6 Workers’ Comp Risks on the Road
Mobile Kitchens Serving Up Big Risks
La Parrillada Chapina, one of about 200 food trucks operating in the Philadelphia area, was conducting business as usual on the evening of July 3 when its kitchen turned into an accidental bomb.
Fire from the truck’s cooking grills ignited fumes leaking from a 4-foot propane tank used to power its equipment. The resulting explosion engulfed the entire truck and sent flames shooting across the street and the tank soaring into a nearby backyard.
Eleven people were injured, some critically, including the owner and her daughter as well as several passers-by.
Video: Watch the incredible video from Philadelphia that shows a food truck exploding into a ball of flames.
“Propane is a particularly volatile material,” said Jeff Hallman, vice president, Restaurant Programs of America. “It tends not to disperse into vapor in the same way that gasoline does. Rather, it tends to collect in the lowest lying area and has an extremely low flashpoint, meaning that the smallest spark will ignite it.”
The incident revealed a gap in safety procedures and inspection regarding such tanks.
Philadelphia health inspectors ensure food trucks’ compliance with health codes, while the Department of Licenses and Inspections issues the necessary commercial business licenses, according to the Philadelphia Inquirer. But no one has clear jurisdiction over inspection of the propane tanks.
“I am not sure what, if any, regulations and inspection protocols are in place for propane powered mobile cooking facilities,” Hallman said. (Hallman is a Risk Insider, whose initial article talks about how an over-reliance on modeling is diminishing the art of underwriting.)
The rapidly rising number of food trucks across the nation only increases the likelihood of tragedy and the need for tighter safety procedures.
La Parrillada Chapina is one of about 200 food trucks operating in the Philadelphia area, up from a mere 12 just three years ago. These mobile restaurants aren’t just doling out hot dogs and cheesesteaks.
They’ve become popular for providing unique cultural dining experiences, cooking up the type of specialty items with quality ingredients usually sought by foodies in niche cafes, all from kitchens the size of closets.
Duane DeBruyne, a spokesman for the Federal Motor Carrier Safety Administration, told the Inquirer that “street-side food trucks are exempt from federal regulations concerning propane if the tanks are under 220 pounds, or 440 pounds per vehicle.” La Parrillada Chapina had two 100-pound tanks.
A similar explosion occurred in New York City in 2011, when a food truck burst into flame after a car accident. In 2012, a food truck exploded at the Canadian National Exhibition, causing $30,000 in damages but no injuries. Just last year, a propane leak sparked the explosion of a food truck at a high school football game in Fresno, Calif.
No deaths have occurred from these accidents, but the force of these explosions certainly makes that a possibility.
“Accidents like this can actually help to further safety regulations to protect the public and food truck operators,” said Denny Christner, principal of Bay Risk Insurance Brokers and its wholly-owned affiliate, Insure My Food Truck. (See his profile as one of the 2014 Power Broker® winners here.)
“It’s also a good time for food truck owners to closely look at their insurance coverage to protect them personally, to protect their business and to protect their employees,” he said.
Christner outlined a combination of general liability, commercial auto and workers’ comp coverage to cover losses in the event of an explosion. General liability would cover third-party injury and property damage, usually up to a limit of $1 million, he said, after which an umbrella policy would kick in. Commercial auto would cover the truck itself as well as its kitchen modifications and equipment.
Workers’ comp would cover first-party injury — an important piece that owners may not consider since many food trucks are family-run.
“Many food truck owners think they are exempt because they hire family, but this is not the case unless the family members are owners of the business,” Christner said. “It is very rare that we see food trucks offering health insurance to their staff. All on-the-job injuries would need to be covered by workers’ compensation insurance.”
According to Christner, most gourmet food trucks carry general liability policies because the venues they serve usually require at least $1 million of coverage per occurrence. They also carry auto liability because they know they need it to protect their business. However, “because it’s hard to make a decent profit in this business, we find that many food trucks may carry low limits to keep their insurance costs down.”
“It would be a good time,” he said, “for food truck owners to ask their agent or broker, ‘How would my current coverage respond to a loss like the explosion that just occurred?’ and ‘What can I do to increase coverage or add protection should my current coverage not be sufficient?’ ”
(Photo by George Garrigues)
Global Program Premium Allocation: Why It Matters More Than You Think
Ten years after starting her medium-sized Greek yogurt manufacturing and distribution business in Chicago, Nancy is looking to open new facilities in Frankfurt, Germany and Seoul, South Korea. She has determined the company needs to have separate insurance policies for each location. Enter “premium allocation,” the process through which insurance premiums, fees and other charges are properly allocated among participants and geographies.
Experts say that the ideal premium allocation strategy is about balance. On one hand, it needs to appropriately reflect the risk being insured. On the other, it must satisfy the client’s objectives, as well as those of regulators, local subsidiaries, insurers and brokers., Ensuring that premium allocation is done appropriately and on a timely basis can make a multinational program run much smoother for everyone.
At first blush, premium allocation for a global insurance program is hardly buzzworthy. But as with our expanding hypothetical company, accurate, equitable premium allocation is a critical starting point. All parties have a vested interest in seeing that the allocation is done correctly and efficiently.
“This rather prosaic topic affects everyone … brokers, clients and carriers. Many risk managers with global experience understand how critical it is to get the premium allocation right. But for those new to foreign markets, they may not understand the intricacies of why it matters.”
– Marty Scherzer, President of Global Risk Solutions, AIG
Basic goals of key players include:
- Buyer – corporate office: Wants to ensure that the organization is adequately covered while engineering an optimal financial structure. The optimized structure is dependent on balancing local regulatory, tax and market conditions while providing for the appropriate premium to cover the risk.
- Buyer – local offices: Needs to have justification that the internal allocations of the premium expense fairly represent the local office’s risk exposure.
- Broker: The resources that are assigned to manage the program in a local country need to be appropriately compensated. Their compensation is often determined by the premium allocated to their country. A premium allocation that does not effectively correlate to the needs of the local office has the potential to under- or over-compensate these resources.
- Insurer: Needs to satisfy regulators that oversee the insurer’s local insurance operations that the premiums are fair, reasonable and commensurate with the risks being covered.
According to Marty Scherzer, President of Global Risk Solutions at AIG, as globalization continues to drive U.S. companies of varying sizes to expand their markets beyond domestic borders, premium allocation “needs to be done appropriately and timely; delay or get it wrong and it could prove costly.”
“This rather prosaic topic affects everyone … brokers, clients and carriers,” Scherzer says. “Many risk managers with global experience understand how critical it is to get the premium allocation right. But for those new to foreign markets, they may not understand the intricacies of why it matters.”
There are four critical challenges that need to be balanced if an allocation is to satisfy all parties, he says:
Across the globe, tax rates for insurance premiums vary widely. While a company will want to structure allocations to attain its financial objectives, the methodology employed needs to be reasonable and appropriate in the eyes of the carrier, broker, insured and regulator. Similarly, and in conjunction with tax and transfer pricing considerations, companies need to make sure that their premiums properly reflect the risk in each country. Even companies with the best intentions to allocate premiums appropriately are facing greater scrutiny. To properly address this issue, Scherzer recommends that companies maintain a well documented and justifiable rationale for their premium allocation in the event of a regulatory inquiry.
Insurance regulators worldwide seek to ensure that the carriers in their countries have both the capital and the ability to pay losses. Accordingly, they don’t want a premium being allocated to their country to be too low relative to the corresponding level of risk.
Without accurate data, premium allocation can be difficult, at best. Choosing to allocate premium based on sales in a given country or in a given time period, for example, can work. But if you don’t have that data for every subsidiary in a given country, the allocation will not be accurate. The key to appropriately allocating premium is to gather the required data well in advance of the program’s inception and scrub it for accuracy.
When creating an optimal multinational insurance program, premium allocation needs to be done quickly, but accurately. Without careful attention and planning, the process can easily become derailed.
Scherzer compares it to getting a little bit off course at the beginning of a long journey. A small deviation at the outset will have a magnified effect later on, landing you even farther away from your intended destination.
Figuring it all out
AIG has created the award-winning Multinational Program Design Tool to help companies decide whether (and where) to place local policies. The tool uses information that covers more than 200 countries, and provides results after answers to a few basic questions.
This interactive tool — iPad and PC-ready — requires just 10-15 minutes to complete in one of four languages (English, Spanish, Chinese and Japanese). The tool evaluates user feedback on exposures, geographies, risk sensitivities, preferences and needs against AIG’s knowledge of local regulatory, business and market factors and trends to produce a detailed report that can be used in the next level of discussion with brokers and AIG on a global insurance strategy, including premium allocation.
“The hope is that decision-makers partner with their broker and carrier to get premium allocation done early, accurately and right the first time,” Scherzer says.
For more information about AIG and its award-winning application, visit aig.com/multinational.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with AIG. The editorial staff of Risk & Insurance had no role in its preparation.