Risk Focus: Professional Liability

Incivility’s Growing Risk

Increasing levels of incivility in society are leaching into the workplace and bruising employers’ bottom lines.
By: | October 12, 2017 • 5 min read

Workplace incivility is on the rise.

Workplace violence — a frequent outcome of incivility — is reported to cost $4.2 billion dollars a year and claims 1,000 lives annually. The Journal of Nursing Administration reports incivility is often responsible for lost productivity, high turnover, low morale, reputational damage, workers’ compensation claims and lawsuits.

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Toronto-based Bar-David Consulting, which helps firms create civil work environments, finds a direct connection from incivility to harassment and bullying and finally physical violence. That link constitutes “a big risk management worry,” said Lori Severson, health care loss control consultant, Lockton Companies.

In 1998, 49 percent of workers reported rude treatment at least once a month. In 2016, 62 percent said the same, according to research conducted by Christine Porath, associate professor, McDonough School of Business, Georgetown University, and Christine Pearson in the Harvard Business Review.

Michigan State University research found incivility is spreading, racking up an average annual impact of $14,000 per employee in lost production and work time.

Increasingly, Severson said, organizations are adopting strategies from the health care industry, generally considered the “gold standard of workplace safety.”

Some insurance products are adapting to a broader spectrum of risks. For example, some employment practice liability coverage will respond to bullying allegations, said Paul Marshall, managing director, McGowan Program Administrators. And some workplace violence policies added threat protections. “Now it will respond to just a threat,” he said.

Daniel Gugala, executive vice president and general counsel, Crisis Prevention Institute

All organizational change, including zero tolerance for uncivil behavior that can escalate into violence and lawsuits, begins at the top, wrote Valerie Keels, head of DC office services, Gavi, and member of the Society for Human Resources Management’s HR Disciplines Expertise Panel, in an e-mail interview.

“The CEO, president or other high-level authority figure in the organization must not only practice this behavior but also advocate for it publicly and often,” then follow up with organizational policies and procedures.

“Then the line managers and employees must be educated and trained about what civil behavior does and does not look like,” Keels wrote.

Uncivil behavior can often be subtle and unconscious. “Think of the manager who sends emails during a presentation … or the team leader who takes credit for good news but points a finger at team members when something goes wrong,” wrote Porath.

A Not-So-Hidden Liability Risk

Workers get on each other’s nerves, bringing personal habits into the workplace. They decorate their workspaces with photos of wives in bikinis, religious articles and political paraphernalia.

Most companies already have anti-harassment policies in place that define which personal items employees can and can’t have in the workplace, said Allison West, Esq., principal, Employment Practices Specialists, LLC, which might cover the issues of swimsuit photos and religious articles.

“You can reduce the risk with training, but you’ll never eradicate it. You can’t force people to be civil.” —Daniel Gugala, executive vice president and general counsel, Crisis Prevention Institute

A complete ban on personal items would be overkill, said West. But private employers have legal grounds to take that draconian step, since first amendment rights do not apply in the private workplace except for collective actions under labor laws, according to Katherine Stone, distinguished professor of law, UCLA School of Law.

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Then there are snubs, unreturned emails and unacknowledged efforts.

If incivilities relate to gender, religion, race or any constitutionally protected groups, “that raises serious HR concerns and some liability exposure for the company,” said Stone.

Cases that “go beyond rolled eyes into marginalizing or excluding a co-worker because of race or gender can be a liability if the behavior is interfering with the person’s ability to do the job and succeed in the workplace.”

In those cases, she said, “there can be liability if the company knows about it and does nothing to stop it.”

The Equal Employment Opportunity Commission Task Force on the Study of Harassment in the Workplace recommends civility training and bystander intervention training as part of a holistic harassment prevention program.

Most large employers understand the importance of safety, said Sam Estreicher, professor of law, New York University School of Law and director of its Center for Labor and Employment.

Sam Estreicher, director, Center for Labor and Employment, New York University School of Law

“An organization that’s willing to commit resources to how people communicate — both how they deliver and receive messages — may keep in check those who don’t have the propensity to follow the right path,” said Daniel Gugala, executive vice president and general counsel, Crisis Prevention Institute, an international training organization specializing in the safe management of disruptive and assaultive behavior.

“You can reduce the risk with training,” he said, “but you’ll never eradicate it. You can’t force people to be civil.”

You’re Fired

Employers have a legal obligation to run a safe workplace. Social media lifted the veil of privacy from off-duty behaviors, and sometimes those behaviors result in termination.

For example, at least four white nationalists who demonstrated in Charlottesville, Va., lost their jobs after being identified through Twitter.

This poses the question: Are legal but unsavory activities with a controversial group outside the office grounds for dismissal?

For public sector employees, no, said Stone, because of first amendment protections. However, employment in the private sector is “at will,” giving employees fewer protections.

The law varies by jurisdiction, but in general, private employers do not monitor employees’ behavior outside the workplace, said Estreicher. “Policing behavior outside the workplace is generally counterproductive.” Overzealous employers, he said, “will be clobbered in litigation.”

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Again, there are exceptions, Estreicher said, especially where employers perceive potential harm to their brand. Say an employee identified as attending a white supremacy rally is a supervisor, not “just a guy on the line,” the employer should bring him in for a talk. “You say, ‘You’re acting as my agent and you’re putting my company in a bad light.’ That would be consistent with a reasonable civility policy,” said Estreicher.

Civility, Stone said, “is in the eyes of the beholder” and some types of employee activities that might appear uncivil can trigger the protection of labor laws.

“The law allows employees to criticize their employer about working conditions, sometimes loudly and profanely. Some might consider those protests to be uncivil, disruptive or inappropriate.”

To merit legal protections, those kinds of behaviors would rise above “one disgruntled person griping, but trying to get colleagues to join the conduct as a protest,” Stone said. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Hospitality

Bridging the Protection Gap

When travelers stay home, hospitality companies recoup lost income through customized, data-defined policies.
By: | October 12, 2017 • 9 min read

In the wake of a hurricane, earthquake, pandemic, terror attack, or any event that causes carnage on a grand scale, affected areas usually are subject to a large “protection gap” – the difference between insured loss and total economic loss. Depending on the type of damage, the gap can be enormous, leaving companies and communities scrambling to obtain the funds needed for a quick recovery.

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RMS estimates that Hurricane Harvey’s rampage through Texas could cause as much as $90 billion in total economic damage. The modeling firm also stated that “[National Flood Insurance Program] penetration rates are as low as 20 percent in the Houston area, and thus most of the losses will be uninsured.”

In addition to uninsured losses from physical damage, many businesses in unaffected surrounding areas will suffer non-physical contingent business interruption losses. The hospitality industry is particularly susceptible to this exposure, and its losses often fall into the protection gap.

Natural catastrophes and other major events that compromise travelers’ safety have prolonged impacts on tourism and hospitality. Even if they suffer no physical damage, any hotel or resort will lose business as travelers avoid the area.

“The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry,” said Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh.

Christian Ryan
U.S. Hospitality and Gaming Practice Leader, Marsh

“People are going away from the devastation, not toward it,” said Evan Glassman, president and CEO, New Paradigm Underwriters.

Drops in revenue resulting from decreased occupancy and average daily room rate can sometimes be difficult to trace back to a major event when a hotel suffered no physical harm. Traditional business interruption policies require physical damage as a coverage condition. Even contingent business interruption coverages might only kick in if a hotel’s direct suppliers were taken offline by physical damage.

If everyone remains untouched and intact, though, it’s near impossible to demonstrate how much of a business downturn was caused by the hurricane three states away.

“Hospitality companies are concerned that their traditional insurance policies only cover business interruption resulting from physical damage,” said Bob Nusslein, head of Innovative Risk Solutions for the Americas, Swiss Re Corporate Solutions.

“These companies have large uninsured exposure from events which do not cause physical damage to their assets, yet result in reduced income.”

Power of Parametrics

Parametric insurance is designed specifically to bridge the protection gap and address historically uninsured or underinsured risks.

Parametric coverage is defined and triggered by the characteristics of an event, rather than characteristics of the loss. Triggers are custom-built based on an insured’s unique location and exposures, as well as their budget and risk tolerance.

“Triggers typically include a combination of the occurrence of a given event and a reduction in occupancy rates or RevPar for the specific hotel assets,” Nusslein said. Though sometimes the parameters of an event — like measures of storm intensity — are enough to trigger a payout on their own.

For hurricane coverage, for example, one policy trigger might be the designation of a Category 3-5 storm within a 100-mile radius of the location. Another trigger might be a 20 percent drop in RevPAR, or revenue per available room. If both parameters are met, a pre-determined payout amount would be administered. No investigations or claims adjustment necessary.

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The same type of coverage could apply in less severe situations where traditional insurance just doesn’t respond. Event or entertainment companies, for example, often operate at the whim of Mother Nature. While they may not be forced to cancel a production due to inclement weather, they will nevertheless take a hit to the bottom line if fewer patrons show up.

Christian Phillips, focus group leader for Beazley’s Weatherguard parametric products, said that as little as a quarter- to a half-inch of rain over a four- to five-hour period is enough to prevent people from coming to an event, or to leave early.

“That’s a persistent rainfall that will wear down people’s patience,” he said.

“A rule of thumb for parametric weather coverage, if you’re looking to protect loss of revenue when your event has not actually been cancelled, you will probably lose up to 20 to 30 percent of your revenue in bad weather. That depends on the client and the type of event, but that’s the standard we’ve realized from historical claims data.”

The industry is now drawing on data to establish these rules of thumb for more serious losses sustained by hospitality companies after major events.

“Until recently the insurance industry has not created products to address these non-physical damage business interruption exposures. The industry is now collaborating with big data companies to access data, which in turn, allows us to structure new products,” Nusslein said.

Data-Driven Triggers

Insurers source data from weather organizations that track temperature, rainfall, wind speeds and snowfall, among other perils, by the hour and sometimes by the minute. Parametric triggers are determined based on historical storm data, which indicates how likely a given location is to be hit.

“We try to get a minimum of 30 years of hourly data for those perils for a given location,” Phillips said.

“Global weather is changing, though, so we focus particularly on the last five to 10 years. From that we can build a policy that fits the exposure that we see in the data, and we use the data to price it correctly.”

New Paradigm Underwriters collects their own wind speed data via a network of anemometers that stretch from Corpus Christi, Texas, all the way to Massachusetts, and works with modeling firms like RMS to gather additional underwriting information.

The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry.– Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh

While severe weather is the most common event of concern, parametric cover can also apply to terrorism and pandemic risks.

“We offer a terror attack quote on every one of our event policies because everyone asks for it,” said Beazley’s Phillips.

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“We didn’t do it 10 years ago, but that’s the world we live in today.”

An attack could lead to civil unrest, fire or any number of things outside an insured’s control. It would likely disrupt travel over a wide geographic region.

“A terrorist event could cause wide area devastation and loss of attraction, which results in lost income for hospitality companies,” Nusslein said.

Disease outbreaks also dampen travel and tourism. Zika, which was most common in South America and the Caribbean, still prevented people from traveling to south Florida.

“Occupancy went down significantly in that region,” Marsh’s Ryan said.

“If there is a pandemic across the U.S., a parametric coverage would make sense. All travel within and inbound to the U.S. would go down, and parametric policies could protect hotel revenues in non-impacted areas. Official statements from the CDC such as evacuation orders or warnings could qualify as a trigger.”

Less data exists around terror attacks and pandemics than for weather, though hotels are taking steps to collect information around their exposure.

“It’s hard to quantify how an infectious disease outbreak will impact business, but we and clients are using big data to track travel patterns,” Ryan said.

Hospitality Metrics

Any data collected has to be verified, or “cleaned.”

“We only deal with entities that will clean the data so we know the historical data we’re getting is accurate,” Phillips said.

“There are mountains of data out there, but it’s unusable if it’s not clean.”

Parametric underwriters also tap into the insured’s historical data around occupancy and room rates to estimate the losses it may suffer from decreased revenue.

Bob Nusslein, head of Innovative Risk Solutions for the Americas, Swiss Re Corporate Solutions.

“The hospitality industry uses two key metrics to measure loss of business income. These include occupancy rate and revenue per available room, or RevPAR. These are the traditional measurements of business health,” Swiss Re’s Nusslein said.  RevPAR is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate.

“The hotel industry has been contributing its data on occupancy, RevPAR, room supply and demand, and historical data on geographical and seasonal trends to independent data aggregators for many years. It has done an exceptional job of aggregating business data to measure performance downturns from routine economic fluctuations and from major ‘Black Swan’ events, like the 9/11 terrorist attacks, the 2008 financial crisis or the 2009 SARS epidemic.”

Claims history can also provide an understanding of how much revenue a hotel or an event company has lost in the past due to any type of business interruption. Business performance metrics combined with claims data determine an appropriate payout amount.

Like coverage triggers, payouts from parametric policies are specifically defined and pre-determined based on data and statistical evidence.

This is the key benefit of parametric coverage: triggers are hit, payment is made. With minimal or no adjustment process, claims are paid quickly, enabling insureds to begin recovery immediately.

Applying Parametric Payments

For hotels with no physical damage, but significant drops in occupancy and revenue, funds from a parametric policy can help bridge the income gap until business picks up again, covering expenses related to regular maintenance, utilities and marketing.

Because payment is not tied to a specific type or level of loss, it can be applied wherever insureds need it, so long as it doesn’t advance them to a better financial position than they enjoyed prior to the loss.

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Parametric policies can be designed to fill in where an insured has not yet met their deductible on a separate traditional policy. Or it could function as excess coverage. Or it could cover exposures excluded by other policies, or for which there is no insurance option at all. Completely bespoke, parametric coverages are a function of each client’s individual exposures, risk tolerance and budget.

“Parametric insurance enables underwriting of risks that are outside tolerance levels from a traditional standpoint,” NPU’s Glassman said.

The non-physical business interruption risks faced by the hospitality industry match that description pretty closely.

“Hotels are a good fit for parametric insurance because they have a guaranteed loss from a business income standpoint when there is a major storm coming,” Glassman said.

While only a handful of carriers currently offer a form of parametric coverage, the abundance of available data and advancement in data collection and analytical tools will likely fuel its popularity.

Companies can maximize the benefits of parametric coverages by building them as supplements to traditional business interruption or event cancellation policies. Both New Paradigm Underwriters and Beazley either work with other property insurers or create hybrid products in-house to combine the best of both worlds and assemble a comprehensive risk transfer solution. &

Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]