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EXECUTIVE SUMMARY
For the past few months my associate Mitch England and I at Makohin Consulting
Company (MCC) have been reviewing BT Design, Inc.’s (BTDI) corporate structure, financials,
and operations. In this document you will find an analysis of BT Design, Inc.’s top risk exposures
that the firm currently faces as well as exposures that will be relevant in the future.
BT Design, Inc. functions at four locations geographically diversified across the United
States in the cities of Oakland, CA, Riverside, CA, Seattle, WA, and Austin, TX. The Riverside,
Seattle, and Austin locations are all owned by BTDI while the Oakland headquarters is rented
out. Makohin Consulting Co. recommends that BTDI purchases a Building and Personal Property
(BPP) insurance policy to cover all four of the locations under the Basic Coverage Form with an
80% coinsurance rate. This policy will help indemnify BTDI if any covered loss occurs to its
building and personal property, which are all essential to operation. The coverage put in place
will insure the basic perils that BTDI faces, as well as Business Interruption, Increased Cost of
Construction, and the Leasehold Interest. This Business Interruption coverage will help
safeguard BTDI from any loss that could potentially affect the firm for a maximum period of six
months. Other than insurance, we have provided BTDI with necessary loss control suggestions
that will help reduce the frequency and severity of losses.
After more analyzation, BTDI faces many liability risks. We suggest the firm purchases a
Commercial General Liability policy to lessen the financial responsibility BTDI would assume if a
lawsuit were to arise. We also suggest that BTDI purchases cyber training for its employees, a
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TOP 5 PROPERTY RISKS
BUSINESS INCOME
One of the main concerns BT Design needs to address is the transfer, retention, or loss
control with regards to business income. Retaining or transferring a business income loss is
important because if operations were to come to a halt, BT Design would need to be able to
pay its continuing expenses. Since BT Design assumes that the maximum shut‐down time for
any facility would be six months, we would need to calculate the right amount of coverage or
reserves to cover these potential stagnant six months.
BT Design holds the potential of experiencing several delays along their supply chain line
due to the reliance of other company’s production and services. The request for quad‐
crystalline silicone from a specific German company and the delay in shipments from China,
India, and Taiwan with regards to hold ups at U.S. Customs has affected BT Design’s current
business relationships. Even though each Chinese manufacturer does well in notifying BT Design
when a supply‐chain issue will arise, BT Design still needs a plan to be able to fulfill its
customers’ orders on time. Like reserving capital to be able to cover any monetary loss, we
suggest that the firm reserves a single shipment to allocate to its customers if a supply‐chain
delay were to arise. This reservation of products would allow the firm to meet their customers’
needs if time their customers aren’t able to wait‐out the delay.
The delay at U.S. Customs sets back shipments for several hours, and in one case five
days. The Trade Act of 2002 and the Customs Modernization Act (Title VI of the North American
Free Trade Agreement Implementation Act) states that prior to the goods’ arrival,
arrangements for entry must be made at the CBP port of entry where the receiving individual or
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company needs to file their duties and documentation (“Importer…”). When BT Design’s
shipping company plans on picking up the products from the Port of Los Angeles, we advise that
the individual in charge has the proper documentation in place to expedite the process of
receiving the goods. If all of the paperwork and documentation is ready at initial pick‐up, delays
would be shortened if not diminished.
Controlling the frequency and severity of losses through loss control is one way to
alleviate BT Design’s business income exposure. Purchasing a business income policy would be
the most ideal way to cover recurring expenses like payroll, mortgage, rent, or utilities. To
calculate the premium and limits we would take that shut down time of 50% and multiply it by
the coinsurance basis, which is found in the Business Income Workbook (page 75). Multiplying
this basis by the 50% gives us $18,894,122.48 in limits. To figure out the premium, we would
take the 80% coinsurance rate of the building, which is 0.98 for 80%, and divide that 0.98 by
100 to get 0.0098. From there we multiply 0.0098 by the business income coinsurance rate of
60%, which was determined from the 50% down‐time. This equation gives us 0.0059, in which
we multiply by the limit of $18,894,122.48 to get our premium of $111,097.44.
EARTHQUAKE
Three of BT Design’s buildings are located in Oakland, Riverside, CA, and Seattle, WA.
The city of Oakland lies right along the San Andreas Fault which increases the earthquake risk
exposure for BT Design’s headquarters. Even though the building is only ten years of age and
can withstand an 8.0 earthquake, we have discovered that there is a 7% chance of an 8.0 or
greater earthquake due to erupt in California (Xia, Rosanna). The reason for this is because
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earthquakes aren’t limited to individual faults, where a single eruption could cause a chain‐
reaction creating a mega‐quake. Now 7% may not seem like a lot, but the risk is still there even
associating your Riverside location that can only withstand a 4.0 earthquake. Looking at past
property losses, BT Design’s Riverside location experienced a minor earthquake, which
thankfully only broke a window costing $620.
In addition to the earthquake exposure at the Oakland and Riverside locations, the
Seattle location faces the same exposure but along the Cascadia subduction zone (Schulz,
Kathryn). Along this subduction zone the area of impact from an earthquake would cover
around one hundred and forty miles, thus effecting Seattle (Schulz, Kathryn). Although there is
an exposure in Seattle, that doesn’t necessarily mean it’s large. Scientists have come to the
conclusion that there have been around 41 earthquakes in the past 10,000 years on the
Cascadia subduction zone, with earthquakes reaching a magnitude of 9.0 or larger every 500 to
600 years (Plumer, Brad). These numbers decrease the probability of a large earthquake, but
the exposure still remains.
The destruction of one of these three buildings would be vital to the operations of BT
Design as well as a loss would cost BT Design a fortune to rebuild any of the three locations. The
facts above state the obviousness of the earthquake exposure, so I recommend that BT Design
purchases the Earthquake Coverage Form in addition to its property insurance policy. To
determine the base property premium we would divide the Basic Coverage Form 80%
coinsurance of 0.98 by 100, which gives us 0.0098. Next, we would multiply this rate by the
actual cash value of the building ($18,750,000) equaling $183,750.00 in base premium. To add
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on the 25% Earthquake Coverage Form, we would divide the $183,750 by four, giving us
$45,937.50. Adding this $45,973.50 to the base $183,750 would give us a total of $229,687.50
for a Commercial Building Property policy that would cover earthquake damage.
Not only is the building at risk if an earthquake were to occur, but the personal property
inside as well. This machinery and equipment is necessary to developing the prototypes that BT
Design ships to its manufacturers, so losing this equipment would cease business. We
recommend that BT Design purchases a Business Personal Property policy including the
Earthquake Coverage Form. If an earthquake were to occur and destroy personal property, the
property could be quickly purchased and installed opposed to repairing it or purchasing new
equipment using internal funds. Initially, we suggest that BT Design uses the Basic Coverage
Form at the 80% coinsurance rate. To determine this premium, we would take the rate of 1.03
and divide it by $100, giving us 0.0103. Then multiply this rate by the value of the machinery,
equipment, and average inventory of $6,835,000, giving us a base premium of $70,400.50. As
the Earthquake Coverage Form costs 25% of the total property premium, we would divide that
base premium by four, giving us an additional premium of $17,600.13. Adding these two
numbers together gives us a total of $88,000.63 for the personal property premium at the
Oakland location. These two premiums would cover the Oakland locations building as well as
machinery, equipment, and inventory. This would cost BT Design a total of $317,688.13 to
protect its headquarters.
Regarding Seattle, MCC suggests purchasing a Commercial Property Insurance policy
that includes earthquake coverage as the exposure for earthquakes in that area of the country
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is relevant. Since the research and development center has 105 less people working there on a
daily basis, the size of the building is smaller making the actual cash value drop in comparison
to the Oakland headquarters. Since the Seattle office can withstand a 6.0 earthquake, we
suggest that BT Design purchases a property policy that covers the actual cash value of the
building. To get the premium for an 80% coinsurance actual cash value policy, we would initially
divide the 80% coinsurance rate of 0.98 by 100, giving us 0.0098. Next we would multiply this
rate times the $10,654,000, which gives us a base premium of $104,409.2. To get the additional
earthquake coverage, we would divide that base premium by four, giving us $26,102.30, in
which we would add back to the base totaling $130,511.50 in premium to cover the Seattle
office including the earthquake exposure.
All of the research and development equipment is extremely vital to the success of BT
Design’s operations. Since the machinery and equipment is valued at $1,096,300 and the
inventory is valued at $4,360,000 MCC suggests that BT Design purchases the Business Personal
Property coverage at replacement cost at a 90% coinsurance rate. To figure this premium, we
would divide the 90% rate of 0.93 by 100, which would give us 0.0093. Now we would multiply
this factor by the value of $1,096,000 and $72,000 which gives us a base premium of
$10,862.40 in total. Since BT Design would be insuring 90% of the value of the equipment and
machinery, the machinery, equipment, and inventory would be replaced completely if a loss
were to occur. To add earthquake coverage, we would take 25% of the $10,862.40, which is
$2,715.60, and then add that on top totaling $13,578 in premium to completely cover the
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equipment, machinery, and inventory. In total, to insure the building and personal property of
BT Design’s Seattle location it would cost $144,089.50.
The Riverside location has a much greater exposure to earthquakes since it lays in‐
between three different fault zones being the Elsinore, San Jacinto, and San Andreas Fault
("Riverside County Integrated Project ‐ Risk Control."). In addition to the location of this
distribution facility, the building would be able to only withstand a 4.0 earthquake which would
increase the severity of a loss if one were to occur. Since the Riverside location is 25 years old
and the probability of a 5.0 earthquakes or larger striking Riverside within the next 50 years is
99.47%, I recommend that BT Design purchases a Commercial Property policy on an actual cash
value basis with earthquake coverage ("Earthquake Information for Riverside, California").
Initially we would multiply the actual cash value cost of $12,463,000 by the 80% coinsurance
rate (per $100) of 0.0098 equaling $122,137.40 in base premium. To add the earthquake
coverage, divide the base number by four giving us $30,534.30. In addition to the base
premium, we would need to add $18,321 for increased cost of construction, and $19,263 for
the leasehold interest. Add the four together and our actual cash value cost premium with
earthquake coverage would cost $190,255.70. Using the same methodology above, to insure
the machinery, equipment, and inventory at an 80% coinsurance rate it would cost BT Design
$65,885.40, thus totaling the current property premium for the Riverside facility equaling
$256,141.10 (without sprinkler system—fire premiums NOT included). Please see the Sprinkler
System Analysis page in the Sprinkler Workbook for a visual display (page 92).
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In total, MCC recommends that BT Design purchases property insurance to cover any
losses associated with earthquakes that three of BT Design’s buildings face. Since the
earthquake probability is on the rise, these added endorsements would cover any earthquake
associated loss that is always excluded on commercial property policies.
INLAND MARINE/OCEAN MARINE
Once the design is considered flawless, BT Design sends its shipments to manufacturers in
China to mass produce, which opens up the exposure of a financial loss if a shipment were to
be delayed or not make it to its destination. BT Design’s $10,000 shipments from Oakland to
Riverside are composed of 100 prototypes, each model costing $100. Since BT Design’s
revenues are solely dependent on these Bluetooth chipsets, any delay in shipment from the
prototype stage to the final product phase could costs the firm thousands of dollars as well as a
potential loss of a business relationship. A loss like this would impact the firm’s revenues
substantially.
As BT Design contracts 100% of its deliveries at FOB destination shipping around the United
States, we recommend that they purchase Inland Marine insurance as it covers the high value
products that BT Design is liable for. Since BT Design’s relationship with its contracted domestic
shipping companies has been under strain, purchasing an Inland Marine policy would reduce
the arguments regarding the delayed products as well as cover any loss in transit to any
customers. The relationships with these companies are vital as they handle BT Design’s valuable
products, which partially assist the firm in maintaining and growing their annual revenues.
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MCC recommends that BT Design purchases $100,000 in Inland Marine coverage to protect
their FOB shipping point products. This $100,000 in coverage would merely cost the firm $250
which would be added on top of their Commercial Property policy. In addition to the base cost
of $250, we suggest that BT Design purchases Transit Coverage for an additional $0.95 per
$1,000 of coverage. To match the exact amount of coverage of basic Inland Marine, BT Design
should pay an extra $95 to obtain $100,000 in Transit Coverage.
To ensure the success of each shipment, have a logistics employee (Riverside location) be
ready at in docking station with an inventory list marking off what has arrived and what is
missing upon arrival of the shipment. Not individually, but by box, ensuring whether there was
a loss in transit or whether damaged occurred. This will help with the inland marine claims if
any need to be made. Having an employee examine each box would be critical to determining
how a loss or if any damage occurred and how often. It would allow BT Design to document the
losses and record them to predict what future losses might be like for the next year. This
prediction should help BT Design determine how much Inland Marine Insurance should be
purchased each year.
BT Design’s shipments from its third party manufacturers in China, Taiwan, and India opens
exposure for financial and product loss. While transporting the delicate chipsets from these
tree countries to the Port of Los Angeles, the products face many perils on the long journey like
theft or hijack, rough or inappropriate handling, the vessel sinking, exposure to rain or
saltwater, and variations in temperature ("Cargo From China"). These risks are difficult to
manage directly as the individuals transporting the goods have care, custody, and control of the
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products ("Cargo From China"). Even though these carrier companies have care, custody, and
control, they are exempt from being held responsible unless any damage is occurred due to
their negligence (Chubb). Since this is the case, BT Design purchasing their own insurance would
be the most practical option as we do not know if the terms of the shipping company will meet
our needs if a loss were to occur (Chubb).
BT Design should choose their cargo carrier carefully as large vessels have much greater
exposure than small ones (Moynihan, Shawn). This factor should be considered as the carrier
vessels travel through the East China Sea and South China Sea. The South China and Indo China
areas witness the most losses of ships around the world, totaling 18 in 2013 (Moynihan,
Shawn). Traveling through these dangerous waters increase the probability of one of BT
Designs shipments meeting the bottom of the ocean, in which this loss would affect the
company immensely.
In addition to the Inland Marine Insurance, MCC advises that BT Design purchases Ocean
Marine Insurance since the firm is receiving shipments of large quantities of goods by freight
boat. Other than having our cargo insured, purchasing insurance will expedite the off‐loading of
BT Designs cargo (Chubb). The coverage we suggest purchasing contains two parts; Cargo
Coverage and Freight Insurance. Cargo Coverage costs $25 per $1,000 of coverage and Freight
Insurance costs $13 per $1,000 in limits. We suggest purchasing $100,000 in limits to safeguard
the items onboard any shipping or freight vessel coming from China. These two purchases
would cost BT Design $3,800 in addition to their Business Income policy.
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FIRE
Fire exposure is relevant at every one of BT Design’s locations. As the Oakland, Seattle,
and Austin offices have sprinkler systems and are composed of masonry non‐combustible
material, the chances of a total loss occurring from a fire are slim. The masonry non‐
combustible material is flame retardant and the sprinklers would put out any medium sized fire
within minutes. To decrease the severity of fires in Oakland, Seattle, and Austin, MCC
recommends purchasing fire extinguishers. Since two of the three fire property losses occurred
in the lunch and main area, BT Design should purchase 6 fire extinguishers for each of the three
locations. After research, BT Design would spend $1,032 on a total of 12 Fire Extinguisher’s –
Class ABC, 10lb., which should all be properly placed near locations where fires could arise in
places like kitchens, electrical closets, break rooms, and Christmas trees. In the event that a fire
occurs, the building and its contents would be covered under the Basic Form within the
Commercial Property Insurance policy that was discussed earlier.
The Riverside location is a different story since it’s the biggest piece of property, has no
sprinkler system, and is 25 years old. Even though the building is composed of masonry non‐
combustible, MCC advises that BT Design installs a sprinkler system to mainly reduce the
severity of a fire, but also increase the value of the building, and receive a discount on property
insurance. With the Riverside location being 300,000 square feet and the cost of the sprinkler
system $1.26 per square foot, that would give us a subtotal of $378,000.00 Adding the local 8%
tax rate, we would pay an additional $30,240, totaling the basic charges of the sprinkler system
to be $408,240.
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In addition to the basic cost of the system, BT Design would need to complete Water
Main construction costing an additional $286,000 with the addition of a water tower being
$23,000. Thus far, the total cost of the sprinkler system is $717,240. Please refer to the
Sprinkler Workbook for a more detailed mathematical calculation (page 91).
The addition of the increased the buildings value by 5.75%, initially being $12,463,000
up to $13,180,240. This $717,240 value increase allowed BT Design to save $155,368.87 on
their commercial building and personal property insurance policy. With the $717,240 sprinkler
cost, BT Designs premium would decrease from $367,238.17 to $211,869.90.
The premium saving aspect wouldn’t be the only positive impact the sprinkler system
would have on the Riverside location. The initial cost for this system would also reduce the
severity of a loss if any fire were to arise, it would decrease the probability of an employee
dying due to a fire, and it would decrease the chance of a business interruption that could stem
from a fire.
COMPUTER ‐ THEFT/DAMAGE
Keeping track of BT Design’s technology equipment is essential to maintaining a healthy
inventory of the laptops, docking stations, monitors, keyboards, and mice that the firm owns.
It’s not only important to ensure that the quality of the equipment is maintained, but to be
aware as to whether it is returned or not. BT Design seems to have some problems regarding
employee theft and vandalism to its property, so applying a legitimate system to monitor its
hardware would be advantageous.
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Giving employees the right to walk up to the IT center in Oakland and borrow any
equipment is a recipe for damaged or destroyed returned goods. To control the current
problem of BT Design’s losses of tech‐equipment, we suggest that they create and maintain an
updated inventory sign in/out book. This workbook should be located in the IT manager’s office
to guarantee the accuracy of each logged item. If the IT manager is out of the office, the
employee must wait until he/she returns.
Initially, BT Design should distinguish each piece of equipment by giving it its own tag
number. For an easy numbering system, MCC suggests that BT Design purchases a roll of
Consecutive Number Labels 0‐500 at the ULine website
(http://www.uline.com/Product/ViewCart) for $26 and applies each sticker to leased
equipment. If an employee requires permanent or temporary computer equipment, they would
simply go to the IT manager’s office and request it. Upon requesting the gear, the IT manager
would write down the name of the employee, employees phone number, sticker number,
check‐out date, and a quick description of the equipment’s condition. In addition to the IT
manager filling out this information, the employee would sign their initials next to a statement
holding them liable. If an employee is to return with damaged, destroyed, or no equipment at
all they would be required to pay 60% of the damages or replacement cost. This loss control
technique would reduce employees from committing moral hazard, as well as incentivize them
to maintain the equipment’s quality.
Implementing these procedures would reduce moral hazard, but not completely. Since
BT Design is having its employees pay for 60% of the ruined or destroyed equipment, BT Design
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is left with covering the remaining 40%. The average direct cost for computer hardware and
software is around $1,406 ("Understanding Technology Costs"). Let us project that three sets of
equipment are stolen monthly or destroyed. Replacing these items would only cost BT Design
40% of the total equipment, equaling $1,687.2 per month and $20,246.40 per year. These
numbers are extremely aggressive for a reason. If BT Design were to retain $20,246.40 per year,
they would be able to cover the costs of any lost, stolen, damaged, or destroyed computer
equipment committed by an employee.
Purchasing Electronic Data Processing Coverage would cover computer programs and
data, in addition to mechanical breakdowns, electrical injury, and changes in temperature and
humidity ("Data Processing Coverage"). This coverage would be beneficial to BT Design as some
of the computer equipment has been treated poorly in the past. Since BT Design has $600,000
of equipment contracted, MCC suggests that they insure one third of the total value,
recommending the firm to purchase $200,000 of Electronic Data Processing Coverage. This
coverage would only add $400 to the Commercial Property policy as it only costs $2 per $1,000
in coverage.
20. Page 20
TOP 5 LIABILITY RISKS
CYBER
Cyber‐attacks have been positively correlated with the technology industry, as the tech
industry has been rapidly growing in recent years. As these attacks on companies are constantly
breaking all‐time highs, businesses are continuously looking for risk mitigation and loss control
techniques to control their exposure within the cyber world (Camhi, Jonathan). Firms that pose
great cyber threats are ones that hold cloud‐like systems and lax policies that allow employees
to navigate through the web freely. The regularity and complexity of these problems continue
to grow, although it’s nearly impossible to become 100% secure from these malicious attacks
(Camhi, Jonathan).
While obtaining Cyber insurance is extremely expensive, companies like BT Design
should move towards loss control techniques in order to avoid cyber problems that could cost
fortunes. IT teams, like the one at BT Design, are usually in charge of day‐to‐day maintenance
and monitoring of these computer systems that are susceptible to cyber‐crime. Initially, BT
Design’s IT team needs a holistic understanding of its computer‐generated landscape, which is
vital for the success of BT Design’s cyber security (Mutch, John). Since Western Computer has
installed the IT infrastructure and coordinates the back‐up and storage of BT Design’s data,
MCC suggests that BT Design takes hold of all operations regarding the logistics of their own
data. Even though BT Design’s data is backed up every 12 hours, the IT team needs to work with
Western Computer to gain access and more knowledge about the off‐site stored server.
Obtaining this information would help BT Design’s cyber defense as they would be able to
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After researching cyber training programs, we found KnowBe4 cyber training online that
can educate each employee about cyber threats. Post review of KnowBe4’s packages, MCC
suggests that BT Design purchases the Gold Package as it is the most popular and most
valuable. This package contains the basics of the Silver Package which are:
Admin Management Console
Unlimited Phishing Security Tests
Security ‘Hints & Tips’
Kevin Mitnick Security Awareness Training
o Kevin Mitnick is a famous ex‐hacker, author, and computer security
consultant. He was arrested in 1995 and condemned to five years in
prison for several computer and communications linked crimes ("Kevin
Mitnick").
o Currently Mitnick runs a security company that helps companies in its
security defense ("Kevin Mitnick").
Automated Training Campaigns
Crypto‐Ransom Guarantee
Outlook Phish Alert Add‐In
In addition to the Silver Package features, the Gold Package includes access to all training
modules, a vishing module (voicemail phishing training), and a monthly email exposure check
(EEC). Most importantly, this EEC conducts monthly scans of the Internet finding all publicly
available email addresses belonging to the purchasing company’s domain, including a search for
email addresses embedded in .xls, .csv, .doc, and PDFs. This tool is valuable as it creates a
monthly list of employees that are categorized as the highest risk users for phishing attacks.
This training program will cost BT Design $2,875 due to the 230 full‐time and part‐time
employees it employs ($12.50 per individual) (Green, John). A Cyber/Data Breach insurance
policy with $10,000,000 in limits costs a manufacturing company with revenues at
$100,000,000 around $50,000 per year (Marciano, Christine). Since BT Design had revenues of
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$52,100,830, I divided that number by $100,000,000 and obtained .5210 to find the multiplier
of the annual premium. $50,000 multiplied by .5210 calculates BT Design’s estimated annual
premium, which would be $26,050.52. Since I advise that BT Design spends $2,875 on annual
cyber security training, I have come to the conclusion that they would save $23,175.42 per year
if they were to implement the KnowBe4 cyber security training.
COMMERCIAL GENERAL LIABILITY
BT Design assumes all liability regarding any injury or damage occurring to any individual
or third party property at its owned locations in Riverside, Seattle, and Austin, as well as at its
leased location in Oakland, CA. The leasing agreement for the Oakland, CA office specifically
states:
“RISKS OF INJURY. The landlord shall not be responsible for any injury which shall be
sustained by the Tenant or any employee, customer, or other person who may be upon the
Premises or in and said building or the entrances or appurtenances thereto. All risks of any such
injury being assumed by the Tenant, who shall hold the landlord harmless and indemnified
therefrom.”
BT Design has had past losses in which they were held liable, stemming from their
operations and work zones within their four facilities. Since BT Design undertakes liability for all
of its operations, activities, and hazardous work zones at all of its locations, we recommend the
BT Design purchases a Commercial General Liability (CGL) insurance policy.
Before a CGL policy is to be purchased, there are a few loss control procedures that
should be put in place to avoid potential claims in the future. BT Design should make its
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employees that load trucks watch How to Properly Pack and Load a Moving Truck on YouTube.
This video will show individuals how to properly pack a truck and decrease the risk of anything
falling on individuals visiting the premises. Next, BT Design should purchase ten 3‐1/2” x 5”
Danger: Electrical Hazard signs at http://www.safetysign.com/products/p2133/danger‐
electrical‐hazard‐label and post them where any electrical hazard may be, at the Seattle and
Austin locations. Five of these signs would cost $78.75 with an additional shipping cost of $8.20
totaling $86.95. We suggest sending five signs to Seattle and five signs to Austin, costing a total
of $173.90. Lastly, if any customer is interested in purchasing supplies, BT Design should require
them to wear personal gloves while entering the chip assembly station.
There are two main coverages within the generic CGL policy; Premises/Operations and
Products. BT Design should purchase both of these coverages to ensure a safety net from any
potential exposures in the future. To find the base rate of a $50,000 limit policy for a
manufacturing company that produces non‐durables, we would multiply 10% per $1,000 in
sales for Premises and Operations (.10 x $52,100,830/$1,000) and 7% per $1,000 in sales for
Products (.07 x $52,100,830/$1,000). BT Design’s base premium for $50,000 in CGL coverage
calculates to $8,857.14.
Since BT Design paid out a total of $323,000 in the past two years MCC advises that they
increase their liability limits to $500,000. To compensate for an addition in premium, we would
multiply 1.97 by the $50,000 rate of premium which is $8,857.14. This increase in limits would
create a premium of $17,448.56.
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In 2010 BT Design entered into a contract with Western Computer for equipment that
has a total value of $600,000. This contract transferred the liability of the lessor (Western
Computer) to the lessee (BT Design) “for any loss or damage to the lessee, its employees, its
customers, or to any third party caused directly or indirectly by the equipment.” Since BT Design
is contracting this equipment, liabilities can arise leaving BT Design at fault. Due to the fact that
this agreement has been made MCC believes that the CGL should account for this addition in
liability. The premium addition would be measured per $1,000 the contract value of $600,000.
To obtain the extra cost in premium, we would divide $600,000 by $1,000, totaling $600. Then
we would multiply this $600 times the multiplier, which is .108. This gives us $648 in additional
premium, now with the premium totaling $18,096.56.
Due to the past history of injuries that required medical attention, we suggest that BT
Design purchases Coverage C: Premises Medical Payments. This would only cost 4% of the base
CGL premium, which would give us $500 per occurrence and $10,000 in aggregate. MCC
believes that BT Design should double this coverage, and pay 8% of the base premium, which
would give us $1,000 per occurrence and $20,000 aggregate. To calculate this we would
multiply $17,448.56 by .08, which gives us an additional premium of $1,395.88. This extra cost
would raise the CGL policy premium to $19,492.44.
Since BT Design has products circulating around the world, they should purchase a
World‐Wide Products Liability endorsement. This is simply a single flat charge of $100, which
would up the CGL premium to $19,592.44.
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In the past two employees actions caused BT Design to suffer a public relations set back,
which unintentionally defamed BT Design publicly. Since employees hurt BT Design’s image, we
advocate that Coverage B; Personal and Advertising Injury coverage be purchased. This would
cost BT Design 4% of the base premium, in which we would multiply .04 by $17,448.56, giving
us a cost of $697.94. If this were to be added to the calculated premium, BT Design’s CGL
premium would increase to $20,290.38.
In total BT Design is advised to spend a total of $20,464.28 to implement loss control
procedures and purchase and Commercial General Liability insurance policy. The policy would
cost $20,290.38, the ten Danger: Electrical Hazard signs would cost $173.90, and the
mandatory video on educating individuals on packing trucks would be free. These purchases
and implementations would help decrease the premises liability of BT Design as well as cover
the firm if any loss were to occur to a third party.
BUSINESS AUTO LIABILITY
BT Design seems to have extremely lenient and unstructured motor vehicle policies,
procedures, and contracts. The “whoever is free” guideline is a strategy that needs to be
diminished and recreated to ensure the safety of any passenger employees and civilians while
driving the 16‐passenger shuttle van. MCC suggests that BT Design implements proper
protocols and loss control measures to enforce the importance having qualified and safe driver
behind the wheel. First, BT Design should only allow competent personnel to drive the vehicles
at any time. These individuals should include the senior executives, managers, and
clerical/admin workers. Before allowing them to become a qualified driver, BT Design should
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look up their Motor Vehicle Record to confirm a clean driving history. BT Design should order
25 for the individuals in CA at $5.00 per individual, totaling $125.00 (DMV, CA), three records
from the state of Washington at $13.00 each, totaling $39.00 (DMV, WA) and three from the
state of Texas at $6.50 a piece totaling $19.50 (DMV, TX). This would cost BT Design a total of
$183.50 annually to check the 25 employees driving records to make sure they meet the
acceptability criteria as well as ensure the safety of other passengers in the car and the vehicle.
Meanwhile, BT Design should also enforce that driving these vans should be for work‐related
criteria opposed to personal usage.
In addition to electing qualified safe drivers, we recommend that BT Design purchases
four GPS trackers for each of its 16‐passenger shuttle vans. After research we found a Portable
Mini Spy GPS Tracking Device for Vans, Trailers, and RV Vehicles on Amazon.com for $115.61
plus $4.49 in shipping. If BT Design were to purchase four of these devices, it would cost the
company $480.40 to monitor the location of each van to see if the driver is stepping outside of
its five mile boundary. This device tracks up to 32 satellite channels and provides accuracy
within ten feet of the vehicle. Also, the tracker can send reports as frequently as 10 seconds,
one minute, one hour, or even once a day. Fortunately there is no software to purchase with
this device as you simply receive the longitude and latitude of the device on a cellphone. Once
given the coordinates, input them on any mapping website to discover the location of the
vehicle. Even though this purchase would cost the company $480.80, it would decrease the
probability of employees wanting to drive outside of the five mile radius.
28. Page 28
Employees that drive their personal cars to customer sites should still be reimbursed for
mileage. Since BT Design is having their employees drive to and from sites, they should enforce
simple rules that their employees should be required to uphold. The employer should require
its employees to use personal headsets while talking and driving while attending conference
calls or any work‐related phone calls. This requirement would help employees maintain two
hands on the steering wheel as well as allow them to better focus on the road. This rule should
be strictly obligatory in California since talking on the phone while driving is illegal.
When opting to purchase commercial automobile insurance coverage, BT Design should
focus on its commercial vehicles, trucks and tractors (forklifts), and four private passenger
vehicles. Regarding commercial vehicles, MCC advises that BT Design purchases the “Up to 100
Miles” package since BT Designs 16‐passenger shuttle van is only allowed to travel within a five
mile radius of each location. This provides $50,000 in combined single limits (CSL) with a $100
deductible for other than collision (OTC) coverage that adds $199 to the base price of $501.
Commercial collision coverage should also be purchased which costs an extra $200 while paying
a $250 deductible if an accident were to occur. The total cost of coverage for its commercial
vehicles would be $900.
BT Design owns several forklifts that constantly load and unload equipment and
materials at its distribution facility in Riverside, CA. Since these forklift trucks ("Powered
Industrial Trucks Etool”) have been associated with prior accidents, I suggest that BT Design
purchases the “Up to 100 Miles” Trucks and Tractors coverage that provides $50,000 CSL for
$916. These forklifts will not be leaving the distribution facility at any point, so there is no risk
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of these motor vehicles getting into an accident with other vehicles. Due to this lack of
exposure, we advise that BT Design only purchases OTC coverage for $1,313 with a $100
deductible. This section of coverage would cost the firm a total of $2,229.
Lastly, BT Designs administering of company cars to executives for not only business
use, but personal use increases the probability of these four individuals partaking in a vehicle
related accident. As these individuals have custody of these company cars BT Design should
purchase “Private Passenger” coverage. This $50,000 CSL would come at a base cost of $606,
with an additional $144 in premium for paying the highest deductible of $100 for OTC coverage.
Also, we believe that BT Design should purchase the Collision coverage and pay the highest
deductible of $250 as there is no history of executives being involved in an accident. Paying this
deductible amount would increase the base premium by $484. The total amount of premium
paid for this automobile insurance would be $1,234 if BT Design were to follow our suggestions.
So far MCC has recommended three types of coverages that BT Design purchases to
suffice its automobile insurance coverage needs. The Commercial vehicle coverage would cost
$900, the Truck Tractors coverage would cost $2,229, and the Private Passenger coverage
would cost $1,234 totaling $4,363. Currently this total premium provides us with $50,000 of
combined single limits, which we believe to not be enough. In 2013 auto liability claims
averaged out to be $3,231 for property damage and $15,442 for bodily injury, while the
average collision claim was $3,144 ("Cost of Auto Crashes & Statistics"). Even though we are not
given a value for each of the five accidents per year involving BT Design vehicles, MCC suggests
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that the CSL should be increased to $250,000 for safe protection. This safeguard against any
potential vehicle liability would cost BT Design $5,802.79 in business auto premiums annually.
EMPLOYMENT PRACTICES LIABILITY
Employment Practices Liability (EPL) policies provide coverage for companies that have
wrongful termination, discrimination, sexual harassment, and retaliation claims against them.
Since lawsuits filed against employers have been on the rise, there has been an increase in
purchases of EPL policies to protect businesses from the acts above ("What Is Employment
Practices Liability Insurance (EPLI)?"). The Austin location poses the most threat of an EPL claim
being made since they hire directly from University of Texas at Austin through career fairs. BT
Design looks at hiring computer science and engineering students, whom are mainly male. This
hiring history puts BT Design in a delicate position, due to the fact that CNN reported BT Design
as a being a “non‐diverse company with a bias toward hiring white, male employees.” Even
though this may not be the motive behind BT Design, it still sets up the company for a potential
EPL claim regarding it past hiring.
Racial discrimination cases were the foremost charges against employers, being 36% of
total EPL cases in 2009 (Staff, Inc.). After the racial discrimination cases followed gender
discrimination, composing 30% of all cases, with 24% of subsequent claims being age‐based,
and 23% being disability based. The Equal Employment Opportunity Commission (EEOC)
witnessed the greatest quantity of cases in its near half century history, topping off at 99,922
claims (Staff, Inc.). As you can see, employment related claims are on the rise and are an
eminent threat to many companies today.
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Initially, MCC suggests that BT Design has the entire Human Resources division,
recruiters, and directors and officers review the Equal Employment Opportunity Commissions
claims notification document that states how to recognize claims, how to report them, as well
as other tips regarding EPL claims (See in back).
There are many ways to decrease the chances of a lawsuit or claim against a company
regarding employment practices liability. First, we believe that BT Design should distribute an
employee handbook to each individual in the company and constantly audit it. MCC
recommends that this handbook contains BT Design’s equal employment opportunity policy, to
ensure the equality of each individual employed. The auditing of this handbook would allow BT
Design to continuously update its policies to guard itself further and help in the protection of
the business (Staff, Inc.).
Moreover, BT Design should provide procedures for its employees to report any incident
involving discrimination or harassment. This methodology of reporting will allow BT Design to
recognize potential growing problems and extinguish it at its source, as well as provide a
defense for BT Design if an employee files a suit. This defense would prove that the individual
didn’t utilize his/her provided resources to diminish the problem. Furthermore, we suggest that
BT Design creates a code of ethic policy, telling its employees the standard they are expected to
uphold regarding ethical violations. This would help minimize the liability of the employer to
punitive damages if a lawsuit were to arise (Staff, Inc.).
The last suggestion that I have for BT Design is to purchase Cal Chamber: California
Harassment Prevention Training. This training would be extremely helpful with mitigating any
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potential EPL claim and it would also teach each employee the kind of comments, jokes, and
behaviors that aren’t acceptable in work scenarios. As harassment in the workplace is a serious
problem, this training would greatly decrease the chances of a single inappropriate comment
from occurring that could potentially cost the company thousands of dollars. Since BT Design
has a total of 230 workers, it would cost the firm $4,960.00 ($21.60/person) to implement this
loss control program ("California Harassment Prevention Training").
After analyzing BT Design’s EPL exposure and after suggesting implementation of the
above loss control strategies, MCC advises that the BT Design purchases Employment Practices
Liability coverage in addition to their Commercial General Liability Insurance policy (CGL). A
limit of $1,000,000 would be plenty of coverage for any potential suits that may occur as the
average jury in an EPL lawsuit is awarded $217,000 ("Employment Practices Liability
Insurance"). This policy would only cost BT Design $2,500 and the training would cost $4,960.
This coverage and loss control suggestion would protect BT Design against employees from
claiming unfair practices against an individual.
DIRECTORS AND OFFICERS
The five private investors that own a total of 33.33% of BT Design are becoming
increasingly worried about the diversification of BT Design’s product line as the company is
relying heavily on the revenues from sales of Bluetooth chipsets. If BT Design is to stay
competitive within the market, they must diversify their line of products to compete with the
industry.
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Public and private companies of any size can hold the risk of being targeted for
undermining the company and its shares, which in turn could potentially bankrupt the firm
(CNA). Even though a company may be private, it still faces the risk of being sued by employees,
shareholders, investors, customers, competitors, creditors, vendors and even suppliers (CNA).
Since BT Design’s officers aren’t taking any initial action to diversify their product line, their
careless management strategy can cause BT Design to fall into bankruptcy and end future
operations of the company. This would be considered a wrongful act as the directors are
neglecting their duty to increase shareholder value as well as ignoring a potential corporate loss
due to lack of diversification (Fier, Stephen). A situation like this would bring up a derivative
suite, a lawsuit that is brought by one or more of the shareholders in the name of the
corporation against its directors, officers, or both (Fier, Stephen).
Legal counsel is extremely beneficial and significant as this advice to directors and
officers that may be diminishing the threat of potential lawsuits. This advice doesn’t only help
guide the individuals in the correct direction, but it also reinforces the defense of their
improper actions when contested at trial ("D&O Guidelines").
In addition to obtaining legal counsel for the directors and officers, MCC suggests that
there be a recording and timekeeping of board meetings (Chubb). Tracking minutes and
recording discussion topics of board meetings would be essential to the success of BT Design as
it would clearly set forth what topics were discussed at the meeting, as well as provide
evidence for suggestions regarding potential future operations, expansions, mergers, or
acquisitions. This record keeping would identify the ideas of board members and reinforce any
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defense if there was a decision that was acted upon or not (Chubb). These documents should
distinctly identify the actions and topics of conversation minute by minute to ensure the most
reliable completed or non‐completed objectives and at the end of each meeting. A director
should examine the document to safeguard the reliability of the document at the end of each
meeting (Chubb). If a director be absent, they should be able to evaluate this document and
ought to provide a written and signed document stating any objection or agreement regarding
the conversation, future plans, or actions discussed in the meeting. Lastly, ambiguous and
favored wording should be avoided as it may be considered in a different context at a later date
(Chubb).
Since the current executives of BT Design are ignoring progressive and diversifying
opportunities, we recommend that they purchase a Directors and Officers insurance policy to
safeguard the two directors that hold $32,898,043.2 of the total $49,352,000 in shareholder
equity. BT Design should purchase Coverage C (Entity Coverage), which makes the corporation
itself an insured for claims made against it due to wrongful acts covered by the policy (Fier,
Stephen).
MCC advises the purchase a $1,000,000 Directors and Officers insurance policy as the
average total cost for a lawsuit against a private companies in 2014 was $697,902 (LaCroix,
Kevin). This policy would cover a potential lawsuit against the directors for not acting on the
better behalf of the shareholders and would cost BT Design only $2,500.
Above are several loss control suggestions and risk transfer recommendations to protect
BT Design from being held liable for injuries or lawsuits stemming from outside invaders,
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injury, the loss costs should have been retained by the party that created the injury. Upon
employment of each individual, the future employee should sign a waiver that transfers the
liability of injuring another employee from BT Design to the injuring party. This waiver would
decrease the frequency regarding employee altercations that escalade to financially substantial
injuries due to the fact that each individual would know that they’re liable for any losses they
create during an employee dispute.
After reviewing the 2014 reported losses, MCC noticed a few other dubious injuries that
should not have been incorporated into the fiscal years WC losses. One employee skinned their
knee racing another employee at lunch incurring a $250 loss that paid out $75. Even though this
loss is miniscule on the spectrum of losses, small losses like this need to not be taken into
consideration about loss reports to the WC carrier. Additionally, in 2014 there was another
claim about an employee tearing his rotator‐cuff while on vacation. Had his personal health
insurance carrier taken care of this injury, the $15,000 would not have been paid out to the
individual which would’ve kept the EMF at a more stable level. Injuries like this should be
reported to BT Design, but the individual should not be considered to receive worker’s
compensation benefits regarding an injury that was unrelated to the company. Had these
injuries been retained by the individual, the insurance company would have saved $15,525 in
total regarding BT Design’s claims for the 2014 fiscal year (inflation taken into account).
Also in 2014, one of the employees incurred an injury totaling $5,200 for ringing in the
ears regarding excessing cell phone use. The employee was paid out $950, even though a claim
like this can’t be justifiable under workers compensation. How can BT Design keep track of how
37. Page 37
often this individual talks on the phone off the clock? This claim should have been disregarded
as it’s almost impossible to claim this as an injury caused by BT Design.
In addition to injured organs, an employee tore their vocal cord while yelling at their
manager. This claim should have been disregarded due to the fact that this wasn’t unforeseen
or accidental. Since this employee was disgruntled about something, this injury wouldn’t have
been claimed as a WC loss even though it occurred in the workplace. The $1,250 that was paid
out to the employee was an unnecessary claim that caused the EMF of BT Design to rise.
Lastly, there was one last WC claim that didn’t stem from a mishap from BT Design or
one of its employees. This individual had their leg run over by a supplier’s truck which caused
$56,000 in damage and $24,000 was paid out in total. Since this claim is still open, I believe that
BT Design’s WC carrier should subrogate against this contracted trucking company in which
$24,840 would be reimbursed to the carrier, accounting for inflation. This subrogation would
lower BT Design’s loss frequency and severity from the past.
Even though there was an increase in worker’s compensation claims in 2015, there was
a reduction of misrepresented claims from employees reporting injuries relevant to BT Design.
In 2015 there was one claim where an employee broke their ankle during an un‐facilitated BT
Design activity, which was unrelated to the risk of employment. Even though it may have been
accidental and in the course of employment, the broken ankle was caused by a basketball game
which didn’t correlate with the duties of the injured party’s job. Since this uncorrelated claim
was reported, paid out, and is still open, I believe that the WC carrier should receive a refund
for the $3,000 they paid out.
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Lastly, In 2015 BT Design experienced a WC claim that is known as an outlier. One of BT
Design’s employees was run over by a supplier’s truck that was delivering materials at the
loading dock in Riverside, thus leading to chronic injuries which paralyzed the individual below
the waist. This injury incurred a total of $500,000 in which only $50,000 was paid out. Since
witnesses reported that there was no backup alarm on the truck, we believe that BT Design’s
WC carrier should subrogate against the contracted delivering company. In addition to the
improperly equipped truck, the driver seemed to struggle with backing up; making the company
negligent in hiring an unexperienced driver. Subrogating this incident would be the most
suitable solution as it would not affect the experience modifier for future policies.
Referring the Appendix, Figure 1.1 is a bar chart that displays the difference in the
amount of claims incurred per year to claims paid out per year. Figure 1.1 contains every single
claim that was given in the case, including outliers and injuries that are unrelated to BT Design
in any fashion. The two exponential trend lines spread apart as time moves forward, decreasing
the amount of claims paid out from 62.88% in 2013, to 49.59% in 2014, and finally 15.73% in
2015. We may ask, why has the WC carrier been paying out less in claims each year as the
amount incurred moves upward?
Now if we look at Figure 1.2 after getting rid of the outliers, we can see that the
exponential trend line straightens out and pulls closer to the X axis. Also, there was an increase
the amount of claims paid out in year 2015 by 7.8%. Removing this single outlier allowed the
WC carrier to pay out more money to the claims that were associated with BT Design. This
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HEAD
Head injuries are very devastating and costly, so fortunately head injury claims at BT
Design have stayed constant over the past three years opposed to rising. There was a single
head injury each year in the past three years at BT Design, two occurring by the individual
falling off of a ladder and the other individual being hit by a forklift. With no thorough
background on each claim, we should assume the worst case scenario.
The injury that the employee received in 2015 was a concussion from falling off of a
ladder while pulling an Ethernet cable above a drop ceiling. Moving forward, BT Design should
require all employees who climb up any elevated platform higher than six feet are required to
wear a safety helmet in case of a fall or something hitting their head. This safety helmet will
help decrease the chance of a concussion if an employee does fall form a heightened platform
of ladder.
In 2013, a similar incident occurred. An employee fell off of a ladder in which they
obtained a concussion. Please refer to Technique 7 on Table 1.1 for further loss control
solutions.
Since wearing helmets while climbing was suggested in the table, we found a V‐Guard
Staz‐On Slotted Protective Helmet online for only $10.15. Since there are three maintenance
staff members in Oakland, one in Seattle, and one in Austin, we suggest purchasing at least five
helmets. Purchasing five of these helmets would cost the company $50.75 for the helmets with
a cost of $18.15 for shipping three helmets to the Oakland location, $5.85 for shipping a single
helmet to the Seattle office, and another $5.85 for shipping a single helmet to the Austin, Texas
office. In total, purchasing five helmets would cost $80.60 and could potentially save thousands
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in WC claims. Each individual should keep their helmet near them at all times so when needed
to climb, they’ll be safely equipped.
In addition to the helmets, MCC believes that BT Design should purchase cones to put
around ladders when individuals are climbing. These cones will warn passing employees to be
aware of an elevated individual in the area. After research, a pack of 12 seven inch cones sells
for $10.99 on Amazon, if we were to have a set shipped to each office, it would total $43.96
with free shipping.
BACK/TORSO
Back and torso injuries made up 33% of the WC claims in 2013 totaling $39,700, which
made up 32.92% of the claims paid out in that fiscal year. In 2014 20% of claims were back
injuries totaling $67,700 making up 41.44% of the claims paid out, and in 2015 28% of total
claims were back injuries totaling $70,650 making up 38.74% of claims paid out. The average
severity for each back claim in 2013 was $7,940, $16,925 in 2014 and $7,850 in 2015.
These injuries stemmed from a couple of activities, ergonomic concerns and heaving
lifting or moving. If you look at the Appendix, refer to Figure 1.4 as you will see a pie chart
regarding the cause for each back injury in 2015.
Since lifting and moving equipment is one of the main causes of back injury, we suggest
a few risk control techniques that might alleviate the frequency of back related claims. Please
refer to Technique 1 on Table 1.1 for loss control reccomendations on moving and lifiting heavy
objects. Purchasing a dolly would be critical in taking the pressure off of an individual while
moving heavy equipment. BT Design could purchase four Harper Trucks Lightweight 400lb
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Capacity Nylon Convertible Hand Truck and Dolly on Amazon for $65.99 each, which includes
free shipping. This equipment would cost the company $263.96 which would decrease the
probability of back lifiting injuries, thus lowering the EMF for following year WC policies. In
addition to purchasing hand cart/dolly’s we believe that they should purchase five back braces
for each location. After researching the cost of back braces, we found a One Size Fits All,
Lumbar Back Support for Men and Women Back Brace for $10 each. If BT Design were to
purchase five for each location, it would cost the firm a total of $200 as the shipping is included.
Prior to employment for these laboring individuals, BT Design should require them to watch
Safe Lifiting on Youtube at https://www.youtube.com/watch?v=901uQgfiuVk to ensure proper
technique and safety.
Ergonomic conerns are another cause of back pain opposed to primarily lifting and
moving objects. For loss control suggestions regarding ergonomic conerns, please refer to
Technique 2 on Table 1.1 for suggestions. Lastly, we would need to work with the managers to
create the most efficient process in the factory so there is less movement of hevy equipment of
products. The proper utilization of floor space will increase efficiency and decrease the amount
of heavy objects needing to be lifted.
NECK
Along with back injuries, neck injuries can be very detrimental to an individuals health
and productivity throughout any given day or their entire life. Workers compensation claims
regarding neck injuries did not arise in 2013, but started in 2014. In 2014 there was one neck
injury, which in 2015 that number rose to five. Please look at Figure 1.1 for a visual. The one
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neck injury in 2014 was caused by ergonomic concerns, and four of the five neck inuries in 2015
arose from ergonomic conerns as well.
Since employees have been complaining about back and neck pain from working at the
computer for long hours, MCC still believes the ergonomics consultant should still be brought
into each office once a month. In addition to this consultant, the employees sitting at desks
should be working on their posture. To implement these changes, have your employees visit
YouTube and watch Ergonomics Training for Neck Pain From Computer Use: ErgoAdvocate for
quick and free ergonomic advice at https://www.youtube.com/watch?v=XpbMtpMHfQE. Please
refer to Technique 2 on Table 1.1 for futher risk control suggestions.
JOINT/LIMB
Joint and limbs are very important in day‐to‐day movement. In 2013 we had a total of
four joint or limb injuries totaling $19,200 making up 26.67% of the total injuries for that year.
In 2014, joint and limb injuries increased to five out of 20, composing 25% of the total injuries.
Lastly, in 2015 the joint and limb injuries dropped off with two reported WC claims out of the
32, comprising 6.25% of the total injuries.
After reviewing the WC claims regarding joints, we noticed that all of the joint injuries
were caused by some sort of falling. Whether it was falling off of a ladder, vehicle, or loading
dock, all employees should use proper risk mitigation techniques in order to ensure safety. For
reccomendations on reducing joint injury caused by falling, please look at techinques 7 and 8
on Table 1.1.
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An employee injuring their limb can be critical to productivity temporarily or
permanantly. The two arm injuries stemmed from welding and machinery, while the only leg
injury occurred by the negligence of a contracted company’s employee. As stated earlier, the
WC carrier should subrogate agains the contracting company. Regarding arm inuries from
machinery misuse or improper welding, please refer to techniques 4 and 5 on Table 1.1 for
further suggestions.
Lastly, MCC believes that drug tests should be administered to individuals at random,
who operate or work on machinery, since many arm and hand injuries have been related to the
misuse of the equipment. There was a total of five injurie that stemmed from the use of
machinery or operating equipment, so we suggest that BT Design purchases 10 two pack 10
Panel Dip Drug Testing Kit (Test for 10 Different Drugs) on Amazon for $8.00 per pack. This
supply would cost BT Design $80.00 as free shipping is included. The reason we believe 15 extra
tests should be purchased is to use them for future claims that may occur.
HAND
Hand injuries have comprised a large percentage of workers compenstation losses for
BT Design within the past few years. In 2013, hand injuries made up 20% of the total losses for
the year, with the WC carrier paying out $31,900 being 26.45% of the total claims paid out that
year. In 2014 the hand claims decreased to 15% of the total claims for that year, and in 2015
hand claims spiked up to 31.25% of the total claims.
The amount of hand injuries stayed constant throughout the years 2013 and 2014, as
there was one hand injury in each year that was caused be office work, computer work, and
45. Page 45
operating equipment. In 2015 the hand injuries increased by 8, totaling 11 for the year. These
injuries were triggered by activites like soldering, cutting, computer work, operating machinery,
and assembley line duties. One may think, why was there a spike in hand injuries in just one
year, opposed to a smooth growth? Lack of dilligence and trainging seemed to be the cause of
these careless injuries. For loss control and risk mitigation suggestions, please refer to
techniques 4, 5, ad 6 on Table 1.1. Implementing these suggestions would decrease the
experience modifier, thus reduce the cost of an annual workers’ compensation premium.
In techniques four and five, using gloves is one of loss control techniques that BT Design
is suggested to implement. Since welding and soldering a similar activites, we found a pair of
gloves online that BT Design should purchase and have shipped to each location. We suggest
that BT design purchases 40 pairs of gloves, five pairs for the Austin location, Seattle loaction,
and Riverside location, while 25 pairs should be held at the Oakland location. The thought
behind this is that not all gloves will be utilized in one loaction or at one time. Welding and
soldering projects aren’t constant, and because of this people can rotate in using the gloves
when they need them to complete projects.
The total cost of purchasing 40 pairs of gloves would be $1,139.20, which would include
free shipping. This cost would help decrease the amount of WC claims regarding hand injuries
from welding and soldering activities. Regarding individuals cutting and stapling their hands,
these losses would be retained as there is no proper way to control these losses.
Lastly, to mitigate Carpal Tunnel Syndrome (CTS) I suggest that BT Design puchases
Yacoto Mouse Pad with Writst Pad from Amazon.com. BT Design should purchase 47 pads at
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$7.99 each (free shipping included), totaling $375.53. These 47 pads account for: 10
Clerical/Admin’s, 9 Financial Analysts, 4 Human Resource employees, and 8 IT employees in the
Oakland office, 5 Clerical/Admin’s and 5 Logistic employees in the Riverside office, 3
Clerical/Admin employees in the Seattle office, and 3 Clerical/Admin employees in the Austin
office. These employees constantly sit at computers and the support and comfort of these pads
would help decrease the chance of a CTS claim arising.
ORGAN/INTERNAL
Organ injuries may seen obsqure and may not be seen as a frequent wokers
compensation claim, but surprisingly there were several that occurred while employees were
working for BT Design. The injuries that were associated with bodily organs were incorporated
hernia’s, eye injuries, respitory problems, and a single heart attack. Some of these claims may
be hard to forsee and hard to control, but they still do happen and some can still be avoided.
Please refer to Techniques 1, 4, 9 and 10 in Table 1.1 for loss control suggestions.
Two individuals had WC claims that were hard to predict and tought to mitigate at the
time of inception. These injuries were caused by breathing in mold while in a building, in which
there is no physical evidence of injury at the point of origin. These claims would have to be
retained on BT Design’s WC policy.
Occupational illnessess are “injuries” that can be caused by work realted activites. When
a worker becomes unhealthy on sick due to the nature of the job, certain ilnesses like hernias
and heart attacks can be covered by workers compensation for high‐stress jobs (Repa, Barbara).
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Since an employee at BT Design had a heart attack while running to catch up with a company
shuttle van, I believe that BT Design’s WC carrier would retain this loss.
After analyzing the losses that were associated with internal body parts and organs, we
discovered the cost of the equipment that should be purchased as stated in Table 1.1. First, we
believe glasses should be purchased to protect the eyes of welders, solderers, and people using
any sort of harfmul chemicals. Regarding welding and soldering, we found a pair of safety
glasses on Amazon that would protect the eyes of these individuals. MCC suggests purchasing
40 pairs of Safety Glasses Protective Glasses Shade 10 Goggles for Melting and Soldering for
$26.49 a piece. The reason for 40 is because of the same reasons stated above concerning the
purchase of gloves for these individuals. Purchasing 40 pairs of hese welding/soldering goggles
would cost BT Design $1, 059.60.
When employees want to use or spray hazardous chemicals, we suggest that BT Design
implements a rule in which they have to wear safety glasses. We believe that BT Design should
purchase a box of 12 Clear Safety Glasses on Amazon, for a total of $11.95 per box for each
location. This would cost $47.80 (free shipping included) to protect individuals eyes from being
injured by harmful chemicals and liquids.
Forecasting claims from prior loss history is one way to predict the potential cost for
Workers Compensation insurance in the next period. Finding the projected total losses for 2016
required us to forecast claims frequency and the natural logarithm (Ln) of total losses in each
period by using linear regression analysis. In our regression analysis of finding the forecasted
claims frequency, we used the claims frequency from years 2011 through 2015 as our Y input
48. Page 48
range and period one through five as our X range. Once the output was complete, we took the
X variable of .4511 and multiplied it by six (1 + number of observations), then added the
intercept of 1.2419. This gave us 3.95, which then we then took the exponent from to conlude
us at 51.86, rounded up to 52.
The next step was to find the Ln of total losses in periods one through five, in which the
inflated losses were given. Once the Ln was obtained for the total losses in each period, we
wanted to run the regression analysis again, having the Ln Total Losses be our Y range and
periods one through five be out X range. The output for this regression gave us an X Variable of
0.6733, which then we multiplied by six (1 + number of observations) and added the intercept
of 10.3092. This equation gave us a calculation of 14.3492, then after we took the exponent of
14.3492, which gave us $1,705,135.82, thus the projected total losses for 2016. As we can see
from looking at the Forecasting tab within the Claims Workbook (page 78), this number jumped
up due to BT assuming claims that are unrelatable to their company.
R2
is the most important factor in determining how close the trend line is related to the
data. The R2
of the total losses came in at 0.82, which is fairly accurate. As we can tell, the
closer the data is to 1 the more accurate it is, hence why we should look at the Ln of the total
losses. The Ln of the total losses has an R2
of 0.96 which means that the projected losses are
extremely accurate. This number is accurate because our data has an R2
greater than 90%,
which allows the regression to generate a P‐value of less than one which leads us to reject the
null hypothesis, thus providing us with relevant information to judge as to whether we should
trust the data or not. Please refer to Figure 1.5 and 1.6 for a visual display.
