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If you have a question about any of the articles in this newsletter or coverage questions, contact your broker at one of our offi ces.

September 2010, Volume 1, Issue 6

George Petersen Insurance Agency

Celebrating 75 years in business

Hefty Rate Increase on Table for 2010

T HE AGENCY that helps set workers’ compensation rates in California has fi led a recommendation that In-

surance Commissioner Steve Poizner increase benchmark rates by nearly 30%.

The governing committee of the Work-ers’ Compensation Insurance Rating Bureau voted to fi le the rate-change recommendation with the California Department of Insurance, which will hold hearings on the request in late September.

After that, Poizner will have to decide whether to accept the recommendation, reject it or change benchmark rates by some other amount.

The filing immediately drew flak from Governor Schwarzenegger, who said the state must work to protect the landmark reforms he championed in 2004, which led to overall rate reductions of 65% in the ensuing years.

The 29.6% rate increase recommenda-tion, however, is a reflection of Poizner’s practice since he took office in 2006 of rejecting outright the Rating Bureau’s recom-mendations. In two of the past three years, when the bureau asked for rate hikes of

around 23%, he rejected the fi lings. He says the Rating Bureau’s methodology is fl awed, which is up for debate.

His rejections have caused an anomaly in the state’s benchmark rates for all 500-plus class codes in California, which insurance carriers use as a starting point to calculate premiums for employers.

As an employer, you’ve no doubt noticed that your workers’ comp premiums have been on the rise – for some, a little, for oth-ers, substantially.

Unfortunately, the increases are expect-ed to continue. Yet, even if the full 29.6% increase is approved, pure premium rates would still be, on average, 53% lower than the approved pure premium rates in effect Jan. 1, 2004, according to the bureau (see chart below).

After the overall medical costs of workers’ comp claims plummeted for four years after the reforms, costs have been on a steady uphill climb since, particularly on a per claim basis. The reforms had the desired effect of helping eliminate a good deal of medical claims out of the system by instituting higher standards for medical treatment. While that

cut down on claims, it left the more costly claims in the system. The average medical cost per indemnity claim (claims that also had wage-replacement benefi ts paid out) hit $57,800 in 2009, up from a low of $38,800 in 2005 and higher than the former peak of $49,900 in 2001, according to Rating Bureau data.

The rate increase recommendation is also based on the assumption that medi-cal costs will increase by 9% in 2011 and indemnity (benefi t) costs will rise 6%.

One thing that’s important to remember, though, is that the workers’ compensation benchmark rate is advisory only, meaning that insurance companies are free to price their policies as they like.

After enjoying a healthy run of sliding workers’ comp premiums, we recommend that employers put a renewed focus on loss control and workplace safety.

If you need help in this area, feel free to call your broker in our offi ce and we will be glad to help you fi nd ways to make your workplace safer.

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00 $6.45$6.11

$5.84

$5.23

$4.43

$3.76

$3.25$2.92

$2.46 $2.37 $2.35

Q3&42003

Q1&22004

Q3&42004

Q1&22005

Q3&42005

Q1&22006

Q3&42006

Q1&22007

Q3&42007

2008 2009

Source: Workers’ Compensation Insurance Rating Bureau of California

Average Workers’ Compensation Rates Per $100 of Payroll

Workers’ Comp

2 www.gpins.comSeptember 2010

George Petersen Insurance

Protect the Future of Your BusinessCOULD YOUR business withstand the loss of a key executive?

What would happen to your company if your business partner passed away?

These are weighty questions that most people don’t like to think about, but death is a reality nobody can escape. While the hardships faced by an individual’s family are great when a person dies, even greater hardships can affect an ongoing concern.

There are existing business relationships that must continue and there are usually employees that rely on the now deceased owner’s company for continued employment.

An owner passing away also takes with them institutional knowl-edge of key details to operations that may not be readily apparent to others in the organization. Directly after a key person in an or-ganization dies there may a period of time that the fi nances of the company suffer.

There are two types of life insurance policies that protect your company during these unexpected events: key person insurance and buy-sell arrangements.

Key person insurance is a life insurance policy that your com-pany purchases on any of its key employees, whether it’s a top sales employee, marketing guru or winemaker. This helps your company survive fi nancially if something happens to that employee by covering lost income and providing the costs of fi nding a replacement.

Buy-sell arrangements are agreements in which the owners of a business agree to purchase each other’s shares in the event of a death. These arrangements are drawn up by an attorney, and then funded with life insurance policies. The deceased’s family then

receives fair market value for their share of the business, and the remaining owners will not have to worry about a new family member gaining ownership. Buy-sell arrangements also protect the company against the sale of a signifi cant interest to an unknown third party by providing a guaranteed buyer.

Free consultationIf you have an existing policy, it is important to revisit it each year

to ensure that your business is fully and accurately covered. We would like to take the opportunity to consult you on your

life insurance options. Please don’t hesitate to give us a call at 707.525.4150.

Business Continuity

Petersen Lexicon: Errors and OmissionsPROFESSIONAL LIABILITY insurance – more commonly known as errors and omissions insurance – protects your company from claims if your client holds you responsible for errors, or the failure to perform as promised in your con-tract.

Coverage includes legal defense costs – no matter how baseless the allegations. E&O insurance pays for judgments against you, including court costs, up to the coverage limits on your policy. The coverage extends to employees and sub-contractors and can be worldwide in scope.

Why do I need errors and omissions insurance?E&O coverage is not provided by a commercial general

liability policy. Commercial general liability does not provide coverage

for errors, contract performance disputes or any other pro-fessional liability issues. Companies that have general liabil-ity without E&O coverage are taking a serious risk akin to a doctor practicing medicine without malpractice insurance.

In addition, at some point every company makes a mis-take.

The good news is that E&O insurance covers not only your errors, but also those of employees and independent contractors you hire. Finally, E&O insurance could save your company from losing a client or incurring a bad reputation.

When do I need E&O insurance?Usually it is wise to purchase the coverage prior to prod-

uct launch, or when you have customers. In addition, new investors and venture capitalists may require that you have E&O coverage.

Who is eligible for E&O insurance?

Most businesses and industry groups can be covered under an errors and omissions policy. This includes:

• Advertising and marketing • Consulting fi rms of all types• Computer system/network installation, operation,

maintenance and support• Data and software development, programming, data

base administration and data storage• Farm management• Design services (graphic, website, architectural,

landscape, etc.)• Program administration and development.

3 www.gpins.comSeptember 2010

George Petersen Insurance

If Your Company Has a Facebook Page, Read This

Establish the ground rules

Minimizing Your Company’s Risk in Social Media Arena

There should be at least one person, if not a team, in charge of overseeing the company’s social media activities and responding in the event of a crisis. Their responsibilities should include site main-tenance, plus regular and consistent

Review laws and regulations

The report notes that general liability policies are typically restrictive in terms of advertising injuries. Other policies may offer coverage including direc-tors and offi cers, errors and omissions,

Pick a point person

Don’t take legal or regulatory compli-ance for granted. Currently Congress is debating introducing a social media pro-tection act and many states are working on their own laws, mostly on privacy

Start by developing an all-encompassing new-media policy with rules for all employees on communicating online, including social networking. Rules should focus on establishing specific

Review insurance coverage

W HILE COMPANIES are grappling with how to control their employees’ time on social media websites such as Facebook and MySpace, fi rms that also have their own

Facebook page must make sure that they can adequately control their company image.

A new report, “Network Interference: A Legal Guide to the Com-mercial Risks and Rewards of the Social Media Phenomenon,” published by the law fi rm ReedSmith, points out that a company’s corporate brand and reputation are at risk when it starts a Facebook page, but handled correctly its social media presence can give valu-able insight into customers and how to better address their needs.

The key for companies is to establish or expand their current social media policies to help guide corporate activity and thinking in this area. This could include appointing an employee as the social media point person and reviewing existing insurance policies to en-sure they provide coverage for risks arising from social media.

While it’s easy for a company to launch a Facebook page and start engaging its customers, trying to control conversations about your company can quickly turn diffi cult, especially as the company grows and expands. The company will also fi nd it diffi cult to keep its brand image intact.

What lurks? Consider the case of Starbucks’ experience. ReedSmith points out in its report that there are three unoffi cial “I

love Starbucks” pages and more than 500 “I love Starbucks” groups. If someone likes Frappaccinos, they can join one of the more than a dozen groups dedicated to various fl avors.

But there are also more than 500 “I hate Starbucks” pages or groups and 211 “Starbucks sucks” pages.

Unfortunately, trying to litigate against someone who has started a hate page for your company would be costly and success would be far from guaranteed. Fortunately there is the Digital Millennium Copyright Act (DMCA), which a company can use to sue those behind a defamatory Facebook page.

Facebook, YouTube and Twitter prohibit their users from upload-ing or posting content that infringes on the rights of a third party (including intellectual property, privacy and publicity rights).

All three sites also provide instructions for submitting a DMCA take-down notice. What can you do to protect your company ? You can use the list opposite as a good starting point.

terms and conditions regarding content uploaded by users of the company’s branded page. Terms and conditions should specify that user-generated content may not violate any third-party rights, including moral rights and copyrights, and does not contain any defamatory, libelous, racial or pornographic content.

Additionally, companies should not use any content uploaded by users as their own unless you want to assume liability for the content. If a user violates your upload or posting rules, terminate their access.

monitoring for derogatory or harmful content. Once such content is found it should be removed quickly and the author blocked from the page or group.

issues. For example, most states have social media laws concerning defamation, invasion of privacy and trade secrets.

property, fi delity bond and fi duciary liability, as well as general liability.

Some technology, media, data privacy breach and professional liability policies provide coverage for fi rst-party loss (damage suf-fered directly by the company), including internal hacker attacks or business interruption, or expenses to maintain or resurrect data that has been lost.

Talk to your George Petersen broker about reviewing and com-paring choices and policy wording to tailor your coverage.

4 September 2010

George Petersen Insurance

www.gpins.com

G EORGE PETERSEN Insurance Agency has purchased NorthWest Insurance Agency Inc., a longtime friendly competitor in the independent insurance business. The

deal brings together the No. 2 and No. 3-ranked property and casualty agencies on the North Bay Business Journal Book of Lists as ranked by premium volume.

The purchase includes NorthWest Insurance offi ces in Santa Rosa, Napa, Ukiah, Gualala, Fort Bragg and Eureka. NorthWest offi ces in Crescent City, California, and Grants Pass, Oregon, were left out of the agreement and sold to another agency, NorthWest Chairman Michael Sullivan indicated. George Petersen currently has offi ces in Santa Rosa, Redding, Eureka, Auburn, Rancho Cor-dova and Bend, Oregon.

Almost all NorthWest staff will be absorbed into the new operation and remain in their current locations. Both staffs in Eureka and Santa Rosa will eventually consolidate into a single larger building in each city.

NorthWest President Mary Fairow will assume the chief ad-ministrative offi cer position for George Petersen and will be based at the current NorthWest offi ce on B Street in downtown Santa Rosa. Remaining in place and assuming the new position of chief operating offi cer is George Petersen’s longtime Santa Rosa branch manager and partner, Doug Dilley, who will head up sales efforts while turning over administrative duties to Fairow.

George Petersen Senior Vice President and Partner Josh Johnsen and fellow VP/partners Robb Daer, Mark Fess and Bob Teshima will also remain in Santa Rosa.

“This is a joining of two agencies with very similar values, cultures and approaches to customer service,” said Bussman. “We’ve known and competed with Mike Sullivan and NorthWest for a long time, and we’re quite aware of the good name they’ve established over the years. Obviously, that fi gured into our desire and enthusiasm to take advantage of this opportunity to bring them into the George Petersen family.”

Both companies are mainstays in the North Bay Area market and are a perfect fi t since they specialize in mid-market business with an array of similar products, services, industry emphases and insurance underwriters. Both were founded in the same area, George Petersen in 1935 with a fi rst offi ce in Eureka, and NorthWest in 1978 in Fort Bragg.

“We’re looking forward to combining the skills and resources of George Petersen and NorthWest to strengthen the fi rm and further enhance our services to clients,” President and CEO Charlie Bussman said.

George Petersen Acquires NorthWest Insurance

Produced by Risk Media Solutions on behalf of George Petersen Insurance Agency. This newsletter is not intended to provide legal advice, but rather perspective on regulatory issues, trends and standards affecting insurance, workplace safety, risk management and employee benefi ts. Consult your broker or legal counsel for further information on the topics herein. Copyright 2010 all rights reserved.

Agency News

GEORGE PETERSEN Insurance Agency would like to remind all of our clients with medical coverage of their responsibility to notify the Centers for Medicare and Medicaid Services (CMS) whether or not your prescription drug plan is creditable with the Medicare Part D prescription drug plan.

This disclosure is required as part of the Medicare Moderniza-tion Act.

A prescription drug plan is deemed to be creditable if it: 1) Provides coverage for brand and generic prescriptions; 2) Provides reasonable access to retail providers; 3) The plan is designed to pay on average at least 60% of partici-

pants’ prescription drug expenses; and 4) Satisfi es at least one of the following:a) The prescription drug coverage has no annual benefi t maxi-

mum benefi t or a maximum annual benefi t payable by the plan of at least $25,000,

or b) The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare eligible individual.

c) For entities that have integrated health coverage, the inte-grated health plan has no more than a $250 deductible per year, has no annual benefi t maximum or a maximum annual benefi t payable by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefi t maximum.

You can notify the CMS by logging on to the following website each year no later than 60 days after the renewal date of your policy:

www.cms.gov/CreditableCoverage/45_CCDisclosureForm.aspFor more information on whether your prescription drug coverage

is creditable, please go to the following link:www.cms.gov/CreditableCoverage/Downloads/CCSimpli-

fi ed091809.pdf Notices also must go out to any Medicare eligible employee and/

or dependent each year prior to November 15. The following is a link for sample notices:

www.cms.gov/CreditableCoverage/08_CCafterJanuary1.asp#TopOfPage

We suggest that you send notices to all employees to make sure you haven’t missed anyone.

Of course, if you have questions after reviewing these sites, please contact your benefi ts account manager at George Petersen Insurance Agency.

Medicare Part D DrugNotifi cation Reminder