Protecting
Your Assets:
A REVIEW OF HIDDEN SECURITY HAZARDS AND HOW TO CONTROL THEM
By
Carol Tyler, CPCU, of BRM Services, Inc., as presented at the 25th
Annual IPMI Conference, June
2001
With
the Insurance Industry experiencing its first “hard” market in nearly a
decade, managers need to read the fine print in their contracts. During the
price wars of the last decade, the attitude was ‘never mind the quality; feel
the width’. With markets constricting, this is the time to get service,
product and coverage at a competitive price.
It is an opportune moment to identify uncovered areas and to deal with
those exposures. Alternatives to insurance will become more important in dealing
with risk as the insurance market continues to constrict. Hindsight with regard
to certain types of loss will better equip us for protecting our assets going
forward. This review covers physical security and policy coverage of goods
in your premises and at third parties.
Physical
Security - Self Audit*
*This
checklist evolved from specific examples and is not meant to be a complete guide
to full security measures
Who scans the scanner?
Are Shoes removed or bottom of feet scanned?
Do you maintain dual controls over high valued storage areas and
enclosures?
Are
any and all openings and closings monitored by alarm company and ALL openings
beyond usual business hours require prior arrangement with alarm company?
Do you make certain that the individual representing a melt is never
left alone?
Do you do comparative assays on each job lot (beginning and end)?
Do you weigh or x-ray all outgoing shipments?
Do you open incoming shipments under CCTV?
Is each stage of processing logged, weighed, and signed for?
Do you conduct unannounced spot internal audits and maintain personnel
updates i.e., credit reports, background checks, on all employees?
Is garbage scanned and outside refuse collectors locked with restricted
access to keys?
Are employee lockers kept outside of inventory/secured areas?
Are ALL people leaving secured area scanned?
How and when are discrepancies dealt with?
Coverage
Provisions Checklist
(Standard Property
and Inland marine Forms)
A. Goods on Your Own Premises Coverage - Watch for hidden language that
restricts or changes your coverage.
1. Ownership - some domestic Insurance Companies restrict coverage
available on your own goods. Yet they may extend coverage to include ‘other
people’s goods in your care, custody or control’ but with a dollar
limitation (sometimes as low as only $2,500) or limit coverage from your own
‘negligence’ in loss or damage to those goods. Make sure neither of these
limitations exists otherwise you may find you have no coverage for your
customer’s goods in your care, custody or control. More about ‘ownership’
will be addressed in the Goods at 3rd Party Locations section.
2. Is your LIMIT OF COVERAGE sufficient to protect ALL material
including others, which may be located on your premises at any one time?
3. Is there a Coinsurance Clause in your policy form? If so, ask that it
be removed. If that is not possible, make sure you are within the clause
requirements. This is almost
impossible since you deal with a commodity whose price and volume fluctuate
continually.
This
most insidious clause requires full compliance or the Insurance Company
has the right to reduce your recovery significantly in the event of a covered
loss. Basically this clause requires that you carry at least 80, 90 or 100%
(depending on what you choose) of the ACTUAL values exposed - otherwise your
coverage will be REDUCED by a corresponding deficit (i.e. if you insure for 10%
less than you should have, your recovery will be reduced by the same amount - if
your actual loss is 30% over your limit - the limit of coverage will be
reduced by the corresponding percent).
4. Basis of Valuation is another area that becomes an issue only when
you have a loss. Typically, you may choose either replacement cost, actual
cash value, or the cost carried on your inventory sheets as of the date of
loss whichever is less! So the Insurance Company has ‘gotcha’
whichever way you turn.
However,
some domestics offer ‘selling price’ on finished goods, which include
overheads and labor costs. So do some London markets,
which may offer a ‘hedge’ within your insurance contract. They will
state the valuation as of a later date than ‘date of loss’. This is because
of two issues that can affect the value of your recovery
a) prices fluctuate continually (in an ascending market the date closest
to settlement will better protect you) and
b) time to determine extent of physical loss may extend well beyond the actual
date of loss.
A
valuation set as of ‘date proof of loss is taken”
may provide you with the least damaging valuation. However, be aware that
in a descending metal price market, this could cause a problem. We have gotten
around that by including language that states ‘in no event shall the value be
less than that on the date of loss’. This hardening market is affecting
underwriters’ willingness to continue with such broad language. Paul Parkinson
from Denis Clayton, Ltd., a London Insurance brokerage firm, will take us
through a behind the scenes look at the claim submission and payment
process as well as an update on the London insurance markets.
5. The ‘inventory records’ requirement
can affect recovery, but it is generally hidden in the insurance
contract language. Obviously, you must prove your loss to collect, not only as
to the circumstances (to prove that it is a ‘covered’ event in the
policy language) but also as to the extent and value.
a) Circumstances can offer the biggest challenge since most
losses are not ‘cut and dried’, particularly theft. They are generally
fuzzy unless the loss involves armed robbery or a break-in for which there is
clear physical evidence. Try to maintain as much detail and hard evidence as
possible:
Make sure your CCTV and taping devices offer clear views with
well-defined pictures in ‘real time’.
Restrict access to your shipping, pouring, recovery tanks or vault and
storage areas or any of the higher valued areas so, should material go missing,
there would be a limited number of individuals who could have had access.
Make sure your inventory tracking procedures, whether manual or
computerized, record the lot throughout the entire process, whatever form the
material takes. These records should be reconciled daily and any discrepancy
dealt with immediately, remember, losses discovered upon taking inventory are
typically excluded.
B. Goods at 3rd Party Locations
This has been a
particularly difficult area of coverage (or lack thereof) for this industry, as
evidenced by the many uncovered losses following the demise of HHRG.
“Ownership”
of your metal typically stays with you for the time that goods are being
processed at a refiner or with a subcontractor or out on consignment. While
these aspects are ‘typical’ and somewhat taken for granted, it would be to
your benefit to formalize these relationships to avoid the losses many have
endured. This subject alone would take a full day but we are fortunate to have
John Bullock here to take us through some of the preventative measures we can
take to put ourselves in a better position should the worst happen. I would
also suggest you consider the following:
Do you have a “written
agreement” with your refiner or 3rd party? (even if only a letter outlining
your understanding).
Do you request Certificates of Insurance indicating the level of
coverage the 3rd Party has, including the name of the Insurer, policy number
and dates?
Are you listed on that certificate as a ‘loss payee’?
Have you visited the premises to determine level of security?
Do you check their credit ratings regularly?
Does your own policy
provide you with Goods at 3rd Party locations coverage?