Category: Hardware Insurance

Do you have the latest information on the types of coverage you need for your company’s hardware assets?

Unexpected Losses

Indirect Income Loss

Problem: A greater risk for “indirect” income loss exists as more Massachusetts manufacturers rely upon assemblers for production of their boards, cabinetry, and parts for finished product. You may have millions of dollars of product moving through assemblers, where you have no control over plant safety or security.

Solution: We take great care to understand the flow of your product from parts through finished goods to your customers. We help you secure adequate on-site and off-site property protection.

Action:

  • Review your assembler contracts for capital equipment and inventory loss responsibility
  • Ask your insurer to place coverage where needed
  • Get updated certificates of insurance from your assemblers’ insurer

Shock Loss

Problem: Your outgoing $75,000 computer is dropped on Logan Airport’s tarmac, sustaining visible damage to the cabinet. Fearing hairline cracks in your boards resulting in possible systems failure, you declare a total loss to your insurer. After the insurance adjuster has an engineer test the unit, your insurer offers to settle for the cabinet damage only, $6,500. A $68,500 gap!

Solution: We can solve this discrepancy by stating in the policy application that any shock loss is declared a “total loss” by your QC standards. (Pricing will reflect this higher loss agreement.)

Action:

  • Review your Quality Control standards with your insurance broker
  • Determine the most cost effective method of risk management and coverage

Shipping Loss

Problem: You always ship F.O.B. your loading dock. But what happens when your customer reports “shipment has arrived damaged — please replace” and — your customer did not place shipping coverage on the incoming goods?

Solution: We can provide for this contingent loss possibility at a fraction of the standard shipping insurance rates.

Action:

  • Be sure you have an annual cargo insurance policy in place for any incoming and outgoing loss

 

Stranded At Sea

Guest article by Gustav Widmayer

Let’s face it, when the winds die down, no company has any business braving the high seas. So, what should you do when bookings are scarce, billings are down, and backlogs are depleted? This captain is scouring his ship from stem to stern.

I have taken my company, OX3 Corporation, through half a dozen downturns since 1980. I’ve learned that the key to success is to batten down the hatches and wait for the good winds. The current recession in the semiconductor sector is being called the worst in thirty years. Orders didn’t drop — they stopped. Things have gotten so bad so quickly that layoffs, rollbacks, reductions and write-offs have been swift and deep.

In the business of protecting semiconductors during handling and transport, a company has to be registered by an international quality standards board in order to demonstrate its ability to meet strict customer requirements. As sales dropped, my managers devoted hundreds of hours to writing and re-writing work instructions, procedures and manuals, activities that are the backbone of any ISO system for maintaining quality control. On August 1st of this year, OX3 received ISO9001-2000 certification.

Instead of sitting around wondering when our next order is going to come in, my staff and I are busy developing plans for a new facility. We are on schedule to break ground on November 1 of this year. Experiencing down time is also giving us the ability to more thoroughly train our staff. My managers now have the time to review tasks and work instructions, analyze trends and sharpen their skills.

My brother-in-law, a church deacon, reminds me of precedence in the Bible at Ecclesiastes 3:1-7: “there is an appointed time for everything: “A time to plant, and a time to sow . . .A time to tear down, and a time to build up . . .A time to be silent and a time to speak.” During the past quarter, I had the unenviable job of letting workers go and rolling back the hours and salaries of those who remain. At the same time, I’ve had to talk about shared values and the importance of hard work and ingenuity. Strangely, I seem to be succeeding. My message of sharing sacrifice has been accepted by my staff.

Each month I participate in a roundtable discussion with a group of other entrepreneurs owning tech companies with revenues of at least $1 million. At one of our recent gatherings, I suggested that I would not be asking every available employee to grab an oar and row after new customers. Not all agreed, but most found the argument to be sound. I believe that the course I have taken will make my company stronger when the current recession in the high-tech sector ends. When it does, and it will, my ship will be lean, clean and ready to sail past the competition.

Our guest, Gus Widmayer, is native to Boston, Massachusetts. A graduate of the University of Notre Dame, he manages Orion Park, in Ayer, Massachusetts, (www.orionpark.com) and owns OX3 Corporation (www.ox3.com). He is passionate about writing, history and investing and is currently writing books on the history of villages in Falmouth and Boston. He has been a customer of N. P. James since 1995.

 

Manufacturing Risks In The Global Economy

Technology manufacturing is the backbone of our New England economy. Our Massachusetts manufacturers have long exported nearly 1/3 of our technology products, making Massachusetts an important part of the global economy. Risks of the international marketplace naturally follow.

Products liability cases have become more prevalent in the EU markets, as noticeable shift from the non-litigious culture so long distinct from our U.S. culture. Cases of product performance (Errors & Omission), product safety and worker/employee protections in important overseas markets directly affect our local manufacturers. With overseas markets being seen as a crucial element to local economic vitality, risk identification and minimization is important.

Remember, your U.S. insurance policy probably provides:

  • Defense for “worldwide” liability only if the case is first brought in the U.S. No Workers Compensation benefits to any employee traveling outside the U.S.
  • No funding for returning home an injured employee from overseas.
  • No coverage for a laptop lost or stolen outside the U.S.
  • Coverage for (cargo) transit only under special transportation forms.
  • No coverage for Internet related material, intellectual property, trade or domain names, etc., connected with your web site. (Your web presence makes you global whether or not you export product.)

As technology costs become a greater part of corporate expenses, product performance expectation increase. As attention to business security matters is heightened, technology manufacturers are expected to provide complete consumer confidentiality as well as the most current product security and firewalls. As reliance on technology becomes more vital to the critical path of corporate operations survival and continuity, technology performance is held accountable.

 

Lessons Learned – Off-Premises Property

Your losses may not be covered

One lesson often learned very painfully is loss of property stored somewhere other than at your office premises. Be sure to keep your insurance broker advised if you move property, or if a client has not taken title to an expensive piece of equipment. These are the types of situations which should trigger your memory to call your insurance agent:

  • Warehousing, even temporarily, of any valuable property
  • Demo equipment at a client’s site (and you still own it)
  • Equipment/property on approval for a lengthy period at a client site
  • Property storage at any employee’s home
  • Lending or rental of equipment (and you still own it)

Many insurers offer some nominal amount of “unscheduled location” coverage ($10,000 is customary). Often we are called for large theft or water losses from a location about which we were never advised. That location of loss is then deemed “unscheduled” and only the incidental value of $10,000 can be collected.

Keep your agent in the loop.

Scheduling Specific Property

What to do – what not to

While jewelry and silver are the most frequent property losses by theft, those are usually from residential homes and not businesses. Computer equipment is the most frequent commercial property stolen, including boards, parts, and components. Value versus weight makes electronics an attractive target.

The principles of scheduling coverage are the same in your home as in your business, however. What should be specifically named and valued (with appraisal or receipts) and what should be designated as general “contents”?

Schedule:

Any property that moves around a lot, traveling from business site to clients or tradeshows, etc. Gemstones, high-valued products samples and like items.

What not to schedule:

Most of your business premises contents should not be specifically scheduled. Coverage will respond for full value of lost property on site for fire, storm, smoke, theft, vandalism (terrorism maybe), and the usual perils.

How insurers handle electronics in 2002.

  • Your computers are customarily categorized in a lump under “Computers” with a single total value of coverage. You will be expected to send your insurer a complete inventory of all computer hardware and software at least annually in order to support value as well as to facilitate later claims adjustment.
  • Laptops at this time cannot be specifically scheduled. But you should list them on your inventory. Most insurers are now insisting on a $2,500 laptop deductible; they simply do not want to be insuring these high loss items. Laptops are disappearing with some rapidity.
  • Computers in transit are getting harder to insure as theft claims are dramatically on the increase.

Value Your Insurance Coverage As You Value Your Product

If your hardware product promises a high level of performance, your Quality Control procedures should guide your loss settlement clauses. If one of your computers falls out of an airplane (they do that a lot, you know), your QC may mandate complete destruction of the product. Your insurer on the other hand, may put it through some rigorous stress tests and find it to be performing, resulting in what may be a sizable gap in insurance recovery.

If your QC will be taking a hammer to any product sustaining even a bench drop, you should ask your insurer to honor those standards. “It is hereby agreed and understood between Client and insurer that the following types of losses will be considered ‘total losses’…..” should be conveyed at the beginning of your policy term.

Four Lessons Learned

  1. Keep property inventory lists, especially computer inventory and software licenses, off-site.
  2. Be sure all the locations where you have property are listed on your insurance policy.
  3. “Schedule” all mobile property for broader territorial coverage.
  4. Agree with your insurer about loss valuation as part of your policy terms.

Terrorism

A word on possible exclusions to your policy. You have been reading in the press about insurers difficulties with terrorism. The World Trade Center tragedy was a $70 billion loss to a $300 billion industry. Insurers can’t take too many of those. The federal government is considering being the insurer for terrorism losses, much as they are for flood losses. [The consequences of not having terrorism insurance coverage would be creating ghost towns of America’s largest cities!]

What does that mean to you?

Depending on your location and the magnitude of your property values at risk, your insurer may be adding terrorism exclusions to one or more of your policies. We will keep you informed.

Risk Management In Uncertain Times

The peril of a $70 billion loss to a $300 billion industry has made insurers wary. That, exacerbated by an only slightly hardening market following a decade of dropping rates and premiums, has created a capacity (ability to renew existing property value limits) problem not seen since the mid-1980’s. At that time in the mid-1980’s, courts were “rewriting” insurance policies to create pollution protection for municipalities where none existed per the policy exclusions.

Today we have the national threat of catastrophic losses due to terrorism. Not since the War of 1812 has the continental United States been attacked within our own borders. Rates and premiums have been actuarially set based upon natural disasters, never the threat of deliberate destruction. But enough of historical perspective.

What do we do?

This is the time to check and review:

  • Your plant’s disaster recovery plan. Review it. Practice a simulated shutdown.
  • The creation of a “virtual” back office, making you less site-sensitive in the event of disaster. Be sure that computer records are backed up, stored off site, and available for reloading at any temporary location.
  • Communication lines restoration or replacement capability at several temporary sites.
  • All contracts for transfer of risk or your assumption of risk.
  • Force majeur clause review in all contracts to prevent risk assumption during times of catastrophic events.
  • Overseas facilities, employees, and travel plans to assess risk and costs of travel to your personnel and business survival.
  • and don’t forget that you still have cyberspace liability:
  • Privacy issues with Internet transactions
  • Customer expectations with respect to security of data
  • Customer expectations with respect to security of data
  • Global intellectual property exposures regarding your web site

We have been abruptly reminded of the need for careful risk management. Don’t leave it for another time.

Unreliability of Hardware and Software

Businesses are noticing their insurance costs. Two years ago, at the bottom of a 10-year soft market cycle, costs were virtually insignificant, repre-senting only .0015 percent of gross revenues. Steeply rising costs now dictate very close attention to premiums and coverage.

This article will examine something that has been unnecessary for the last decade: hard choices in insurance coverage to keep premiums under control in a slow economy. Following are fundamental principles of insurance that help risk managers decide where premium dollars can best be placed.

As an editorial observation by this author looking back over 30 years of professional work in technology, I am compelled to draw some provocative conclusions. In the old days, when we re-wired boards to run IBM 80-column cards, we’d call Chris when things got tangled up. Then the generation of DEC (we called it Digital at the time) and running reliability came. IBM raised reliability to meet the DEC challenge. In recent years, however, I have observed that both hardware and software are being released long before bugs are identified and corrected. In part due to its complexity, I have probably never seen such unreliable hardware and software. So what are we doing? We’re calling Chris again.

Exacerbating this unreliability of hardware and software is a traditional tendency to automate existing functions and processes, rather than develop new technology-based business processes. Corporate America is now burdened with legacy systems, unlinkable, unavailable for e-business applications. Very costly to link, re-link. Low cost processing personnel have been replaced by high-end and scarce IT professionals. The weight of legacy systems may ultimately buckle and cripple our economic growth. Compound that with a blame-the-victim mentality, and experienced business executives will continue to suspend critical judgment to pour more resources into unexamined technological solutions.

All this adds to:

  • the cost of doing business.
  • the cost of economic recovery.
  • customer dissatisfaction and intolerance.
  • litigation.

All this at a time of great national threat to peace and security at home.

 

Sharing the Risk – This Is Not A Test

In the wake of September 11th’s tragedies, insurers are quietly making good on their annual promises to pay losses. Interestingly, all policies exclude war related losses in a very broad way. However, America’s insurers are stepping up to the plate in the biggest way they ever have, declaring these losses as “terrorist acts” and not excluding coverage. Does that affect you? Absolutely!

The whole principle of insurance is to spread the risk among those parties at risk. Even the largest multinational insurance companies use reinsurers to further distribute the loss potential by “laying off” a portion of every account limit. Reinsurers have already suffered significant losses in the past several years. Those costs are passed back to your insurer in higher rates. This will continue in a noticeable way. You will have your chance to help.

Electronic Equipment Maintenance Insurance

If your Electronic Equipment Maintenance costs exceed $20,000 each year, there are some interesting new products on the market which can save you up to 20-25% in annual fees. One stand-alone insurance-based product pays first dollar equipment repair costs, while also administering your service and repair expenses. You save 20-25% on direct costs and save additional administrative expenses! It is expected that you retain your current equipment repair vendors when you transfer these costs to a single expense/administrative entity.

Technology Risk – What You Can Transfer, What You Cannot!

In economically troubled times business risks take on increased weight. You need to understand clearly what risk you can transfer – and what risk you cannot.

Client expectations of their insurers have recently led to huge claims in areas never contemplated by insurers. Contract disputes, once strictly in the realm of business risk, have been transported to insurance claims unintended by the carrier. 2003 has seen considerable constriction in coverage terms and language, even while costs are continuing to increase.

Solvency issues raise questions when partnering, when licensing, and when depending on sole sources for parts or services. Capital funding resources scrutinize such issues much more carefully, being sure that business continuity is as secure as possible. Software code escrow, licensing contracts, and similar arcane matters have grown in complexity as national and international commerce raises new levels of concern.

Write your customer contracts in a way that limits your liability for consequential damages and economic loss. Then, your insurer should be by your side to defend in the event of a claim for damage caused by your hardware, software, service, or people.

This is how you should expect to be covered by your E&O insurer:

Types of Problems Yes No
Contract disputes
errors in code x
consequential (financial) damages x
impaired processing x
destroyed files x
delivery delays x
contract performance quality x
problems prior to client sign-off x
Buggy hardware/software
economic loss to client’s relying on your work x
damage to client’s system you cause x
shut-down economic loss x

Off Premises Property

Your losses may not be covered

One lesson often learned very painfully is loss of property stored somewhere other than at your office premises. Be sure to keep your insurance broker advised if you move property, or if a client has not taken title to an expensive piece of equipment. These are the types of situations which should trigger your memory to call your insurance agent:

  • Warehousing, even temporarily, of any valuable property
  • Demo equipment at a client’s site (and you still own it)
  • Equipment/property on approval for a lengthy period at a client site
  • Property storage at any employee’s home
  • Lending or rental of equipment (and you still own it)

Many insurers offer some nominal amount of “unscheduled location” coverage ($t0,000 is customary). Often we are called for large theft or water losses from a location about which we were never advised. That location of loss is then deemed “unscheduled” and only the incidental value of $10,000 can be collected.

Keep your agent in the loop.