SMEs: Home advantage

After a summer of Olympic and Paralympic sport, the insurance industry is reflecting on new flexible working patterns that became prominent during the Games.

Home working policies implemented across London to mitigate congestion on the capital's transport network brought an unusual quiet to the city's streets during late July and August.

But while many observers believe the trend could increase, the implications from a risk and insurance perspective reveal concerns ranging from managing stressed or isolated staff to securing data and intellectual property.

The Department for Business, Innovation and Skills is currently reviewing responses to its 12-week consultation on flexible working, which ended in August, and will report on its findings in due course.

While the consultation reviewed a variety of areas, including regulations on maternity leave and sickness absence, at its heart was a proposal to extend the right to request flexible working to all employees, not just those with children under the age of 17.

As the Olympic experience proved, the policy may not place undue strain on companies with desk-based employees and an infrastructure designed for remote access.

However, the concern among brokers and insurers is for the small and medium-sized market where risk management often tends to be an afterthought.

Daniel Evans, managing director of LFC Evans Insurance Brokers, says: "The risk has always been very real. Larger firms are more geared up for remote and home working.

"The changes we will be facing, once more people realise it's an option [to request home working], will be significant.

"I've never really seen insurers do a great deal about it; while there haven't been exclusions per se I'm not sure if they believe they really need to.

"They have a record of claims history and I suspect it will take a few years before the market reacts to any changes."

Strong support
Brian Greenfield, senior broking analyst at Swinton Commercial, says that evidence of support from insurers on the product side for businesses that encourage home working is strong.

"There are several specific packages by insurers such as Axa, Aviva, Ageas and NIG for home workers. They are good because they are specifically designed for people working from home and also cover household, buildings and contents," he says.

Graeme Durlacher, small business development manager at Allianz Commercial, adds: "Clerical roles at home are much easier and this has proven the case where the Olympics saw many more people than ever choose to work from home.

"Things get more complicated when you are looking at home working from a manufacturing perspective; an individual might visit a premises, collect materials, take them home and manufacture them at home."

To illustrate, Durlacher says: "A curtain shop often includes manufacturing services without having an in-store workshop, so the job will be sent to outworkers who are there on a flexible or part-time basis.

"So you have risks to consider in terms of collection and delivery of the goods, as well as health and safety considerations at the workers' homes. This goes to show that you have to understand how a business operates."

The Federation of Small Businesses indicates that employees in the SME marketplace are already working from home in significant numbers. Of the 11 000 respondents to its recent member survey, 23% said they worked from home.

Paul Jenkin, Groupama Insurances' commercial technical manager, says there can be immediate benefits for small businesses that allow workforces to work remotely.

"Possibly reducing the reliance on much larger premises in the event of significant damage spreads the risk; parts of the business can carry on trading and prevent or reduce loss of business and profits," he says.

However, it seems that's where the payback ends. Jenkin adds: "Using properties for purposes for which they may not have originally been intended is a concern."

Evans, meanwhile, suggests that it's not yet clear how much the typical exposures covered by commercial combined policies will be tested by an increased trend towards home working.

Andy Holmes, underwriting director at CFC Underwriting, believes that the initial exposures on commercial policies for the clerical, desktop-based employee would be negligible.

"Employers' liability represents a very minor increase in exposure; you have responsibility to ensure the equipment you supply is safe as are the desks, chairs, workstations of your employees. Public liability likewise; most people working from home aren't taking visitors," he says.

Data breach
Holmes' main concern is data security: "Our technology clients' biggest risk would be data and intellectual property, and it's the same for clients in markets like healthcare where independent living facilities look after data that is extremely sensitive, such as patient records."

Like CFC Underwriting, which provides cover for data breach on its entire commercial portfolio, Marchant McKechnie is also tapping into this market as a result of the rise in home working.

The broker recently launched a Cyber Protect policy with Zurich Insurance, which provides cover against any misuse of data or IT security issues for businesses operating on and off site.

"This product is a simple management tool that works in the event of any theft, data breach or loss of intellectual property, assigning forensic investigators within 24 hours," says Steve Marchant, director at Marchant McKechnie.

On the subject of remote working he is clear about employers' duty to avoid data breach.

"Were I the business implementing a home working or flexible time pattern, I would supply company-owned equipment and insist on its use under all circumstances," he explains.

"The risk in our own industry is fairly obvious; an account handler may be looking to move on and in so doing may download company information to take with them. I'd want this investigated in a legally admissible format, the first task of which would be to recover the computer.

"Unless IT policies are sufficiently robust that employees are only allowed to remote work using company equipment any investigation would require the co-operation of the alleged miscreant."

Get to the point
However, Ray Welsh, head of marketing at data centre service provider The Bunker, says that small businesses do not always need to invest in hardware to distribute to their home workforce.

"There is a different pattern of IT use with an increase in the amount of people using their own devices. The solution is to secure the end point device. It's fairly straightforward," he says.

Perhaps the single least understood area of flexible working is the potential for business communication and process efficiency to break down as a result of the workforce being fragmented by location.

Any organisation requires chains of command so that instructions can pass through process points, and the majority of observers recognise this as a potential problem.

Jenkin says: "The potential for inadequate supervision of staff can be a significant risk, especially for those using machinery or equipment they'd normally use at business premises.

"There is also a greater likelihood for a reduction in quality control due to lack of supervision in the workplace."

Holmes adds: "Acts and errors and omissions are slightly more exposed by home working. Collaboration and peer review is less easy to come by for home workers and can lead individuals to go down the wrong tangent.

"Peer review is essential whenever someone has that 1% doubt and a homeworker's instinct to seek out a second pair of eyes is understandable.

"This is something we look at in our customers and, while there are professions that naturally tend to remote work more than others, such as field engineers, an employee's suitability to work from home should be assessed before it's granted."

RSA SME trading director David Swigciski's first role at the insurer was to supervise its 35-strong engineering network in Scotland, some of whom were as much as 150 miles from their nearest colleague. He recognises that maintaining team spirit is an essential part of any homeworking project.

"There are challenges that we empathise with and communication is essential with homeworkers; in an office environment you can tell easily when people are stressed," he explains.

"When they are working from home you have to get the processes in place to ensure they feel part of the team and any warning signs are dealt with."

Watch this space
Evans points out that the burden of proof for liability risks will remain with the employer to disprove any claims in negligence. He believes insurers will take a watching brief on emerging risks from home working.

"You only have to convince a judge that, on the balance of probabilities, the alleged event is likely to have happened. It will be a lot harder for employers to prove that certain events which caused an injury didn't happen or happened in a way contrary to that which the employee says," he adds.

"SMEs will need more switched on health and safety and risk assessment procedures. Some ownership will need to be taken by the employee, such as the self-assessment of a workplace or desk space.

"But a wise insurer would offer some form of health and safety risk assessment advice or service that they can buy in and tie to their policy. This would help ensure the employer's processes are robust enough."

Swigciski accepts that SMEs could use the help. "We could possibly do more as an industry; a lot of people probably don't realise that their standard home insurance policy won't cover them, so SMEs working with brokers to educate businesses about the risks is important," he says.

"While the property aspects are essential, the EL and PL risks need to be looked at as well. An SME needs to ensure that it has the correct policies in place to support the home worker, whether that is provision and periodic testing of equipment, or ensuring the home worker is fully cognisant of their duties to support health and safety regulations."

The drive towards flexible working appears to have cross-party support, with the previous government and the coalition making noises towards a continued increase.

The Family Friendly Working Hours Taskforce said in 2010 that falling absenteeism and higher retention levels, as well as increased productivity and loyalty, could also result from the practice.

From the insurers' point of view, any wholesale shakeup in the working practices of UK PLC is likely to have an effect on their exposures. The question is whether all the benefits described above result in lower loss ratios and a more profitable book of business.

Home working at Crawford & Company
Around 200 people, or 13% of Crawford's total UK workforce, is based at home, a figure which has risen steadily since the business carried out a strategic review of its flexible working practices in 2004.

Nick Smith, head of supply chain strategy at Crawford & Company, is responsible for the operation of the home-based workforce.

"I expect it will increase for many businesses, but here at Crawford staff are aware that we provide support for home working, so we will probably not have a significant rise in applications," he says.

Employees choosing to work from home are given the equipment they need, including IT and even furniture, and the company carries out an assessment that looks at the employee's own workspace.

This serves as a reminder that the same health and safety at work regulations apply at home as they do in an office.

"We have to be sure that the individual's home environment is conducive, so we arrange for a manager to carry out a home check which ensures they have sufficient space to work and for all the equipment we provide," says Smith.

"The furniture side of things is important. We surveyed our staff who told us that it was important they were allowed to make an individual choice.

"So rather than forcing them to use office desks, they are able to visit a store and choose their own from a range of options, not least because the office ones are usually too large."

Smith says that the typical benefits of flexible working have been demonstrated by the enthusiasm for the scheme by Crawford's home workers, although the company remains aware of the dangers of isolation.

"It can be more difficult to manage people, so issues of mentoring and training come into play," he says.

"We've invested in online and Webex training and we're always looking to ensure our home-based staff don't feel abandoned; rather, they are engaged as a part of the business."