E&O Weekly Prevention
Strategies for the Professional Agent
September 27, 2012


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Letter from the Editor

This week's edition of AOA E&O Prevention:


Table of Contents    


Excess of Loss Reinsurance

By James A. Warters


By Dana C. Argeris, Esq. 


Proof Decision Maker Knew of Workers' Compensation Injury Required for Retaliatory Discharge Claim

By Jody Wilner Moran Esq.


By Brandon S. Reif, Esq.  & Timothy W. Fredricks, Esq



Check out this week's edition of World Risk & Insurance News at WRIN.tv.


Learn what you need to know to protect your clients in 2013. "DRI's Professional Liability Seminar" is dedicated to addressing the educational needs of attorneys and insurers who protect the interests of all types of professionals, from lawyers and accountants to insurance producers and those involved in the construction and design industry. This seminar will be in New York on December 6th & 7th and will include leading experts in the field who will provide important updates to ensure that you have the information you need.


AgentsofAmerica.ORG has partnered with WebCE, a leading nationwide provider of Continuing Education for insurance professionals, to provide you with state-approved self-study CE courses to satisfy your CE requirements online! Check out your CE State Requirements.


Also available is our most recent edition of "AOA Tips, Views, News & More," including our new feature "Insurance Resources." & "Recommended Reading".  Remember that membership in AgentsofAmerica.ORG is FREE! Also if you have any thoughts, comments or suggestions, please email me at info@agentsofamerica.org


"Bringing the Best Together"


Britton D. Weimer, Esq.



AOA News, Views, Tips and More


1 HIRING MEASUREMENT THAT'S STUPID: The Illogic of "Cost-Per-Hire"

By Michael Mercer, Ph.D.


Hiring and HR managers and recruiters sometimes brag about how cheaply they hire employees. In fact, the national HR association, SHRM, even collects cost-per-hire data. 


What a waste!


Cost-per-hire is

-  stupid

-  illogical

-  does not measure financial benefit or loss from employees you hire


Reason: What counts most in hiring is your return-on-investment (ROI) or cost-benefit ratio when you hire an employee. 




[Note:  I omit financial signs, because some e-mail programs block them.  But, you know what these 

numbers mean.]


Let's say

-  your cost-per-hire to hire one Sales Rep is 5,000

-  that Sales Rep's productivity results in sales of 1-Million/year for your company 


But, let's say you hire a second Sales Rep

+  with cost-per-hire of 10,000 - that cost twice as much as the first Sales Rep

+  and this 'more expensive' Sales Rep produces sales of 2-Million/year


Glorious financial result:  You spent 5,000 more cost-per-hire, and you made a lot more sales. You produced a vastly bigger ROI. 


Question:  Was that extra 5,000 more than worth it?


Every executive I ever worked with or consulted to would feel that 5,000 extra cost-per-hire is 100% fine, 

because it is financially beneficial.  You produced a vastly bigger ROI. 




Let's say you hire people for "blue-collar" jobs, perhaps in manufacturing or distribution. 


Some managers and recruiters brag about their 2,000 cost-per-hire for "blue-collar" employees. 


Imagine if you spend 2,000 to hire a "blue-collar" employee.  And that employee is a troublemaker who causes detrimental financial detrimental results, such as:


-  accidents

-  low productivity

-  stealing

-  mistakes and waste

-  substance abuse on-the-job

-  lousy work ethic

-  disruptive to co-workers or customers


Sum = That employee you hired for 2,000 cost-per-hire created expensive problems. 


Now, imagine you hire a different "blue-collar" employee at a 4,000 cost-per-hire.  That cost two times as much  as the troublemaker you hired for 2,000.  But, if this 4,000 employee is highly productive, low-turnover, and a pleasure for everyone to work with, you hired a financial winner.


Question:  Wasn't that worth the more expensive cost-per-hire?  It certainly proved financially worth it.




You can imagine many examples where a cheap cost-per-hire ends up costing your company a lot more  than a more expensive cost-per-hire. 


So, the next time a manager or recruiter brags about cheap cost-per-hire, look that person in the eye, and ask this question:  "How much did that employee increase or decrease our financial ROI?" 


If the manager or recruiter cannot answer your ROI question, then you should explain ROI or cost-benefit analysis.  Teach them the difference between cost-per-hire and profit-improvement.


If they still fail to realize their job requires hiring employees who improve your company's bottom line, you may consider "de-employing" that them. 


Then, you can hire a new manager recruiter who knows their goal is to hire employees who help you improve profits and productivity.





Only employ people who help you grow your business. 


The ROI of highly productive employees is worth almost any cost-per-hire.


COPYRIGHT 2012 MICHAEL MERCER, PH.D., www.MercerSystems.com


Michael Mercer, Ph.D., authored the book "HIRE THE BEST & AVOID THE REST(tm)."  Dr. Mercer created all 3 "FORECASTER(tm) TESTS."  These 3 pre-employment tests are used by companies to assess job applicants' personalities, mental abilities, and dependability.  Dr. Mercer also delivers speeches and seminars at companies and conferences.  


You can learn about the 3 FORECASTER(tm) TESTS, or 

subscribe to his "HIRE THE BEST Newsletter," at www.Pre-EmploymentTests.com




Mental Health Conditions in the Workplace

By Deborah Dutton-Lambert, MBA, PC, CRC founder of Encompass Training 



The Costly and Negative Dynamic of DON'T ASK... DON'T TELL
One in four people in the US will experience a mental health condition this year


Major Depression is the leading cause of disability in the US

Two-thirds of people with mental health conditions do not disclose them to their employers and nearly half don't' share them with family members

Mental health conditions frequently co-occur with physical health conditions resulting in co-morbidities that decrease productivity through increased absenteeism and presenteeism


The cost of absenteeism and presenteeism is two times the cost of treatment, and treatment works in 75-80% of most case



Stigma is the most significant barrier to early identification and treatment of mental health conditions in the workplace. In a study published in the American Journal of Psychiatry in September of 2010, the authors noted that, although Americans are now more likely to believe that mental health conditions have a biological origin with effective treatments, they are more likely to stigmatize these individuals. The authors found that there was an increase rather than a decrease in community rejection for individuals with these conditions. A negative dynamic truly exists in US workplaces today that prevents employees from seeing treatment and it starts with stigma. Let's look at how this dynamic plays out.

When the employee feels that they will be treated differently, viewed as less competent, or even labeled as "crazy" they will not disclose a mental health condition nor seek treatment
The employee will continue to work in a state of distress with reduced productivity, increased absenteeism, and increased presenteeism
The cost of absenteeism and presenteeism is two times the cost of treatment. Employers also see increased costs for health care as co-morbidities are often involved
When the employee is not working at their best, the work unit is not as productive. Co-workers may resent additional work to make up for lost productivity and morale declines. This can result in additional stigma directed toward the employee. The employee is even more unlikely to seek treatment and may go out on a medical leave related to co-morbidity and the mental health condition may never be addressed.  

Treatment Works  

US companies who actively pursue the integration of behavioral health care and physical health care are achieving significant savings. Below are statistics of net savings to employers for employees effectively treated for depression?

The net savings noted in these statistics resulted from a reduction in absenteeism and presenteeism along with decreased utilization of health care benefits for physical co-morbidities.

Employers can achieve these savings if an environment is created where behavioral health care is fully integrated with physical health care and mental health conditions are identified early and treated effectively. We call this a Mental Health Receptive Workplace.
The net savings for employees effectively treated for depression is significant. Here are some statistics:

100 Employees - 13 with depression have 10 effectively treated = $14,000 savings per year to the employer
500 Employees - 63 with depression have 50 effectively treated = $70,000 savings per year to the employer
1000 Employees - 125 with depression have 100 effectively treated = $140,000 savings per year to the employer
10,000 Employees -1250 with depression have 1000 effectively treated = $1,400,000 savings per year to the employer

Data extrapolated from "Cost of Lost Productive Work Time Among US Workers With Depression" by W.F. Stewart, et.al, June 18 2003, the journal of the American Medical association  

A Mental Health Receptive Workplace - What Does It Look Like?

  •  Supervisors and staff are trained on identifying possible mental health related behaviors
  •  Supervisors know how to speak to employees about mental health concerns
  •  Employees are not afraid to disclose personal mental health concerns and seek help
  •  Supervisors and employees know where and how to access help
  •  Confidentiality is safeguarded
  •  Management emphasizes problem solving and accommodations

If you would like to learn how to create a mental health receptive workplace at your company go to www.agentsofamerica.org click Encompass Learning in the top red menu bar, select from drop-down list for information.


For additional information or to contact Debbie go to "Contact Us"



Financial Tip of the Month  

By Mike Brady of the Brady Financial Group, LLC


Do you know the revenue makeup of your book of business? Over the past four years many agencies experienced a high level of account retention but significant decreases in the renewal revenue associated with those accounts. This was largely due to the impact on pricing the soft market had and the challenging economic conditions we all have faced.


Take the time to revisit your book of business, understand if you are over reliant on one particular account or industry. Much like we do with our personal investment portfolio after a significant move in the stock market, we need to make sure our book of business is properly balanced. You might be surprised to learn a client makes up a higher % of your book then you thought. Don't be the agency owner who finds that out too late.


Contact Mike at mike@bradygrp.com or Visit Brady Financial Group(484) 653-6280



Results of Last Week's Poll Question


Effective use of an Exposure Analysis Checklists is widely regarded as a key component in an agency's E&O loss prevention program. Please note whether you utilize an Exposure Analysis Checklist in your agency and if so, to what extent.


a) We use an Exposure Analysis Checklist for all of our new commercial business, regardless of premium size                                      45% 

b)  We use an Exposure Analysis checklist for our new business accounts over a specified premium size                                                20%

c)  We don't use an Exposure Analysis Checklist in our agency 6%                                                                        

d)  It is up to the producers whether they want to use this tool   12%                  

e)  We are not sure what an Exposure Analysis Checklist is     17%



This Week's Poll Question


The last time that I sent my sales staff (producers / account execs) for formal sales training

program was:


a) Within the last year                                                                                

b) Between 1-3 years ago                                                                            

c) Over 3 years ago                                                                                     

d) Not sure that they have ever really been trained in sales skills               


A1Excess of Loss Reinsurance
By James A. Warters

My last two articles have addressed basic reinsurance principals and practices and proportional reinsurance. The antithesis of proportional reinsurance is non-proportional reinsurance, often called "excess of loss" reinsurance to avoid having to use big words like "antithesis." While some reinsurers complain that their lot in life has always been to deal with an excess of loss, the phrase is supposed to refer to the practice of providing indemnity over and above, i.e., in excess of a specific dollar or percentage amount called the ceding company's retention (deductible) or the reinsurer's attachment point. Lest you think that reinsurers are prone to demonstrate a certain degree of affection for their attachments, they can, and do, change them with regularity (and impunity).


















article2The Duty To Defend Under an Indemnification Clause  


Key Points

  • An indemnitee was not entitled to reimbursement of defense costs when the indemnitor 
  • secured summary judgment and the clause required a finding of negligence.
A question left open--when a business invitee alleged negligence by the owner, contractor and subcontractor, and all three obtained summary judgment, was the owner entitled to reimbursement of defense costs when the clause was not explicit as to the owner's alleged negligence but required protection against all work related claims? 




Firebrand Social Media   















By Brandon S. Reif, Esq.  & Timothy W. Fredricks, Esq


In a potentially game changing decision for independent broker-dealers, the U.S. District Court for the Southern District of California ruled for the first time that registered representatives are not employees under California law. The District Court granted summary judgment in favor of Waddell & Reed, upholding the firm's classification of its registered representatives as independent contractors and not employees. 


This newsletter is produced in conjunction with Agents of America, www.agentsofamerica.org. The contents of which may not be reproduced without the express written permission of Agents of America. Copyright 2012