A few weeks have passed since the 2026 Cottingham & Butler Transportation Summit in Schaumburg, and the two days delivered no shortage of valuable content. Whether you missed the Summit altogether, missed a session or two, or attended and want a closer look at what matters most, this recap highlights the key takeaways from each session and the biggest themes for carriers heading into 2027. Outlook: 2026–27 Freight Forecast | Dean Croke, DAT The 2026 freight recovery is supply-led, not demand-led. Rates are up because capacity is shrinking, not because freight demand is booming. Six regulatory and enforcement streams, which Croke calls the "Great Re-Credentialing," are permanently pulling drivers out of the market. Carriers should plan for capacity to keep tightening into 2027 and review contract pricing with that in mind. Straight Talk: A Direct Read from FMCSA | Derek Barrs, FMCSA FMCSA is pushing aggressive enforcement against fraud and chameleon carriers. A single three-day, four-state sweep placed about 800 drivers and vehicles out of service and recovered $1 million in stolen cargo. English proficiency enforcement has placed more than 32,000 drivers out of service, so carriers should test English proficiency at hiring the same way inspectors do. On the Ballot: Politics, Policy, and the Road Ahead | Bruce Mehlman, Mehlman Consulting With the midterms approaching and the data pointing toward change, many of the rules reshaping trucking could shift. Mehlman's advice was to play the long game, keep relationships on both sides of the aisle, and show up, since people trust what's local and firsthand. Stolen: Inside the Cargo Theft Surge | Gary Thomas, Cargo Theft and Crime Specialist, and Ronnie Hornback, FBI Cargo theft is up significantly. In 2025, roughly 3,594 incidents were reported, with more than $724 million in estimated losses. Strategic theft, such as identity theft and fraudulent broker loads, has grown nearly fourfold since 2021. Carriers should build a relationship with their local FBI field office through the Office of Private Sector before something happens. Targeted: Staged Crashes, Stacked Courts, and What Carriers Can Do About It | Joseph Baiocco, Wilson Elser Insurance premium costs per mile are up 47% over the past decade, even as fatal crash rates have dropped, and staged accidents are part of the reason. Dash cam footage and accident reconstruction can make or break a case. Drivers should document the scene and report immediately, so the carrier and its insurer can preserve evidence within the first 48 hours. On Watch: Trucking's Role in Fighting Trafficking | Derek Benner, Our Rescue Human trafficking has been reported in all 50 states, and roughly 49.6 million people live in modern slavery worldwide. Because trafficking routes often run through trucking corridors, drivers are in a unique position to spot it. Drivers should never intervene directly. They should call 911 if a crime is in progress, or the National Human Trafficking Hotline at 1-888-373-7888 if something looks wrong. Case in Point: Rulings, Regulations, and What's Next for Carriers | Greg Feary, Scopelitis Law Firm Independent contractor misclassification case law is active across multiple states, and New Jersey's new rule on applying the ABC Test is now in effect, so carriers using owner-operators there should review those agreements. Recent rulings also mean carriers should expect closer vetting from brokers and shippers, and carriers that broker freight under the same authority should review that setup. Keynote Speakers | John O'Leary, Author, Inspirational Speaker, & Survivor and Rorke Denver, Navy SEAL Commander & Officer O'Leary and Denver kept coming back to the same idea: teams perform under pressure because they prepared for it, and people stay where they feel valued. In a tight driver market, both lessons carry real weight. The Biggest Summit Takeaways The Market: Capacity is tightening because of enforcement, not because freight demand is booming. The Risk: Fraud is rising on every front, from strategic cargo theft to staged crashes to chameleon carriers. The Response: Preparation beats reaction. Build relationships, preserve evidence and lead with intention before something goes wrong. Contact Us Chris Vogel Senior Vice President, Transportation Group 563.587.5521 cvogel@cottinghambutler.com Taylor Orton Senior Vice President, Transportation Group 563.587.5366 torton@cottinghambutler.com

Written by: Katie Hensley, Vice President, Cottingham & Butler (563) 587-5464 | kahensley@cottinghambutler.com Introduction When manufacturers think about risk, the focus often falls on equipment breakdown, workers' compensation, and property losses. However, cyber risk has become a growing concern for manufacturers, their customers, and insurance carriers. Today's manufacturing operations rely on interconnected technologies to manage scheduling, engineering specifications, inventory, shipping, quality documentation, and financial transactions. A successful cyberattack can disrupt operations just as effectively as a major property loss. Why Manufacturers Are Targets Manufacturers support defense, aerospace, energy, transportation, and critical infrastructure industries. They often hold valuable engineering drawings, production specifications, customer requirements, testing data, and proprietary process information. Sensitive customer data, intellectual property, interconnected systems, and the high cost of downtime together make manufacturing operations attractive targets for cybercriminals. Cyber Events Become Business Events The greatest exposure is often not stolen data. It is the inability to operate. A plant may have fully functional equipment, but if ERP systems, production schedules, engineering files, customer communications, or shipping platforms become unavailable, operations can quickly grind to a halt. This is why underwriters increasingly view cybersecurity as a business continuity issue. Why Cyber Insurance Matters Even organizations with strong cybersecurity programs can fall victim to a cyberattack. Cyber insurance provides far more than financial reimbursement. Many policies provide access to digital forensic investigators, breach coaches, privacy attorneys, cybersecurity response specialists, public relations consultants, crisis management teams, data restoration experts, and accountants who help quantify business interruption losses. For manufacturers, the largest cyber loss is often lost production. Cyber insurance helps organizations navigate operational disruption, recovery costs, communications, and business interruption exposures. Top Cyber Lessons Every Manufacturer Should Remember Application Accuracy Is Your First Line of Defense Cyber insurance applications have become increasingly detailed. Inaccurate information can create claim challenges and potentially jeopardize coverage. Coverage begins with accurate information. Attackers Are Patient. Proactive Detection Is Not Optional Cybercriminals often spend weeks or months inside a network before taking action. Artificial intelligence now enables more convincing phishing campaigns, automated reconnaissance, and highly targeted attacks. Continuous monitoring and cyber preparedness assessments are essential. A Response Plan on Paper Is No Plan at All Organizations should know who to call, how to engage insurance carriers, and what actions should occur during the first critical hours of an incident. Tabletop exercises should be conducted regularly. Compliance Satisfies Auditors. Security Protects Your Business. Compliance is often the floor rather than the ceiling. Passing an audit does not mean attackers cannot access systems. Effective security requires continual improvement. The Cloud Shifts Responsibility. It Does Not Eliminate It. Cloud providers secure infrastructure, but organizations remain responsible for identities, applications, data protection, and incident response. Your Supply Chain Can Become Your Weakest Link. Manufacturers routinely exchange engineering documents, specifications, certifications, and quality records with customers and suppliers. A cyber incident affecting a supplier, software vendor, or logistics partner can disrupt operations throughout the supply chain. Acquisitions Create New Exposure. Attackers may compromise smaller organizations and remain undetected while transactions progress. Cybersecurity reviews should carry the same weight as financial and legal due diligence. Business Interruption Is Often the Largest Loss. For many manufacturers, the greatest impact of a cyber event is lost production rather than stolen data. Cyber Insurance Is More Than a Financial Tool. A quality cyber policy provides access to specialized experts and recovery resources that most organizations do not maintain internally. Cybersecurity Is Becoming an Insurability Issue. Underwriters increasingly evaluate multi-factor authentication, employee training, backups, incident response planning, monitoring, vendor management, and governance controls. Preparedness can directly influence coverage and pricing. Conclusion Cyber risk is no longer just an IT concern. It is a business interruption issue, a supply chain issue, and increasingly an insurability issue. Manufacturers that combine strong cybersecurity controls, cyber preparedness, effective response planning, and appropriate cyber insurance will be best positioned to recover from future incidents.

Cottingham & Butler | Commercial Insurance Market Index Q2 posted a second straight quarterly decline, property is leading the drop, while auto and Umbrella rates are still climbing. Here is what moved, why, and how to think about it. Q2 2026 was the second consecutive quarter of broad rate declines. The market index registered a 2.0% average reduction, deeper than the 1.2% decline in Q1 and the first back-to-back drops since the run of 32 straight quarterly increases ended in late 2025. The hard market that defined renewals for most of a decade has given way to more competitive conditions, and this quarter it moved faster. One reminder before the numbers. These survey indexes are lagging indicators. They describe where renewals landed a quarter ago, not what is happening in the market today. On the ground, conditions are moving faster than the published averages suggest, and carriers are already competing harder than a one-quarter-old number can show. Property has swung into a genuinely competitive market. Workers’ compensation, management liability, and cyber remain buyer-friendly. General Liability and Umbrella are still firming, and commercial auto continues on its own upward track. Overall market Quarters ended Commercial property Commercial auto −2.0% 32 −6.3% +4.5% Rates by coverage The headline reduction masks real divergence between coverages. Property led the decreases and accelerated its decline, while workers’ compensation, cyber, and management liability stayed competitive. General Liability and Umbrella kept rising on litigation severity, and commercial auto posted its 60th consecutive quarterly increase. The market is broadly softer, and softening faster, but far from uniform. Coverage Q1 2026 avg. change Commercial Property −6.3% Workers’ Compensation Continued easing Cyber Declines flattening Directors & Officers / EPLI −1.8% (in the -1% to -3% range) General Liability +2% to +5% Umbrella +5.3% Commercial Auto +4.5% Source: Council of Insurance Agents & Brokers Commercial Market Index, Q2 2026. Survey averages; individual accounts vary widely by exposure and loss history. C&B Perspective Survey averages describe the overall market, not any individual account. Accounts with clean loss history and well-documented exposures land at the favorable end of every range, while distressed risks continue to face firm terms, even in lines that are otherwise softening. And a softening index does not mean carriers hand back rate. Underwriters resist a turning market. They still press for increases on lines like auto and umbrella, and they push back on property reduction requests. Our role is to push back in return, to advocate for our clients, and to secure the market-competitive terms the broader market now supports. An account’s own loss history, exposure quality, and how hard its program is marketed determine whether it beats the market or trails it. How rates vary by program size The softening did not reach every program at the same pace. For most of the hard market, increases hit medium and large accounts harder than small ones. That pattern has reversed. The largest, most complex programs are posting the deepest decreases, because they attract the most insurer competition and bring the data and leverage to capitalize on it. Mid-sized programs have moved into decreases as well, and the smallest, most standardized programs are the last to reflect a shift and are still seeing modest movement. Softening began at the top and is steadily moving down-market. Property: the softening accelerates Property is where the turn is most pronounced, and Q2 sharpened it. After significant increases through 2022 and 2023, the line tempered in 2024, turned slightly negative in the back half of 2025, and dropped to −5.5% in Q1 and −6.3% in Q2. The driver is profitability. A stretch of poor loss years gave way to improving results, and insurers now have appetite they are willing to deploy. It is, however, a tale of two markets. Risks hit hardest during the hard market, particularly those placed in the London and excess and surplus (E&S) markets, are now seeing significant, often double-digit, reductions. Standard-market risks are seeing a more measured range, from flat renewals to reductions in the 5 to 10% area. Every risk is treated on its own merits, and the gap between the best and worst outcomes remains wide. This is where advocacy matters most right now. Standard-market carriers will hold the line on rate if a program is not marketed and messaged well. Our marketing leaders are actively working these conditions with standard-market underwriters, pushing for the reductions the broader market supports rather than accepting a flat renewal by default. C&B Perspective The improvement traces in part to easing catastrophe losses. 2025’s roughly $101B in insured catastrophe losses came in well below 2024’s $180B-plus. But the underlying volatility has not gone away. Severe convective storm activity, wind and hail, continues to drive losses, particularly across the Midwest, and insurers have responded with percentage-based wind and hail deductibles (commonly 1 to 3% of values) that shift more of that risk to the insured. Softer rate is real, but the structural exposure deserves the same scrutiny it did a year ago. Casualty: general liability and umbrella keep firming While property eased, the casualty lines moved the other way. General liability continued to firm, with rate increases in the low-to-mid single digits, as insurers cited rising loss severity, social inflation, and growing exposures such as PFAS and difficult product and food-related liability. The rate trend has been improving over the past year. Umbrella tells a sharper version of the same story. Pricing began firming dramatically in 2019 and has continued into 2026, at +4.8% in Q1 and +5.3% in Q2, driven largely by commercial auto severity. Years of compounding remain on the books, and capacity at the higher layers ($10M and $25M) stays limited. Fleet-exposed accounts continue to face steeper increases than the broader market. An improving broader market does not justify every increase a carrier requests. Where a double-digit umbrella increase is not supported by an account’s own loss experience, it deserves a hard push back, and that is where marketing the program and advocating on the client’s behalf earns its keep. Why Umbrella severity keeps climbing Average commercial auto verdict: roughly $3.6M in 2010, trending to over $15-20M in recent years (concerning trend, driven by large verdicts) Average cost to settle a commercial auto fatality: about $1.9M in the mid-2000s to over $4M today, with a median verdict above $5M. Nuclear verdicts: $10M to $100M awards leveling off after a post-COVID spike, while “mega” verdicts above $100M continue to rise. Sources: industry verdict studies including Travelers’ Top-100 Verdicts of 2024 and CaseMetrix data; figures are illustrative of the severity trend. Why commercial auto is still rising Commercial auto is the exception that has now lasted 60 consecutive quarters. Its pricing tracks its own claims experience rather than the broader market cycle, which is why it can keep rising even as property and other lines fall. That said, the increase is lessening. Auto has come down slightly in each of the past six quarters and sits at +4.5% in Q2, in the +4% to +8% range across the market. After years of relentless rate, the industry may be starting to turn the corner on profitability, even if it is not there yet. What’s driving commercial auto claims Liability severity and nuclear verdicts. Rising lawsuit severity and litigation financing keep pushing verdicts higher, reshaping insurers’ loss expectations across entire books. Repair and replacement cost. Vehicle technology, sensors, cameras, and driver-assist systems, makes every collision more expensive to repair, with parts and labor inflation compounding the effect. Distracted driving. Distraction and congested roads keep claim frequency elevated, adding to the severity problems. Driver shortage. A thin driver pool puts less-experienced operators behind the wheel, feeding the frequency problem. The line’s 2025 combined ratio sat around 109%, meaning insurers still paid out more than they took in, and the line has been unprofitable in 14 of the past 15 years. Conditions are improving slightly, but auto remains the hardest line to place well. The broader point is not that auto is uniquely difficult. It is that not every coverage responds to the same forces. Some are priced on the broad market cycle, others, like auto, on their own claims history. Knowing which is which is the foundation of a sound renewal strategy. For Transportation Clients Our transportation quarterly update goes deeper on what moves your cost — verdict exposure, telematics and safety data, and captive and deductible structures. The buyer-friendly lines: comp, management liability, cyber Workers’ compensation. Loss severity has improved on better safety and claims management, keeping the line competitive. The watch item is medical inflation. The medical portion of comp claims now exceeds 60% of costs, and continued growth, along with rising wages on the indemnity side, will eventually pressure rates. Directors and Officers / EPLI (about −1.8%). Reductions held steady in the −1% to −3% range and are likely to stay stable, even as claims frequency and severity continue, driven by wage-and-hour litigation and an elevated litigation environment. Cyber. Pricing has stabilized as insureds improved IT protocols in response to ransomware. The market may be nearing the floor. Declines are likely to flatten, and rates could begin to rise again, though at a far slower pace than the last cycle, if loss activity reaccelerates. What it means for your industry Your renewal will look very different from the headline, depending on which coverages make up most of your program. The reads below show what this quarter’s movement tends to mean industry by industry. Whatever your industry, the logic is the same. Identify the coverages that carry the most premium, and track which way each one moved. Trucking. The biggest cost is still rising. Commercial auto anchors the program and climbed again, so the broad softening reaches these businesses the least. Easing property and workers’ compensation help around the edges, but the fleet drives the total. Distribution. A split picture. Easing property and warehouse coverage pull one way, the same rising auto costs that affect trucking pull the other. Where a distributor lands depends on how much of the program sits in the fleet versus the facilities. Manufacturing. Among the better-positioned. Property is typically the largest cost and fell the most, and insurer appetite is broad. Product liability and owned vehicles work against that, but the weight of the program sits on the side that softened. Construction. Mixed, and structure-dependent. Property eased while excess and Umbrella rose and contractor coverage held roughly flat, and contractors with large fleets carry the auto increase. How the program is built matters more than any single coverage’s direction. Food & agriculture. Genuinely mixed. Property and equipment costs are easing, but product and food-liability exposure is exactly where General Liability insurers are seeking rate, and any fleet adds auto pressure. Retail. Generally favorable. Property and cyber, the coverages that matter most to multi-location and online retailers, both fell. General Liability is the offset to watch, particularly for high-traffic formats. Professional services. A softer picture than in recent years, with directors and officers, employment practices, and cyber coverage all easing. Firms with little property or vehicle exposure see the cleanest relief. Healthcare. Cross-currents. Easing workers’ compensation and cyber pull against firmer liability and rising medical severity. The outcome turns on the balance between staffing exposure and clinical and professional liability. Higher education. Broadly favorable on paper, as property, cyber, and management-liability coverage all eased. The exceptions to watch are owned vehicle fleets, abuse and athletics exposure, and anything tied to enrollment. For Risk Management Clients Our risk management quarterly update goes deeper on the market conditions, program structure, and trends shaping your renewal. Get the full outlook to see what this market means for your program. Managing total cost of risk A softer market naturally turns attention to rate, but rate is only part of what determines the long-term cost of a program. The more durable opportunity is what a market like this lets a business address in the underlying risk. It is also where an experienced advisor adds the most value. A few principles shape how we approach a program heading into renewal. Data quality drives the outcome. Insurers price against your claims history, exposure detail, and current values, so how that information is assembled and presented often matters as much as the underlying risk. In a competitive market, clean, well-documented data is often what earns the better terms. Advocacy still matters in a soft market. A falling index does not mean carriers volunteer rate relief. Marketing a program hard, meeting with carriers on strategy, and holding them to market-competitive terms is what converts a favorable market into a favorable renewal. Understand what’s driving each coverage. Some costs move with the broad market, others, like commercial auto, on a business’s own claims. Knowing which is which sets realistic expectations for where the market will deliver relief and where progress has to come from risk management. Premium is one number; total cost of risk is the real one. Deductibles, retained risk, the claims that do occur, and program structure all shape what coverage actually costs over time. A lower premium built on the wrong structure can cost more in the long run. Approach the market deliberately. A more competitive environment is the time to validate the market, surface issues early, and set renewal strategy well ahead of the deadline. The earlier that work begins, the more leverage a business has when terms are set. The organizations that treat renewal as a point-in-time price check tend to capture the least. Those that manage total cost of risk year-round are positioned to benefit whichever way the market moves. Signals for next quarter Whether the softening keeps accelerating. Q2 deepened Q1’s decline. If property and the flattening lines keep moving, more of a typical program lands in buyer-friendly territory. Property capacity and discipline. Whether insurers hold their pricing discipline as they compete, or over-correct to win business, will determine how long this relief lasts. Auto claims, not the rate. Auto pricing follows auto losses, so the rate is a lagging signal. Verdict sizes and repair-cost inflation will show whether the line is moving toward relief long before the rate does. Umbrella discipline. Umbrella increases ticked up again in Q2. Watch whether carriers distinguish genuinely fleet-heavy, loss-driven accounts from clean ones, or keep pushing broad double-digit increases the market no longer justifies. Cyber finding its floor. Declines are flattening. If ransomware loss activity reaccelerates, cyber is the line most likely to firm first. Medical inflation in workers’ comp. Medical costs now make up more than 60% of comp claims, the clearest force that could push that line’s rates back upward. Know where the market stands. Know where you stand. Whether you are heading into renewal, evaluating coverage, or looking for ways to manage rising costs in the lines that are still firming, our team brings the market knowledge, insurer relationships, and advocacy to help you make the right call, and the year-round risk and claims expertise that turns a market shift into a lasting advantage. Analysis based on Cottingham & Butler’s review of Q2 2026 commercial property and casualty market conditions, including the Council of Insurance Agents & Brokers Commercial Market Index, AM Best market reporting, and industry catastrophe and verdict data. Rate ranges reflect Cottingham & Butler’s market observations; survey figures reflect CIAB averages across all account sizes. Industry and segment readings are directional; individual results vary by exposure, geography, and loss history.

Staying compliant in 2026 means keeping pace with a benefits landscape that isn't slowing down. From new legislation and regulatory updates to evolving employer obligations, the details matter, and missing them can be costly. Our 2026 Compliance On-Demand Series is designed to keep you informed, prepared, and confident heading into every quarter. Check out the full recordings of past webinars below! Want to catch us live? Check out our upcoming webinars! ACA Employer Reporting Check out our latest webinar on ACA employer reporting, held right in the midst of the 2025 filing season. We walked through the key requirements for Forms 1094 and 1095 and highlighted common pitfalls, best practices, and practical tips to ensure accurate, complete, and compliant reporting. ERISA Fiduciary Duties This session is on ERISA fiduciary duties for health and welfare plans, designed to help employers understand their obligations as plan sponsors. We reviewed key ERISA requirements, highlight common compliance pitfalls, and shared practical best practices to minimize fiduciary risk. Navigating Employer-Sponsored Coverage & Medicare During this time we discuss how Medicare interacts with employer-sponsored health plans, an increasingly important topic as more employees continue working past age 65. We broke down eligibility and enrollment timing for Medicare Parts A, B, and D, clarify how Medicare Secondary Payer (MSP) rules impact group plan coordination, and highlight key considerations such as HSA eligibility, COBRA timing, and employer premium reimbursements. Compliance Checklist & Regulatory Updates In this compliance refresh webinar, we walked through key deadlines, best practices, and 2026 regulatory updates — giving you a clear roadmap for the rest of the year. Leaves of Absence – Focus on State Mandates This webinar discusses how leave laws continue to evolve and administering employee benefits during protected and unpaid leaves has become increasingly nuanced. In this session, we broke down employer obligations, benefit continuation requirements, and key decision points when coordinating federal, state, and company leave policies. Nondiscrimination Rules This webinar helped employers understand when and how they can differentiate benefit programs while staying compliant. Watch the recording to see how we broke down the various nondiscrimination requirements that apply to employee benefit plans, including tax code testing rules for highly compensated and key employees and protections against discrimination based on health status, disability, and other protected characteristics. Mid-Year Regulatory Update In this session, we recap the most important benefits and employment law developments from the first half of 2026, plus a look at what's coming and practical takeaways to help employers navigate the rest of the year. HSA vs. FSA vs. HRA In this session, we discuss choosing the right account-based benefit strategy. We broke down the similarities and key differences among HSAs, HRAs, and FSAs — including eligibility, funding rules, tax treatment, and portability — and explored how employers can strategically leverage each option to support workforce needs while staying compliant. Open Enrollment - Renewal Checklist Open enrollment season came with a long to-do list, and this webinar helped attendees work through it with confidence. We walked through key tasks from plan review and employee communications to system updates and post-enrollment audits, plus a regulatory and legislative update on recent changes that may impact 2027 offerings and year-end compliance items to help close out the year strong.

Just one brief business interruption can be incredibly costly for an organization, often leading to serious reputational damages or long-term closures. Standard business interruption policies are vital in these instances, providing protection against a variety of common interruptions, including natural disasters, equipment damage and vandalism. But what happens when one of your suppliers or customers experiences an interruption that derails your operations? To help address this concern, contingent business interruption (CBI) insurance is crucial. Claims Scenario: We Didn’t Start the Fire—And it Doesn’t Matter The company: A custom cabinetry firm that sources high quality materials from a local vendor. The challenge: An organization that specializes in custom cabinets recently experienced a major interruption after its primary supplier—a nearby lumberyard—experienced a large-scale fire that wiped out all of its stock. Because the cabinetry company relied solely on this vendor, business came to a halt and a number of orders had to be postponed until a new supplier could be secured. Not only did this lead to lost revenue, but it left a bad impression on a number of customers—harming the cabinetry company’s reputation. CBI insurance in action: A single break in an organization’s supply chain can lead to long-term losses—especially for organizations that rely on a handful of suppliers. In these instances, CBI insurance is crucial, as it allows organizations to stay open, even when an interruption occurs at the premises of a third party. CBI insurance can help employers cover ongoing expenses—like payroll and rent—should the insured’s revenue stream be impacted by interruptions at a third party. In many cases, it is not necessary that the customer or supplier be totally shut down to trigger CBI insurance. Claims Scenario: Losing Customers is Not Amusing The company: A restaurant located next to a theme park. The challenge: A local restaurant is conveniently located near a popular amusement park. Due to this proximity, the restaurant has experienced high levels of foot traffic and revenue flow from tourists visiting the area. Recently, the theme park announced it would be shutting down for renovations. As a result, the restaurant has seen a significant decline in reservations. The owners have serious concerns related to cash flow now that a trusted source of customers is no longer available. CBI insurance in action: It’s not uncommon for businesses to experience a boost in customers from neighboring attractions. However, should these attractions disappear, companies may find it difficult to continually generate buzz and maintain a steady customer base. CBI insurance can help in these instances, responding to an interruption that directly affects an insured’s ability to secure customers. In the case of the restaurant above, CBI insurance can help cover expenses while they search for new clientele or even a better location. Learn More About CBI Insurance To truly understand your CBI insurance needs, it’s important to assess your exposures. CBI exposures will differ depending on the industry you operate in, but are most common in manufacturing, retail, hospitality and professional services. Prior to meeting with your insurance broker and securing coverage, ask yourself the following: If there is a temporary production stoppage at one or more of my suppliers, can my business survive? How long? How much of my company’s operations rely on another entity? Do I have alternative suppliers in place should an interruption occur? Do I rely on one or a few customers to purchase the bulk of my products? Do I rely on a neighboring business to attract customers to me? Learn More About CBI Insurance Coverage beyond standard business interruption policies—Unlike traditional business interruption insurance that compensates the policyholder for a loss resulting from damage to its own property, CBI insurance lets businesses transfer the risk of certain losses to the property of a third party. Reimbursement for a number of expenses—When in place, CBI insurance can help employers cover ongoing expenses—like payroll and rent—should the insured’s revenue stream be impacted by interruptions at a third party. In many cases, it is not necessary that the customer or supplier be totally shut down to trigger CBI insurance. Protection for a variety of scenarios—In the policy itself, the covered third-party property may be specifically named, or the coverage may simply blanket all customers and suppliers. There are a variety of scenarios where this type of coverage is useful: When an insured business depends on a single supplier or a handful of suppliers for materials When a business relies on a single or a few key customers to purchase goods or services When a business depends on a nearby attraction or neighboring commercial operation for customers

Farms, like most workplaces, face unexpected emergencies and disasters, which can be natural or man-made. To help lessen the impact of these events, employers and supervisors should develop and exercise emergency action plans (EAPs), which prepare workers for emergencies and disasters before they occur. What is an Emergency Action Plan? An EAP identifies and organizes employer and worker responsibilities in preparation for and when responding to a workplace emergency or disaster. Having a plan with the employer’s support and commitment and workers’ participation is key to an orderly evacuation and quick response. Developing and implementing an EAP can lessen confusion, decrease injuries and limit destruction of property during and after a disaster or other emergency. Agricultural Emergencies Agricultural emergencies can generally be grouped into two categories, natural and man-made, with several different types of incidents falling into each category. The employer should make workers aware of the potential man-made and natural workplace emergency situations that could have an impact on the farm. Natural and man-made disasters may include many of the following: Man-made: Wildfires Chemical releases or spills Explosions or fires Animal handling incidents Grain entrapments Power failures Rotating and moving equipment incidents (e.g., power take-off shafts, screw conveyors/augers) Amputations Vehicle incidents (e.g., turnovers, rollovers) Workplace violence Accidental poisoning Natural: Tornadoes Hurricanes Wildfires Floods Severe winter storms Severe dust storms Lightning strikes Earthquakes How to Prepare an Emergency Action Plan A well-documented EAP should ensure that emergency response procedures are established for the period of time before, during and after an emergency. The plan should be broad enough to address all types of emergencies or disasters that could possibly occur on the farm. For smaller organizations, the EAP does not need to be written and may be communicated orally. Nevertheless, it is always a good practice to have a written EAP. The best EAPs are customized for your specific farm operations and require time, thought and planning. Include workers and family members in the emergency preparedness planning process to help identify emergency or disaster situations that can impact the farm. The EAP should be revised once shortcomings have become known, and the plan should be reviewed at least annually. The employer should review the EAP with each worker when the following occurs: A new worker is hired The plan is developed The worker’s workplace responsibilities or designated actions under the plan change Minimum Requirements Emergency escape procedures and routes Procedures to account for workers Procedures for workers who remain on-site after the alarm sounds Duties for workers designated to perform rescue and medical functions The preferred means for reporting emergencies Contact(s) for further information or explanation of duties under the plan Possible emergency events, incidents and life-threating situations Emergency escape routes, shelter-in-place locations and rally points Floor plans and workplace maps A chain of command to prevent confusion and to coordinate work Emergency communication equipment, such as two-way radios or a public address system for notifying workers and first responders Special equipment needed for emergencies and disaster response Workers’ emergency phone numbers and contacts Farm inventory that includes the location of livestock, electrical shut-off locations, buildings and structures, and farm machinery/equipment makes and model numbers Needed supplies, such as sandbags, fire extinguishers, gas-powered generators and hand tools If needed, the location of primary and secondary areas to relocate farm assets and workers The location of buildings in the vicinity that can be used as a command post or logistical assistance area Pre-planning with First Responders Implementing and exercising an EAP should involve working with your local first responders or fire department. Invite them to walk your farm to gather and record important information that could be critical for making life-saving decisions during an incident, such as a grain bin entrapment, fire or natural disaster. Pre-planning allows first responders to become familiar with the following: Farm’s physical layout, including buildings and other structures (e.g., grain bins) Hazardous chemicals (e.g., pesticides, anhydrous ammonia) and equipment (e.g., augers) Locations where employees would be if an emergency occurred Important contacts, including daytime and nighttime contact Information How utilities (e.g., electric, gas and water) can be controlled Evacuation plans and security Emergency first responder limitations Training Worker training may vary from operation to operation. Some employers set up formal classroom-style training for workers, and others work one-on-one with workers. If workers are expected to perform adequately in an emergency, provisions must be made for the training of both individuals and teams. Regardless of the training approach, worker training is an important part of a good emergency preparedness plan. Training should be conducted periodically or as needed to maintain workplace preparedness. In addition, both instruction and training materials should be provided to workers in a language that they can understand, because some workers may not speak English. Workers should be trained in the following areas: Evacuation plans Alarm systems Reporting procedures for personnel Shutdown procedures Types of potential emergencies Farm exercises and drills Farm Exercises and Drills Unless the plan is tested, it is difficult to predict all of the problems that may happen. Exercises and drills are excellent tools to minimize these potential problems. Nevertheless, exercises and drills should be conducted annually or as needed to practice all or critical portions (such as evacuation) of the EAP. After each drill, exercise or emergency incident, a meeting or review should be held to evaluate what happened, why it happened and how it can be done better by the employer and workers in the future. Furthermore, post exercise and drill meetings or reviews will identify areas that require improvements. Medical Service and First Aid At least one person, in the absence of an infirmary, clinic or hospital in near proximity to the workplace, should be adequately trained to render first aid. It is also essential that basic first-aid supplies are available. Emergency phone numbers should be posted in visible places, inside farm vehicles and on telephones. For more information on first aid, see OSHA’s Best Practices Guide: Fundamentals of a Workplace First-Aid Program. Workplace Emergency Response Team A farm’s most valuable asset during the first few minutes of an emergency is a well-trained and disciplined emergency response team. A farm emergency response may be provided by an outside organization, such as the fire department, or in some cases by the farm’s internal emergency response team. Workers who are members of the emergency response team should be thoroughly trained and physically capable of performing emergency response duties and responsibilities. They should also be knowledgeable about the hazards found on the farm. Team members should know when to take actions themselves and when to wait for outside assistance if an emergency or disaster is too large to handle. One or more members on the team should be trained on the following: How and when to use various types of fire extinguishers First aid, including cardiopulmonary resuscitation (CPR) Shutdown procedures Chemical spill control procedures Emergency rescue procedures Contractors Employers should alert contractors about the hazards found in the workplace, particularly regarding the work they are to perform. In any emergency situation, contractors should be able to take appropriate action as part of the EAP. Workers' Rights Workers have the right to do the following: Work in conditions that do not pose a risk of serious harm. Receive information and training (in a language and vocabulary the worker understands) about workplace hazards, methods to prevent them and the OSHA standards that apply to their workplace. Review records of work-related injuries and illnesses. File a complaint asking OSHA to inspect their workplace if they believe there is a serious hazard or that their employer is not following OSHA’s rules. OSHA will keep all identities confidential. Exercise their rights under the law without retaliation, including reporting an injury or raising health and safety concerns with their employer or OSHA. If a worker has been retaliated against for using their rights, they must file a complaint with OSHA as soon as possible, but no later than 30 days. For additional information, see OSHA’s workers page, or contact your trusted advisor at today. Source: OSHA

Construction projects may be delayed or temporarily halted for a range of reasons, including adverse weather conditions, permit problems, labor shortages, supply chain disruptions and financing challenges. These issues can pose numerous risks for construction companies. In particular, delays and stoppages can significantly extend the period during which the project site, equipment, materials and structure being worked on remain exposed to loss. As a result, these issues often change the overall risk profile of a project and create exposures that existing insurance policies, mitigation strategies and contracts may not properly address. If construction companies fail to respond to these exposures, they could be increasingly susceptible to large-scale losses and out-of-pocket costs. This article outlines key exposures stemming from project delays and stoppages and offers tips to help construction companies manage related risks. Builders Risk Considerations Builders risk insurance is a specialized type of property coverage that is intended to provide protection for structures that are under construction and related materials and supplies. These policies can help safeguard project owners and contractors against financial losses caused by physical damage (e.g., fire, wind, hail, theft and vandalism) to covered property. However, builders risk insurance is a temporary form of coverage. These policies are generally written for a defined construction period, meaning coverage will likely lapse if a project extends past its original completion date. In these instances, coverage extensions are not guaranteed, leaving policyholders at risk of denied claims if they experience property-related losses following lengthy project delays or stoppages. While some builders risk policies offer delay in completion coverage, this typically applies only to time-element losses (i.e., lost revenue and rental income) due to physical property damage, not due to schedule slippage from permit delays, labor disputes, supply chain breakdowns or financing struggles (unless explicitly endorsed). Coverage capabilities will also vary based on policy conditions. For example, many builders risk policies restrict coverage for various soft costs resulting from project delays or stoppages, such as loan interest, taxes, lease renegotiations, and additional permit fees and insurance premiums. In these cases, a separate endorsement is generally required for such coverage. The named insured and additional named insured designations on these policies can also affect which parties qualify for delay in completion coverage, making it vital to review coverage terms rather than assume equal treatment. When extensive project delays or stoppages occur, local building codes or ordinances may change before construction resumes. This may increase rebuilding costs due to compliance concerns, generating additional project losses. Although standard builders risk policies don’t apply to such incidents, a separate endorsement is available for this exposure, as long as the project delays or stoppages are caused by covered losses. Considering these factors, it’s crucial for builders risk policyholders to notify their insurers as soon as a project delay or stoppage appears likely, as putting off this communication could limit policy extension options and lead to more restrictive coverage terms or denied claims. Even when a project is temporarily halted due to a covered loss, insurers generally expect policyholders to take reasonable steps to protect their property from further damage, such as implementing enhanced security solutions and leveraging weather safeguards. Failure to take these steps amid a delay or stoppage could diminish coverage options. Finally, it’s worth noting that considerable project delays or stoppages may prompt additional underwriting reviews and worksite inspections before insurers agree to extend coverage. Idle Worksite Considerations When a worksite is left idle due to project delays or stoppages, it may be more vulnerable to the following losses: Fires—Any combustible debris, temporary utilities and unattended electrical systems have the potential to ignite fires at an idle worksite. Combined with a lack of site supervision and ample detection tools, these fires could spread rapidly and cause substantial damage before suppression efforts begin. Property deterioration—If partially completed structures at an idle worksite are exposed to outdoor elements and adverse weather for prolonged periods, they could be damaged by water infiltration, frost and mold, ultimately resulting in larger structural degradation. Theft and vandalism—Reduced visibility and poor security at an idle worksite can increase the likelihood of theft and vandalism, especially when criminals are able to access valuable project equipment and materials. Third-party injuries—Because an idle worksite is often an attractive target to thieves and trespassers, this can pose ongoing premises liability exposures, even when no work is underway. If these parties are injured on-site, the project owner and contractors could be held responsible. In light of these heightened exposures, construction companies will likely need to review and adjust their existing mitigation strategies amid project delays or stoppages to prevent related losses. This may entail maintaining worksite fencing, lighting, alarm systems, security cameras and fire suppression tools; removing or securely storing all high-value equipment and combustible and flammable materials; carefully documenting project inventory with photos and serial numbers; weatherproofing partially completed structures; and conducting routine safety inspections throughout the stoppage. Contractual and Liability Considerations A construction project contract typically includes an agreed-upon completion date set by the project owner and contractors. When a project goes beyond its original timeline, the contract’s liquidated damages clause will likely be triggered. This clause establishes a daily rate that contractors must pay for missing project deadlines. As such, lengthy project delays and stoppages can prompt serious financial penalties. Since liquidated damages arise from contract terms rather than physical loss to covered property, delay in completion coverage usually won’t apply to these penalties. Complicating matters, completed operations coverage generally doesn’t begin until a construction project is finished. If builders risk insurance isn’t properly managed during delays or stoppages, it could create gaps in coverage and increase liability risks during the project wrap-up. Since contracts often require construction companies to maintain proper insurance throughout a project, coverage gaps could lead to additional penalties and related losses. With this in mind, it’s imperative for construction companies to review project contracts for force majeure provisions, extension-of-time clauses, notice requirements and any indemnification obligations that outline which parties are responsible for handling delays and stoppages and associated financial penalties. Construction companies should also assess their wrap-up insurance programs, whether owner- or contractor-controlled, to determine how project extensions may affect their policy periods and completed operations tail. Conclusion Construction project delays and stoppages can create risks that standard policies and protections aren’t equipped to handle. By promptly notifying insurers, securing idle worksites and reviewing contractual obligations, construction companies can safeguard their projects, limit financial losses and maintain resilience throughout the entire building process. Contact us today for more industry-specific risk management guidance.

Nuclear verdicts are sizeable jury awards, typically $10 million or more. They’ve become far more common over the last decade, largely due to shifting litigation tactics designed to enhance settlement leverage. While ongoing social inflation and a steady decline in public sentiment toward businesses also play a role, attorneys are increasingly deploying advanced psychological and deposition techniques, strategic venue selection and third-party litigation funding (TPLF) to further fuel settlement pressure and drive up jury awards. Altogether, these tactics can influence how corporate lawsuits develop and ultimately affect their outcomes, thereby elevating nuclear verdict risks. The fallout from these awards can be severe for any business, invoking lasting reputational damage, exposing gaps in insurance coverage and triggering major financial disruptions. For this reason, businesses need a solid understanding of the litigation tactics currently driving nuclear verdicts and how to minimize their exposure. Psychological and Deposition Techniques By using certain psychological techniques when arguing or presenting a case, attorneys may appeal heavily to witnesses’ and jurors’ basic instincts, morals and emotions to secure higher awards. One of the most common techniques is the reptile theory, in which an attorney frames a defendant’s actions as a direct threat to personal or community safety. Through this technique, the attorney may get a corporate witness to agree to a broad or absolute safety standard related to a business’s alleged wrongdoing. After arguing that the business violated this standard, the attorney may argue that this action (or lack thereof) put the entire community, jury included, in danger. This may motivate the jury to “fix” the perceived safety threat and punish the business by awarding large damages. The reptile theory is especially prevalent in corporate negligence and accountability lawsuits that involve serious injuries or death. Another common technique is anchoring, in which an attorney suggests a high dollar amount for a final verdict early on (e.g., during jury selection) to serve as a reference point throughout the case. The thought behind this technique is that the elevated figure will remain “anchored” in jurors’ minds during final deliberations and steer them toward a larger award. Reptile-style questioning can begin during the deposition process, while anchoring may be used during the settlement discussions or at trial, potentially increasing settlement leverage and influencing the size of the eventual award. Strategic Venue Selection While nuclear verdicts have been on the rise throughout the United States, specific litigation trends vary significantly by jurisdiction. As such, some states and municipalities have been deemed more favorable venues for these awards, whether due to jury pool composition, procedural rules, judicial tendencies or historical precedent. Considering these factors, attorneys are more likely to seek legally available, plaintiff-friendly jurisdictions where they believe they have a greater chance of favorable outcomes, a practice known as strategic venue selection. In some cases, decisions about which parties or claims to include may also affect where a lawsuit can be filed or whether it can be moved from state to federal court. Venue selection strategies may differ based on the nature of the lawsuit. For example, some jurisdictions have recorded a higher share of trucking nuclear verdicts than others, making venue a critical consideration in litigation across this sector. Even so, some state and local laws limit where lawsuits can be filed, and the nature of certain cases may permit defendants to challenge or transfer jurisdictions. Regardless, strategic venue selection continues to factor into nuclear verdict exposure, with more concentrated activity in jurisdictions that industry reports consistently flag as plaintiff-friendly, including New York, California, Georgia and Texas. TPLF TPLF refers to a third party providing financing for a lawsuit in exchange for a portion of the settlement or other financial return. In the past, the high cost of attorney fees would often discourage many plaintiffs from taking a lawsuit to trial. However, TPLF can help cover costs associated with litigation, potentially allowing plaintiffs to pursue cases longer or take on claims that otherwise may be financially difficult. As TPLF becomes more common and gives attorneys access to additional plaintiffs, insurers and other industry observers have cited it as a contributing factor to social inflation and rising liability insurance claim severity. This is because plaintiffs can take cases further and seek larger damages without the financial pressure to reach an early settlement. Reducing the Exposure In light of these litigation tactics, here are some steps businesses can take to limit their exposure to nuclear verdicts: Implement solid response and reporting protocols. Businesses should have detailed incident response and claims reporting measures in place for any liability scenarios that could prompt litigation, namely third-party injuries and property damage. These measures should be designed to help minimize related losses and reduce the risk of escalation. Key topics to address include coordination across teams, immediate preservation of relevant evidence and comprehensive recordkeeping. Prepare witnesses. Employees and corporate representatives called as witnesses in the deposition process for a liability lawsuit should be prepared in advance on the reptile theory and how to respond to attorneys’ questions about broad or absolute safety standards. Such preparation can help witnesses provide accurate testimony and avoid inadvertently agreeing to statements that could later be used against the business. Maintain adequate safety documentation. Businesses should establish detailed and consistent workplace safety policies that accurately reflect company culture, as well as up-to-date incident records and investigation reports. Maintaining this documentation can help a business demonstrate a clear commitment to safety in a liability lawsuit and further support its defense. Ensure a robust insurance portfolio. Multiple insurance policies can help businesses protect against financial losses from nuclear verdicts, including general liability, commercial auto liability, and umbrella and excess liability coverage. It’s best to review specific policy limits, attachment points and overall program structure against current litigation trends and claim severity and update coverage as needed. Consult the experts. Businesses don’t have to navigate nuclear verdict risks alone. They should work alongside trusted insurance professionals and legal counsel to proactively prepare for serious liability lawsuits. Key Takeaways As nuclear verdicts continue to gain momentum through shifting litigation tactics, businesses that wait until a lawsuit to act are already behind. Bolstering incident response protocols, training staff, documenting safety practices and reviewing insurance coverage now can make all the difference. The right preparation, paired with expert guidance, is key to staying protected. Contact us today for more risk management guidance and coverage solutions.

A zero-day vulnerability is a security flaw in a technology’s software, hardware or firmware that the product vendor either hasn’t discovered or hasn't yet patched. Because there’s no fix for this flaw, there’s also no way to prepare for or defend against it. A zero-day vulnerability may go undetected or otherwise unresolved for an extended period, quietly existing within an organization’s broader IT infrastructure without affecting typical operations. However, in the hands of cybercriminals, this flaw could serve as an attack vector, easily weaponized by harmful code or other sophisticated techniques, also called zero-day exploits, to launch a range of malicious schemes at a moment’s notice, including data breaches and ransomware incidents. In these circumstances, an organization would have no time to protect itself against the impending incident, known as a zero-day attack, making recovery efforts increasingly difficult and compounding total losses until the product vendor is able to develop and distribute a patch for the initial flaw. Although zero-day attacks can be difficult to combat, there are some steps organizations can take to minimize their exposure. This article provides more information on how zero-day attacks unfold, their potential ramifications and related risk mitigation strategies. How Zero-day Attacks Unfold While they may vary based on the type of technology and security flaws involved, zero-day attacks generally follow this sequence: Discovery—At this stage, a software, hardware or firmware flaw is detected by a cybercriminal before the product vendor has become aware of or had a chance to remedy it with a patch. Exploitation—Upon discovering the security flaw, the cybercriminal exploits this vulnerability, using it to obtain unauthorized access to an organization’s larger IT environment, escalate privileges, compromise sensitive data and deploy malware. Identification and response—Once the attack has been identified and the source is tied to the underlying security flaw, the product vendor will investigate the vulnerability and create a patch to fix it. From there, the vendor will release a security update to address the flaw, allowing the impacted organization to eliminate the vulnerability and proceed with recovery efforts. During a zero-day attack, an organization remains at risk until it implements the recommended patch from the product vendor. In some cases, the vendor may promote an alternative mitigation technique rather than a patch to help speed up the affected organization’s recovery and curb related losses. The vendor may also suggest some temporary configuration changes and briefly disable certain technology features and functions as an extra layer of protection. Potential Ramifications As cybercriminals continue to develop more sophisticated techniques, zero-day attacks have become a rising threat, often targeting enterprise software, networking equipment, operating systems and cloud-based technology to compromise many organizations at once. Nation-state actors and financially motivated cybercriminals are the most common perpetrators of zero-day attacks, namely to steal valuable data, deploy ransomware and conduct similar extortion schemes. Because traditional antivirus programs and threat detection tools scan for known indicators, they are unlikely to detect zero-day vulnerabilities prior to an attack. Making matters worse, cybercriminals don’t always make themselves known immediately upon exploiting these security flaws, silently infiltrating an organization’s systems and processes for days, weeks or even months before being detected. In many cases, such exploitation is only discovered amid incident response and forensic investigation protocols. Even organizations with mature defense mechanisms and advanced patch management systems in place are unable to remedy security flaws before a fix exists, making it nearly impossible to eliminate zero-day risks. When these attacks occur, organizations may face prolonged operational disruptions, damaged systems and data, large-scale financial losses and lasting reputational decline, especially when the product vendor takes an extended period to develop and distribute an appropriate patch. The longer cybercriminals evade detection during these attacks, the more time they have to establish further attack avenues for future incidents, paving the way for ongoing disruptions and losses. Risk Mitigation Strategies Zero-day attacks are not preventable; the best approach that organizations can take to protect themselves is to reduce the likelihood of compromise, limit the potential for damage and ensure prompt recovery processes. Here are some best practices to consider: Adjust patch management measures. Not all patches are created equal. Some are designed to address larger security flaws and related threats than others. As such, organizations should prioritize their patch management measures based on exploitability and overall business risks. Keep an accurate technology inventory. To understand the full scope of their zero-day risks, organizations should maintain a well-documented, detailed inventory of all software, hardware and firmware across their IT landscape. Doing so can make it easier to identify and recover vulnerable systems and assets when potential incidents arise. Implement strict access controls. By upholding the principle of least privilege and segmenting critical workplace networks, organizations can limit lateral movement during zero-day attacks and stop cybercriminals from causing widespread damage. Utilize advanced detection and response tools. Organizations should invest in endpoint detection and response (EDR) and extended detection and response (XDR) tools whenever possible. Rather than scanning only for known indicators, EDR and XDR solutions can also identify other suspicious activity, regardless of the exploit signature. This can help organizations detect zero-day attacks faster and prevent cybercriminals from remaining hidden for extended periods. Have a plan. Cyber incident response plans can help organizations ensure that necessary procedures are taken when attacks occur, thereby minimizing related losses. These plans should be clearly documented, regularly tested and address a range of scenarios. As it pertains to zero-day attacks, these plans should account for emergency patching, temporary mitigations and expedited change management during active events. Ensure proper coverage. Finally, organizations should have a robust insurance portfolio to maintain ample financial protection for losses stemming from zero-day attacks. Depending on the nature of the incident and policy wording, cyber insurance may respond to various zero-day losses, including incident response costs, business interruption expenses and liability claims. Organizations that develop or sell technology products may also benefit from errors and omissions coverage. Key Takeaways Zero-day attacks can't be stopped, but they can be managed. Organizations must focus on reducing their exposure with layered security controls. Pairing these defenses with a tested incident response plan and comprehensive coverage can ensure better recovery outcomes when attacks occur. Contact us today for more cybersecurity guidance.

Our recent webinar, "Securing the Scene: Best Practices After a Collision" with SMSC Senior Safety Consultant Justin Smoot covered how to respond effectively in the critical minutes and days following a crash. Justin shared best practices for preserving evidence, conducting post-crash investigations, and using the FMCSA's DataQ and Crash Preventability programs to challenge preventable determinations. He also covered how remedial training and coaching can help reduce repeat incidents. If you were unable to attend or want to revisit this session, view the webinar recording now! Key takeaways... Use sample checklists and resources to help you stay prepared when a crash happens. Review lessons learned from past incidents and accidents, highlighting what went right, what went wrong, and how those outcomes can inform a stronger response going forward. Obtain a post-crash plan for conducting a thorough investigation and implementing effective corrective actions, turning a single incident into a lasting improvement for your safety program. Click here to the view the presentation.

On Aug. 11, 2026, the IRS issued proposed rules addressing nondiscrimination testing requirements for dependent care flexible spending accounts (FSAs). This marks the first set of regulatory guidance on the mechanics of nondiscrimination testing for dependent care FSAs. Importantly, the proposed rules do not create any new nondiscrimination requirements for dependent care FSAs; they simply clarify how decades-old statutory rules should be applied. Employers with dependent care FSAs often struggle to pass nondiscrimination testing, especially the 55% average benefits test, because lower-paid employees are less likely to participate in these plans. The proposed rules would make the following key changes: Clarify how the 55% average benefits test applies to dependent care FSAs, including the methodology for calculating average benefits for highly compensated employees (HCEs) and non-highly compensated employees (non-HCEs); Allow employers to correct a failed 55% average benefits test by including excess benefits in HCEs' gross income by the deadline for furnishing Form W-2 for the testing year (i.e., Jan. 31 of the following year); and Establish a clear safe harbor for passing the eligibility test through a percentage-based approach, rather than a facts and circumstances analysis. While the rules have not been finalized, employers may rely on the proposed guidance for plan years beginning before final rules are issued. Action Items The proposed rules may make it easier for dependent care FSAs to pass nondiscrimination testing, especially the 55% average benefits test. Employers who have not completed this year's testing should check in with their vendors to confirm their methodology will take into account the new guidance, while those who already failed testing may want to consider running it again under the proposed rules. Dependent Care FSAs Internal Revenue Code (Code) Section 129 allows employers to provide dependent care assistance benefits for their employees on a tax-free basis. These benefit plans are referred to as dependent care FSAs or dependent care assistance programs. Most dependent care FSAs are structured so that employees make pretax contributions through a Code Section 125 cafeteria plan. Married employees who file a joint tax return and unmarried employees may contribute up to $7,500 each year to their dependent care FSAs. The annual limit for married employees who file separate tax returns is $3,750. These limits do not receive annual adjustments for inflation. In general, benefits that an employee receives from their dependent care FSA are nontaxable if: The expenses are for the care of one or more qualifying individuals (for example, a child under the age of 13); and The employee incurs the expense in order to enable the employee (and the employee's spouse, if applicable) to be gainfully employed. Nondiscrimination Requirements Code Section 129 imposes nondiscrimination requirements on dependent care FSAs to make sure they do not discriminate in favor of HCEs. An employee is generally an HCE if they are a more-than-5% owner at any time during the current or prior year, or if their prior-year compensation exceeded the applicable dollar threshold for that year ($160,000 for 2025 and 2026). In general, employers with dependent care FSAs have had difficulty with nondiscrimination testing, largely because non-HCEs tend to participate at lower rates, while HCEs are more likely to elect the maximum contribution. Four Different Tests To avoid adverse tax consequences for HCEs, a dependent care FSA must satisfy four nondiscrimination tests under Code Section 129. The proposed rules are intended to make the testing requirements clearer and easier to administer. The following chart describes each of these tests and summarizes the IRS's proposed corresponding guidance: Eligibility Test: Code Section 129(d)(3) Statutory Description Proposed Rules A dependent care FSA cannot discriminate in favor of HCEs as to eligibility to participate. The following employees are excluded for testing purposes: Employees who have not attained age 21 and completed one year of service; and Collectively bargained employees who are not included in the dependent care assistance program. This nondiscrimination test requires both that the employer's eligibility classification be reasonable and that the classification be nondiscriminatory in operation. Reasonable classifications generally include specified job categories, nature of compensation (salaried or hourly), geographic location and similar bona fide business criteria. Listing employees by name, or by criteria having substantially the same effect, is not a reasonable classification. A classification can establish nondiscriminatory operation in either of two ways: Facts-and-circumstances test: This test evaluates factors including the business justification for the classification, the percentage of the workforce covered, whether coverage is representative across salary ranges and how close the plan comes to the numerical safe harbor described below. In general, the greater the business justification for the classification, the broader the coverage under the plan, the more representative the classification is across salary ranges, and the smaller the difference between the plan's ratio percentage and the employer's safe harbor percentage, the more likely the classification is to be nondiscriminatory; or Numerical safe harbor: A dependent care FSA satisfies the safe harbor if its "ratio percentage" (the percentage of eligible non-HCEs compared to the percentage of eligible HCEs) is at or above the employer's "safe harbor percentage." The safe harbor percentage starts at 90% and is reduced by 0.75 percentage points for every whole percentage point by which the employer's non-HCE concentration percentage exceeds 60%. The non-HCE concentration percentage is the percentage of all the employer's employees who are non-HCEs. A classification that satisfies the safe harbor is treated as nondiscriminatory without the need to establish, based on all the relevant facts and circumstances, that the classification is nondiscriminatory. Contributions and Benefits Test: Code Section 129(d)(2) The contributions or benefits provided under a dependent care FSA cannot discriminate in favor of HCEs. To satisfy this qualitative test, a dependent care FSA cannot provide more favorable terms for HCEs than for other employees. However, a dependent care FSA that provides contributions and benefits on the same terms to all eligible employees satisfies this test, even if employees receive different amounts of contributions and benefits due to differing elections or utilization. Owner Concentration Test: Code Section 129(d)(4) Not more than 25% of the amounts paid or incurred by the employer for dependent care assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5% of the stock or of the capital or profits interest in the employer. The proposed rules restate the statutory requirement and do not provide additional guidance on this test. 55% Average Benefits Test: Code Section 129(d)(8) The average benefits provided to non-HCEs under the dependent care FSA must be at least 55% of the average benefits provided to HCEs. Thefollowing employees are excluded for testing purposes: Employees who have not attained age 21 and completed one year of service; Collectively bargained employees who are not included in the dependent care assistance program; and For benefits provided through a salary reduction agreement, employees whose compensation is less than $25,000. The proposed rules provide a framework for applying this test. In general, the average benefits provided to a group of HCEs or non-HCEs for a plan year equals the total dollar amount of such contributions and benefits provided during the plan year to employees in that group, divided by the number of employees in that group to whom such contributions and benefits in a dollar amount greater than zero are provided during the plan year, via salary reduction or otherwise. For purposes of this calculation, an employee is taken into account in the denominator only if the employee is provided contributions and benefits under a dependent care FSA in an amount greater than zero during the plan year. Employees who were eligible but did not elect or receive any benefits are not included in the denominator. Compliance with this test is determined as of the last day of the plan year, taking into account any individual employed on any day of the plan year who is not an excluded employee and who was provided dependent care FSA benefits, via salary reduction or otherwise, on any day during the plan year. Testing Failures If a dependent care FSA fails nondiscrimination testing, the benefits provided to HCEs will be taxable, but benefits for non-HCEs will not be affected. To avoid tax issues, employers often test their dependent care FSAs early in the plan year and reduce HCEs' pretax contributions, as necessary, to get the plan to pass by the end of the year. The proposed rules would also provide a correction method for failures of the 55% average benefits test and the owner concentration test. If a dependent care FSA fails either of these tests, the plan may nonetheless be treated as satisfying that testing requirement if, on or before the deadline for furnishing Form W-2 for the year in which the benefits were provided, the employer includes the amount of excess benefits in the gross income of affected HCEs. For example, corrections for 2026 must be made no later than Jan. 31, 2027, and included on HCEs' 2026 Forms W-2. In addition, the proposed rules would allow dependent care FSAs to allocate excess benefits for HCEs as follows: Average Benefits Test: In general, if all HCEs have benefits in excess of the amount that would satisfy the 55% average benefits threshold, the excess benefit amount for each HCE is determined by reference to that threshold. If not all HCEs have benefits in excess of that amount, the employer would be permitted to allocate the excess benefit and required reduction among HCEs in any reasonable manner. Owner Concentration Test: A similar allocation would be permitted when a dependent care FSA fails to satisfy the owner concentration test. In that case, the permitted concentration amount is subtracted from the benefit provided to participating shareholders or owners to determine the amount to be included in income. The permitted concentration amount is 25% of the total dependent care benefits provided by the employer to all participants during the year, divided by the number of participating shareholders or owners.

Each year, Medicare Part D requires group health plan sponsors to disclose to individuals who are eligible for Medicare Part D and to the Centers for Medicare and Medicaid Services (CMS) whether the health plan’s prescription drug coverage is creditable. Medicare Part D open enrollment for the 2027 plan year begins on Oct. 15, 2026, and ends on Dec. 7, 2026. Plan sponsors must provide the annual disclosure notice to Medicare-eligible individuals before Oct. 15, 2026 - the start date of the annual enrollment period for Medicare Part D. CMS has provided model disclosure notices for employers to use. This notice is important because Medicare beneficiaries who are not covered by creditable prescription drug coverage and do not enroll in Medicare Part D when first eligible will likely pay higher premiums if they enroll at a later date. Although there are no specific penalties associated with this notice requirement, failing to provide the notice may be detrimental to employees. Action Steps Employers should confirm whether their health plans’ prescription drug coverage is creditable or non-creditable and prepare to send their Medicare Part D disclosure notices before Oct. 15, 2025. To make the process easier, employers often include Medicare Part D notices in open enrollment packets they send out prior to Oct. 15. Creditable Coverage A group health plan’s prescription drug coverage is considered creditable if its actuarial value equals or exceeds the actuarial value of standard Medicare Part D prescription drug coverage. In general, this actuarial determination measures whether the expected amount of paid claims under the group health plan’s prescription drug coverage is at least as much as the expected amount of paid claims under the Medicare Part D prescription drug benefit. For plans that have multiple benefit options (for example, PPO, HDHP and HMO), the creditable coverage test must be applied separately for each benefit option. Model Notices CMS has provided two model notices for employers to use: A Model Creditable Coverage Disclosure Notice for when the health plan’s prescription drug coverage is creditable; and A Model Non-creditable Coverage Disclosure Notice for when the health plan’s prescription drug coverage is not creditable. These model notices are also available in Spanish on CMS’ website. Employers are not required to use the model notices from CMS. However, if the model language is not used, a plan sponsor’s notices must include certain information, including a disclosure about whether the plan’s coverage is creditable and explanations of the meaning of creditable coverage and why creditable coverage is important. Notice Recipients The creditable coverage disclosure notice must be provided to Medicare Part D - eligible individuals who are covered by, or who apply for, the health plan’s prescription drug coverage. An individual is eligible for Medicare Part D if they: Are entitled to Medicare Part A or are enrolled in Medicare Part B; and Live in the service area of a Medicare Part D plan. In general, an individual becomes entitled to Medicare Part A when they actually have Part A coverage, and not simply when they are first eligible. Medicare Part D-eligible individuals may include active employees, disabled employees, COBRA participants and retirees, as well as their covered spouses and dependents. As a practical matter, group health plan sponsors often provide the creditable coverage disclosure notices to all plan participants. Timing of Notices At a minimum, creditable coverage disclosure notices must be provided at the following times: Prior to the Medicare Part D annual coordinated election period—beginning Oct. 15 through Dec. 7 of each year Prior to an individual’s initial enrollment period for Part D Prior to the effective date of coverage for any Medicare-eligible individual who joins the plan Whenever prescription drug coverage ends or changes so that it is no longer creditable or becomes creditable Upon a beneficiary’s request If the creditable coverage disclosure notice is provided to all plan participants annually before Oct. 15 of each year, items (1) and (2) above will be satisfied. “Prior to,” as used above, means the individual must have been provided with the notice within the past 12 months. In addition to providing the notice each year before Oct. 15, plan sponsors should consider including the notice in plan enrollment materials for new hires. Method of Delivering Notices Plan sponsors have flexibility in how they must provide their creditable coverage disclosure notices. The disclosure notices can be provided separately, or if certain conditions are met, they can be provided with other plan participant materials, like annual open enrollment materials. The notices can also be sent electronically in some instances. As a general rule, a single disclosure notice may be provided to the covered Medicare beneficiary and all of his or her Medicare Part D-eligible dependents covered under the same plan. However, if it is known that any spouse or dependent who is eligible for Medicare Part D lives at a different address than where the participant materials were mailed, a separate notice must be provided to the Medicare-eligible spouse or dependent residing at a different address. Electronic Delivery Creditable coverage disclosure notices may be sent electronically under certain circumstances. CMS has issued guidance indicating that health plan sponsors may use the electronic disclosure standards under Department of Labor (DOL) regulations in order to send the creditable coverage disclosure notices electronically. According to CMS, these regulations allow a plan sponsor to provide a creditable coverage disclosure notice electronically to plan participants who have the ability to access electronic documents at their regular place of work, if they have access to the sponsor's electronic information system on a daily basis as part of their work duties. The DOL’s regulations for electronic delivery require that: The plan administrator uses appropriate and reasonable means to ensure that the system for furnishing documents results in actual receipt of transmitted information; Notice is provided to each recipient, at the time the electronic document is furnished, of the significance of the document; and A paper version of the document is available on request. Also, if a plan sponsor uses electronic delivery, the sponsor must inform the plan participant that they are responsible for providing a copy of the electronic disclosure to their Medicare-eligible dependents covered under the group health plan. In addition, the guidance from CMS indicates that a plan sponsor may provide a disclosure notice electronically to retirees if the Medicare-eligible individual has indicated to the sponsor that they have adequate access to electronic information. According to CMS, before individuals agree to receive their information via electronic means, they must be informed of their right to obtain a paper version, how to withdraw their consent and update address information, and any hardware or software requirements to access and retain the creditable coverage disclosure notice. If the individual consents to an electronic transfer of the notice, a valid email address must be provided to the plan sponsor and the consent from the individual must be submitted electronically to the plan sponsor. According to CMS, this ensures the individual’s ability to access the information and that the system for furnishing these documents results in actual receipt. In addition to having the disclosure notice sent to the individual’s email address, the notice (except for personalized notices) must be posted on the plan sponsor’s website, if applicable, with a link on the sponsor’s homepage to the disclosure notice. Disclosure to CMS Plan sponsors are also required to disclose to CMS whether their prescription drug coverage is creditable. The disclosure must be made to CMS on an annual basis, or upon any change that affects whether the coverage is creditable. At a minimum, the CMS creditable coverage disclosure notice must be provided at the following times: Within 60 days after the beginning date of the plan year for which the entity is providing the form; Within 30 days after the termination of the prescription drug plan; and Within 30 days after any change in the creditable coverage status of the prescription drug plan. Plan sponsors are required to provide the disclosure notice to CMS through completion of the disclosure form on the CMS Creditable Coverage Disclosure webpage. This is the sole method for compliance with the CMS disclosure requirement, unless a specific exception applies.