Thursday, June 10, 2010

Stupid Is As Stupid Does

It seems to occur with great frequency in the middle market. Unscrupulous brokers put forth self insurance schemes to unwitting employers tempting them with a savings in future years for health care. The whispers are akin to an insider touting a lock on Sunday in the NFL, or a broker pushing a penny stock. There are no free lunches.

Houston Energy iconoclast Matthew Simmons pointed out yesterday how BP was self insured for environmental liability.

There is a lesson here for employers considering self-insurance. Always hedge your bets based on the worse case scenario. You never know when an employee  dependent might decide to become an octomom. BP is looking at bankruptcy according to Mr Simmons within a month due to a penny wise and pound foolish decision to self insure a risk which was neither finite or predictable.
...we went 41 years in the United States without an oil spill. In a minor sense, this is what happened to the Challenger. We had so many successful shuttle takeoffs that the space station got kind of casual about this. But this is worse. BP was so certain that there wasn't any risk that three years ago they thought the insurance industry was ripping them off, so they're self-insured on this. How stupid!

Over 3 years ago I pointed out in a post on this blog the absence of a sound saftey culture at BP was found to be the root cause behind an explosion at a BP refinery that left 15 workers dead. Not much has changed at BP. The CEO's arrogance knows no boundary. There is a lesson employers can learn. Your corporate culture impacts you insurance costs. From my post linked above allow me to remind all businesses smaller than BP;

It is unfortunate a tragic explosion which killed 15 and injured 180 people was required to make the point at BP that a broken safety culture has consequences and hopefully senior managers at other companies will examine their own safety culture. The findings of the CSB will undoubtedly be good news for the trial lawyers who are filling the airwaves in Houston trolling for clients for the pending class action. The CSB report that links cost cutting in the safety program after internal audits revealed serious shortcomings create a reality which looks penny wise and pound foolish indeed. Many refineries including BP carry high limit occupational accidental death and dismemberment policies on their workforce which are employer paid. Texas is unique also in that employers can opt out of the workers compensation system leaving an employer (probably not BP but possible several of the contractors) open to unlimited damages in the event they were negligent.

Stop and think about how many of the 180 people injured are now on long term disability. If you think the AD&D renewal was ugly imagine the LTD renewal. My point is not to make light of a sad situation but to point out that a broken safety culture often manifests itself in high disability costs as unsafe working conditions lead to injuries. This is particularly true at small and mid-sized businesses who lack safety programs to begin with and whose occupational hazards are well known.
"Where there is no vision, the people perish"-Proverbs 29:18.

As a young group rep at UNUM I sold hundreds of group life and disability policies to small and mid-sized employers. Normally, smaller employers became interested in Disability and life coverage after a catastrophic accident, sickness or disability effected one of their employees or family members. People get religion quickly when they see someone they care about struggling financially due to a death or disability. As my career progressed and my market changed to the Fortune 1000 what quickly became apparent was that many larger employers paid little attention to their safety culture or their AD&D and LTD plans until a catastrophic event or an ugly LTD renewal focused attention on the root cause which for many industrial employers frequently was a sick safety culture.
Many larger employers may not be as well covered as they think if their Group Accident and Life Policies have not been scrutinized by a professional with expertise at isolating exposures and re-underwriting their policies to eliminate risk.
On 9-11 I happened to be in the home office for one of the largest writers of accident insurance coverage in the world where I managed at the time. As the news showed the planes crashing my company insured the airlines involved. One of my friends and co-workers, Paul, saw a plane fly into the the world trade center where one of his accounts had 4000 employees and he also had numerous friends, neighbors and customers. The companies with sound safety procedures had many employees get out in part due to the planning, vision and in some cases the heroism of safety professionals. The world trade center was not an industrial location so certainly white collar firms are in need of a safety vision and culture as well particularly where employees are concentrated. 9-11 changed the catastrophic risk markets forever.

BP may discover shortly the penalty for poor risk management is bankruptcy.

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