultimately, an employee who shows up to work when he is not well ends up costing a company much more than an employee who stays home. This brings us full circle, emphasizing the importance of reviewing your company’s workers’ compensation and employee benefits programs side by side.

Introducing CompWell, a comprehensive solution by SullivanCurtisMonroe Insurance Services, LLC. CompWell is SCM’s proprietary approach to minimizing workers’ compensation and healthcare costs by advancing employee health. The CompWell process includes:

  • Benchmarking your employees’ health and company’s workers’ compensation experience
  • Comparing your employees’ health and company’s workers’ compensation statistics to others in the same industry
  • Implementing a customized population health management program tailored to succeed
  • Monitoring and managing progress through analytics and dashboard reporting

In a world of inherent risk, where yesterday’s methods of addressing workers’ compensation costs continually prove to be ineffective, it is more important than ever to explore alternative solutions. SCM’s team is ready to partner with you in designing a workers’ compensation and employee benefits strategy to restore balance to the workplace, resulting in a healthier employee population, reduced claims, greater productivity and improved company morale.

Are You Stuck in the ’60s?

After nearly 50 years, it is time to get rid of the tie dyed shirts and join the 21st Century.

No, I’m not referring to 1968 and the Summer of Love; rather, business owners who continue to use an antiquated process for bidding their insurance – the marketplace selection process. After nearly 50 years, it is time to get rid of the tie-dyed shirts and join the 21st Century.

Many companies continue to obtain property and liability renewal quotes using the market selection process, without understanding how outdated and ineffective this method can be. The marketplace selection process was first used in the mid 1960’s, whereby multiple brokers were assigned specific insurance companies to obtain property and casualty renewal quotes. At that time, there were 75,000 independent insurance agencies across the country. There was little difference between them, except in one important area — the carriers they represented. You may recall some of these names, The Continental, The Home, The Aetna, Kemper, USF&G, The Royal, Legion and Reliance. These relationships were memorialized by plaques proudly displaying the insurers’ logo, which hung in the lobby, adorned the walls and shown prominently in conference rooms. These symbols recognized milestone anniversaries, and it was not uncommon for these relationships to exist for decades, many spanning well into the second generation of agency owners.

Over time, the top agencies used their unique ability to access specific carriers as the main point of their value proposition. After all, from that point forward, most competing agencies looked the same.

In an effort to control a process that often involved over 30 competing national, multi-line carriers and up to six brokers, the marketplace selection process was born. While cumbersome and inefficient, it allowed buyers to bring some sense into the process that was necessary to obtain desired results. By assigning markets to specific brokers, the buyer could ensure access to the large scope of alternatives available, thus keeping the playing field level. In most cases, you still needed a scorecard.


Flash forward nearly five decades: The bulk of the major national carriers that existed when the process was developed, along with the companies mentioned above, are no longer around. They either went out of business or merged with other companies. Today, the marketplace does not offer a large selection of alternatives. Only seven multi-line national insurance companies are in existence. Further, the remaining major carriers have contracts with most agencies, which now number half of what existed in the 1960’s. Insurer contracts are no longer a differentiator among brokers.

During the last decade, systemic changes have caused our industry to evolve. As insurers consolidated, buyers became astute in the difference between price and cost, while recognizing the need for more services that reduce claims, mitigate costs, increase productivity and generate more profit. Forward-thinking insurance brokers adopted a new approach, offering value added services. In the process, they became cost reduction resources. These value added services are typically not related to an agency’s contracts with carriers, but uniquely individual to the agency. The primary objective of a broker is to offer services that help businesses achieve their goals.

Because of these factors, savvy business owners and executives understand that obtaining insurance coverage goes beyond choosing the most competitive program, it also involves engaging multiple brokers. The best results come from a strategic risk management approach, which reduces the Total Cost of Risk and positions the business as an attractive risk. This is accomplished by identifying an operation’s exposures, developing a strategy to manage that risk and mitigating claims through an effective loss prevention and control program. The broker selection process relies on developing a partnership with a qualified broker, whose services are aligned with the needs of your company. The selected broker then represents you in the marketplace to negotiate the best terms and conditions.


The insurance market is transitioning into a new cycle of increasing rates. Fewer insurers are willing to provide coverage and underwriting is more disciplined. Previously, numerous insurers were willing to quote with year-over-year rate reductions, now only one or two may be interested. This is especially true for organizations experiencing increased workers’ compensation claim activity, deteriorating results and high experience modifications. These conditions require different strategies and tactics to maximize results. At this particular point in time and in the foreseeable future, proper broker selection is crucial to obtaining the best outcome.

SCM has long been at the forefront of the shift from market selection to broker selection. What separates us from other brokers are the measurable results our clients achieve from the programs and services we offer. Based on the numerous pricing transitions we have experienced, the following tips may offer some insight on how to best manage your broker selection process:

  • Select your broker based on its experience and proven ability to meet your needs or solve a specific situation.
  • Make your choice far enough in advance of the renewal, so the broker has ample time to understand your operation, perform the necessary analysis and evaluation and establish the program design with enough time to go to market.
  • Consider a broker that not only meets your needs today, but is also positioned to support you in the future.
  • Establish a process to periodically review and measure the progress and results of both parties to ensure accountability.
  • Unless special circumstances dictate, do not obtain renewal quotes too frequently. Bidding the program more frequently than every three to four years makes underwriters wary about writing your business.
  • Avoid getting alternative quotes unless you are willing to change insurers.

SCM has a suite of services focused on helping businesses manage their property, liability, workers’ compensation and employee benefits insurance. Our goal is to help clients improve risk management, reduce costs and increase profit.

For details about any of the above items, contact:

Stephen Paulin, CIC
Senior Vice President

SCM Relocates to Downtown Los Angeles!

SCM has relocated from Pasadena to a beautiful 12,000 square foot office in Downtown Los Angeles!  The move will provide the firm the opportunity to serve clients more efficiently, with regard to convenience and available resources in the middle of a business district.

With continued growth, SCM is seeking to add more brokers, account executives, account managers, as well as claims and loss control staff. 

The new office is located at:

550 South Hope Street, Suite 1000, Los Angeles,  CA 90071                                                  P: 213.233.0400    F: 213.892.1593


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