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SAN DIEGO-Today's human resource executives must be a lot more risk management-oriented to help shield their companies from potentially devastating liability exposures, experts say.
Although the two disciplines typically are separated in companies, a growing exposure from employment-related risks likely will mean they will work more closely together in the future.
Integrating risk management principles into human resource activities is much easier in companies where the two disciplines already are merged into a single department, according to Vickie L. Cortese, vp-personnel/risk management for Federal Compress & Warehouse Co. Inc. in Memphis, Tenn.
But in many corporate cultures, the two disciplines are regarded as quite disparate, pointed out Gary Ritzky, risk and human resources director for Turner Bros. Trucking/Turner Bros. Crane & Rigging of Oklahoma City. Often risk management is considered as serving a defined financial function, while human resources is regarded as providing more ambiguous "touchy-feely" services in a company, Mr. Ritzky explained.
Ms. Cortese and Mr. Ritzky made their remarks during a session titled "The Inevitable Synthesis of HR and Risk Management: Are You Prepared" at the
49th Annual Society for Human Resources Management conference June 22-25 in San Diego.
Unlike risk managers, very few human resources professionals "came through the accounting door. . .we came though the soft science door," Mr. Ritzky observed.
Risk management also tends to get more attention from senior management because its budget-which usually includes insurance premiums-generally is larger than that of human resources, Ms. Cortese pointed out.
"When you've got a $2.5 million or $3 million budget, people are usually going to pay attention when you say, 'Guess what?'" she said.
Yet risk management and human resources share a common objective of enabling an organization to progress toward its mission in the most direct, efficient and effective path, Ms. Cortese asserted.
Now that more and more employees are successfully suing their employers for various employment-related claims-creating major financial exposures for the corporation-human resources is getting a lot more attention, she said.
Indeed, "there are CEOs out there who are saying, 'Wow, we spent more on settling employment claims than we did on warehouses burning down last year,'" Mr. Ritzky said.
"There's a lot of focus at risk management conferences on what are we going to do about these big people losses" he said, citing the annual Risk & Insurance Management Society Inc. conference.
Such scrutiny is forcing human resources managers to be more accountable for employment-related losses.
If they're not already, a lot more human resources managers are going to be reporting to risk management, he predicted.
"I think that we've been asleep at the wheel for a long time," Ms. Cortese said.
Now it's time for human resources managers to get more involved in managing the risks associated with their function, including purchasing employment practices liability insurance to transfer as many of these risks as possible, she urged.
"Who is best equipped to negotiate and evaluate that policy?" she asked attendees. "Shouldn't you be in the tent?"
The experience is certain to be a real eye-opener for many human resources professionals, Ms. Cortese promised.
For example, many human resources managers likely will be surprised to find out that they must undergo an internal audit of their employment policies and practices before their companies will be covered by employment practices liability insurance.
"Are you going to be able to pass the HR audit?" she asked. "You know, when your company buys property insurance they have people come and do an inspection, right? Well, they're doing the same thing with HR. They're going to tell you how to run HR."
Other risk management issues are associated with buying EPL insurance, Ms. Cortese said.
Information supplied with a coverage application could widen the company's exposure if it is obtained by employees suing the company in the future, Ms. Cortese noted.
"What will happen in litigation in employment practices liability when it's determined we have insurance to cover it?" she also asked.
Few organizations should automatically provide the type of detailed information requested on the EPL insurance application, because everything included in the insurance application could be subject to disclosure during the discovery process of a lawsuit, according to Ms. Cortese.
For example, some EPL insurers require employers to follow a policy of providing detailed written offers of employment to job applicants, according to Ms. Cortese.
"For how long have our attorneys said we ought not do this?" she asked. "But it's on the (insurance) application."
Insurers also may request the past five years' claims history-information that should be kept confidential to minimize a company's exposure, she added.
"When you get sued, the first thing the plaintiff's lawyer wants is a copy of your insurance policy. And attached to your insurance policy is your signed application. And your application in the back of it-look at all this stuff! In your best day, would you ever give a plaintiff's lawyer the stuff that's on that application?" she asked. "It's a dream come true for the plaintiff's counsel. You just gave it all to him."
To protect their organizations from such disclosure risks, human resources and risk managers should request that certain information be omitted from the application even if it's revealed to underwriters, Ms. Cortese advised.
She also recommended a close reading of EPL policies to determine what's covered and what isn't.
For example, most EPL policies don't cover punitive damages, which usually represent the bulk of employment liability awards.
On the positive side, "These policies aren't standard. They're mostly manuscripts, so you can add endorsements," Ms. Cortese said.
Among the endorsements that human resource managers should consider requesting are coverage for claims arising from customers and clients, as well as discrimination and sexual harassment claims by non-employees, Ms. Cortese suggested.