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WHAT IS INCLUDED AND/OR EXCLUDED FROM PREMIUM IN A WORKERS COMPENSATION AUDIT?

Shaun Kelly, Tolman & Wiker, CALSAGA Preferred Broker

Hope all is well with everyone.

In my last article, we discussed why Workers Compensation auditors are requesting more information than they have in previous years. This is due to the passing of Assembly Bill 5 (AB-5), which redefines the guidelines of whether a worker is an independent contractor or not (The ABC test). Auditors are requesting additional financial information to determine if employers are using independent contractors.

In this article, we are providing information on what is included and/or excluded in determining your premium in a Workers Compensation audit. This will include information regarding some of the following:

  • Sick pay
  • Vacation Pay
  • Bonuses
  • Attendance at conferences
  • Automobile allowance
  • Employee benefits
  • Commuter compensation
  • Meals
  • On Call/Stand By pay
  • Uniform allowance
  • More

Please see the attached Payroll/Remuneration Table from the California Workers Compensation Uniform Statistical Rating Plan (Also known as the USRP).

The USRP is updated and approved by the California Insurance Commissioner periodically. You can find the complete USRP on the Workers Compensation Insurance Rating Bureau (WCIRB) website at wcirb.com under Filings and Plans.

If you have any questions, please feel free to contact me.

Take care and see you all at the CALSAGA Annual Conference.

Shaun Kelly joined Tolman & Wiker Insurance Services in 2005.  He specializes in all lines of property and casualty insurance for industries including contract security firms, agriculture, construction, oil and gas. Shaun received a BS in Business Administration with a major in Finance from California State University in Fresno, California. He is an active member of several industry associations, including the Association CALSAGA, the Kern County Builders Exchange and the Independent Insurance Agents of Kern County. Shaun can be reached at 661-616-4700 or skelly@tolmanandwiker.com.

IS INFLATION TO BLAME FOR RISING SECURITY FIRM INSURANCE PREMIUMS?

Tory Brownyard, Brownyard Group

In California gas prices have risen above five dollars a gallon. Food banks are experiencing extraordinary demand. Mortgage rates, housing prices, residential rent and even home repair and replacement costs are soaring. For many Americans, this historic rate of inflation has become real, unprecedented and problematic. As consumers feel the brunt of inflation, its impact also spans various industries throughout the U.S. For the private security insurance industry, the market continues to harden, due to both inflation and other factors.  

While a major contributor, however, inflation is just one factor making it more challenging for security firms to secure the insurance they need to mitigate their risk exposure, and of course, meet required insurance obligations featured in every service contract.

Extreme Loss and a Rise in Crime

Inflation aside, many insurance carriers assess the risk and associated cost of premiums based on the history of loss in the industry as well as the individual organization’s claims history and operational practices.

One tragic example of an operational impact includes the May 2022 Securitas Security Services $517.5 million settlement paid to the victims of the June 24, 2021 partial collapse of Champlain Towers in Miami. Among the determining factors for Securitas paying nearly half of the more than $1 billion settlement included the failure of the security guard on duty in activating the building’s alarm system to signal an emergency evacuation. In a deposition, the company’s manager acknowledged a lack of training contributed to the system not being used despite the guard on duty calling 911 approximately 10 minutes before the structure failed, killing 98 people. 

Multi-million-dollar settlements like that of Securitas will have major ripple effects across the security industry for years to come.

Other examples include the recent spike in active shooter situations, including the devastating incident in Uvalde, TX and the Fourth of July shooting in Highland Park, IL. In addition to the tragic loss of life, more than 300 mass shootings have occurred by the mid-point of the year, putting 2022 on track to meet or surpass the record 700 shootings in 2021 or the previous record of 611 shootings in 2020. In many, but not all such mass shooting incidents, private security firms face the public’s wrath, legal inquiries and countless lawsuits. The resulting litigation often produces what many term nuclear verdicts handed down by the courts, loosely defined as exceptionally high jury awards that exceed what most would consider reasonable.

Large jury awards against security firms can often be traced back to failures in training, client screening, contract language and communication. So, while inflation is certainly a factor, there are other circumstances within the control of the industry itself to limit its own risk and exposure.

Managing Risk

Steps security firms can take to reduce their exposure and slow or mitigate the rise in their premiums include:

  •         Carefully selecting clients: As the shootings in Uvalde, Buffalo, Highland Park and Biloxi — among others — have taught us, active shooter or violent situations can occur anywhere, among anyone at any time. However, when it comes to underwriting the security industry, insurers will often look closely at the types of clients the firm takes on. Those who take on high-risk clients, those with more public exposure such as bars and nightclubs, shopping malls and sport or concert venues, will often give insurers pause. If an insurer does cover a security firm with such clients, the premium is sure to be much higher than those who take on low-risk clients. Low-risk clients are those with less public exposure, including warehouses, office buildings and industrial type clients.
  •         Mitigating liability: To minimize risks, a security firm should always speak with their insurance partner before taking on a new contract. The insurance partner can help advise on what to avoid and can ensure proper coverage is obtained to best meet the firm’s needs and client types. Firms should also consider their policy limits when taking on new clients and make necessary adjustments in consultation with their agent or broker. High-risk clients can often demand higher limits of liability, and excess and umbrella policies can provide needed coverage beyond the scope of the original policy.
  •         Reading the fine print: Security firms should also consider contractual language carefully before taking on new clients. Ensuring their guards are only liable for their own negligence and wrong doing is critical. Also, it is recommended that clear and concise expectations for all parties are written into the contract. This can help avoid costly lawsuits and needless blame.
  •         Prioritizing training and communication: California state law requires 32 hours of training to acquire a security license, and eight hours of training each subsequent year to maintain the license. While this training provides guards with the tools and knowledge to perform their duties to industry standards, additional training for de-escalation, the dangers of restraints, active shooter or other situations is also recommended. Regularly revisiting and updating such training is vitally important. However, even the best training can fall short in an emergency. Clear communication protocols for security guards to seek and receive updated instructions can make the difference between managing a crisis or facing unfortunate and avoidable consequences. When all else fails, security guards should be able to rely on universally understood and transparent orders and expectations established within the signed contract.

Staffing and resource limitations among local law enforcement along with rising crime in certain localities will continue to drive the need for more private security by event and property managers, among others. Increased demand, paired with higher risk security situations, directly affects the rise in insurance premiums for private security firms. This rise of risk and premiums will continue to contribute to insurers being much more selective in the types of security firms they are willing to cover. Working with their insurance agents and brokers, security firm leaders can play an active role in minimizing their risk to avoid major losses and secure reasonable coverage to allow them to keep both their clients and their businesses safe.

Tory Brownyard, CPCU, is president of Brownyard Group, an insurance program administrator with specialty programs for select industry groups. In addition to his responsibilities as president, he currently spearheads the Brownguard® security guard insurance program.

WORKERS COMPENSATION AUDITS – BE PREPARED!

Shaun Kelly, Tolman & Wiker, CALSAGA Preferred Broker

Hope everyone is doing well and getting out to enjoy more activities outdoors!

Over the past 6 to 12 months, we have been receiving more calls from employers (PPOs) than ever before regarding Workers Compensation Audits. Their concern is that some auditors are requesting more information than they have in previous years. The reasoning behind the auditor’s request for additional information is the result of Assembly Bill 5 (AB-5). This is the radical change in the definition of Independent Contractor status in California. And, as a result, Workers Compensation auditors are requesting additional information to obtain verification that employers are classifying their workers correctly and collecting the appropriate premiums.

AB-5 implemented the ABC Test and put the responsibility on the employers to determine the status of their workers. In order to hire and classify a worker as an independent contractor, the employer must demonstrate that all 3 of the independent contractor requirements are satisfied. These 3 requirements include the following:

  1. The worker is free from control and direction in the performance of services; and
  2. The worker is performing work outside of the usual course of the business of the hiring company; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business.

Even before the implementation of AB-5, a Guard carded security worker is not allowed to work as an independent contractor.

Workers Compensation auditors are now requesting financials in conjunction with the usual 941 quarterly payroll reports and other documents to determine if payments have been made to independent contractors. Per the terms and conditions of the Workers Compensation policy, audits are mandatory and in Part 5 G-Audits; auditors are able to request the following: “You (policyholder) will let us examine and audit your records that relate to this policy. These records include ledgers, journals, registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and retrieving data. We may conduct the audits during business regular business hours during the policy period and within three years after the policy period ends. Information developed by audit will be used to determine final premium. Insurance rate service organizations have the same rights we have under this provision.” 

Since AB-5 was signed into law in 2019, Workers Compensation policies expiring in 2021 and going forward are being affected by the new legislation.

Please be prepared to address the request from the auditors and provide the following documents:

  • Workers Compensation reports and/or Payroll Journals and/or Payroll Summaries
  • Federal (941) and State (SUI) quarterly tax returns that correspond with your policy period
  • List of Executive Officers, Owners or Partners (Ownership %, Amount Paid, Job Duties and Titles)
  • List of employees that have been reported in Clerical (8810) and/or Outside Sales (8742)
  • Access to General Ledger and Cash Disbursements Records
  • For any subcontract, please have certificates of insurance available for review along with the amount paid and their job duties*

*It is very important to request insurance certificates from all subcontractors that you hire, or the cost of the subcontractors you hire will be included in your final premium calculation.

Auditors are being required to request this information. Hopefully now you will have a better understanding of why it is being requested.

Thanks and take care.

Shaun Kelly joined Tolman & Wiker Insurance Services in 2005.  He specializes in all lines of property and casualty insurance for industries including contract security firms, agriculture, construction, oil and gas. Shaun received a BS in Business Administration with a major in Finance from California State University in Fresno, California. He is an active member of several industry associations, including the Association CALSAGA, the Kern County Builders Exchange and the Independent Insurance Agents of Kern County. Shaun can be reached at 661-616-4700 or skelly@tolmanandwiker.com.

 

GENERAL LIABILITY INSURANCE – ARE YOU COVERED?

Shaun Kelly, Tolman & Wiker, CALSAGA Preferred Broker

Happy New Year and hope everyone is doing well!

Over time, insurance carriers experience losses or events that make them reconsider providing coverage for certain types of exposures under the Commercial General Liability policy. It is important to note that as each insurance carrier evaluates these exposures, they develop their own underwriting guidelines and can or will modify the terms and conditions in their own policies to minimize risk. It is likely that most of you have not read through your entire policy to understand the coverage terms and conditions, unless you have insomnia and have nothing better to do. To assist you in understanding the Commercial General Liability coverage for contract security services, here is the short version of what to look for, “Exclusions”. 

Commercial General Liability (CGL) policies are intended to provide coverage to the Named Insured for their negligence (resulting from the services provided) for bodily injury, property damage, personal & advertising injury to a 3rd party. Most insurance carriers use a standard ISO CGL form and attach endorsements and exclusions to add, remove or limit coverage. We are not going to go through the entire CGL policy, however we are going to discuss some of the exclusions that may be on your CGL policy that you need to be aware of. 

The following “Exclusions” may be part of your CGL policy (Some exclusions may be added back with underwriting approval and additional premium):

  • Terrorism
  • Pollution
  • Communicable Disease
  • Personal and Confidential Information Disclosure (Cyber liability)
  • Employment Practices Liability
  • Employers Liability (Part of Workers Compensation policy)
  • Abuse and Molestation
  • Firearms
  • Unmanned Aircraft
  • Animal exclusion
  • Mobile Equipment (ie. Golf carts, scooters, segways…any vehicle licensed for the public road should be on an auto policy)
  • Cannabis Operations
  • Public/Low Income Housing
  • Airports
  • Crowd Control/Concert Facilities/Sporting Events
  • Liquor Establishments: bars, hotel bars, nightclubs, lounges…
  • Bodyguards: High Profile Individuals/Entertainers/Athletes…
  • Baggage checking
  • Inside Retail/Loss Prevention
  • Convenience Stores
  • Fast Food Restaurants
  • Schools

 

These “Exclusions” may not apply to all policies and your policy may have other exclusions not listed above. If you are providing security services that involves any of the above, please review your policy.

At the end of the day, including all of your operations (client exposures) in your application for Commercial General Liability coverage is critical to obtaining the proper coverage. Policies can be modified to include some of the high risk exposures and remove exclusions, with approval from the insurance carrier. In regards to some of the extremely high risk exposures (for example, Crowd Control/Concerts/Sporting Events, Low Income Housing, Liquor Establishments, Inside Retail/Loss Prevention, High Profile Individuals/Entertainers/Athletes…) that the standard insurance carriers will not accept, specialty insurance carriers are available.

Take care and be safe.

Shaun Kelly joined Tolman & Wiker Insurance Services in 2005.  He specializes in all lines of property and casualty insurance for industries including contract security firms, agriculture, construction, oil and gas. Shaun received a BS in Business Administration with a major in Finance from California State University in Fresno, California. He is an active member of several industry associations, including the Association CALSAGA, the Kern County Builders Exchange and the Independent Insurance Agents of Kern County. Shaun can be reached at 661-616-4700 or skelly@tolmanandwiker.com.

 

ALIANZA: BLAZING A TRAIL FOR Q BY TEAM SOFTWARE

Team Software Team

For small companies with distributed workforces, like the contract security industry, site level visibility, managing hourly staff and keeping communication lines open are key areas that can make or break the business. While spreadsheets, emails and texts can suffice for a while, those tools typically aren’t sustainable, growth-enabling or without complexity. For Alianza Security Professionals, a small, private security company based in Dallas, Texas, setting and delivering on high standards is the company’s competitive differentiator. By developing a distinct culture of service and accountability along with adopting security industry-focused technology solutions to support it, the up-and-coming company has gained a foothold in the Texas security market with 11 guards and more than 10 service locations.

Alianza uses Silvertrac’s guard touring solution combined with a new field workforce management toolset for small contractors called Q by TEAM Software. Q enables companies to direct, set and track the operations of their distributed workforce. As an always-on solution, Q helps manage and track productivity, open up communication and retain the employees who are making an impact. In other words, Q strongly aligns with Alianza’s strategic goals, supporting accountability in the field, more communication and, ultimately, better results.

“There are a few problems within the security industry, and they are massive. I know the pain points,” explained J.D. Torres, Alianza Principal and Founder. “Guards are asleep on the job or leaving the property. They don’t show up. They’re late, or don’t know when to show up.

“The biggest benefit of Q so far has been the scheduling piece and the ability for staff to clock in and out on site,” Torres continued. “It’s an accountability tool for them to know when they need to be on site, and I want to make sure my staff have the tools to be successful.”

A technology solution along with appropriate processes help boost the reliability and service quality of Alianza’s workforce. In addition, for Torres, simplicity is key along with a basic set of features, including the ability to communicate the schedule and see who is onsite and on time, in real time.

“The scheduling functionality is cut and dry and much simpler than the previous scheduling software I had been using,” Torres said. “Q really fits my needs right now, especially for my industry.”

With Q’s streamlined scheduling and time and attendance capabilities, Alianza can capitalize on its promise of accountability to customers. Plus, proactively managing the schedule benefits the company in many ways, including overtime prevention, better site coverage and accurate customer billing.

“This is the tool that we depend on, and I tell [our prospective customers] the value that it brings,” said Torres. “I put both Q and Silvertrac in my sales deck. I’m telling my clients what differentiates us in the market, and that’s accountability.”

Along with right-sized, industry-specific technology, Torres and partners back up their accountability promise to clients by building a culture around delivering on high expectations. According to Torres, that helps them win business when up against bigger, more established firms.

“It’s the difference between McDonald’s and Chick-Fil-A. The culture is different, and training is different, but price point is the same,” he said.

Torres explained that Alianza builds their culture and reputation through smart hiring practices, focusing on people eager to grow and pairing skills and experience with the right position.

“I have a different recruiting effort,” said Torres. “I’m not interested in someone who has worked a foot-patrol post for five years. Those people have figured out how to cut corners, and they aren’t interested in growing or moving up. I’d rather have someone who is new to the industry, and who understands what my expectations are.”

Torres and his team also see a need at sites for a bilingual workforce in the Dallas area to bridge communication gaps and ensure continuity among all services providers.

“We’re building a bilingual workforce because there’s a huge disconnect between janitorial contractors, day porter staff and the security staff due to language barriers,” he noted. “They’re handing off important things, like keys, and no one knows what the other is saying.”

Torres and his team have their fingers on the pulse of the security industry. That’s apparent through their approach to service as well as in their hiring practices. And, as an original beta  customer, Alianza has provided pivotal input and feedback on Q to ensure the solution serves the needs of the small market security contractor.

“It was a crazy kind of thing. We [at Alianza] were developing our security offering at the same time TEAM was developing the Q product,” Torres said. He also knew TEAM Software and had  used TEAM’s signature ERP software, WinTeam, before, too. So, there was a familiarity and natural alignment throughout the  beta experience.

“I felt like we had a partnership with TEAM right from the start,” he said. “TEAM seems like it’s a part of my company. That’s where the real value is. And, that’s who I want to be for my clients. I want to give them the kind of service that TEAM is giving us.”

 

About TEAM Software

TEAM Software develops financial, operations and workforce management solutions for contractors with distributed workforces of any size, with a focus on the building service

and security industries. TEAM’s efficiency-enhancing technology transforms business management and drives profitability. TEAM’s industry-specific solutions range from a complete enterprise software ecosystem to a right-sized workforce management toolset that connect key components of customers’ businesses. Founded in 1989, TEAM is an Omaha, Nebraska-based technology company with more than 400 customers all over North America. For more information, visit teamsoftware.com.

About Alianza Security Professionals

Alianza is a private security company licensed by the Texas Department of Public Safety, that provides integrated security, private investigation services and risk management services to corporate, individual and non-pro?t clients. Alianza leadership has been inside the industry for decades, have identi?ed the “pain points” in the industry and have worked tirelessly to separate themselves from the rest of the pack.  How? Through training, communication, coordination, execution and methodology. Visit alianzasecure.com to learn more.