The Credit Card Liability Shift – What Merchants Need to Know

EMV is the acronym for Europay, Mastercard and Visa—the three credit card companies responsible for pioneering a new credit card technology in the 1990s. Though they were the first innovators, since then, all major credit card companies have adopted the technology, which has been in widespread use in Europe and elsewhere in the world for several years. On Oct. 1, 2015, that same standard will come to the United States as credit card companies enact the “EMV liability shift.”

In the simplest terms, this means that the cost of fraudulent charges on certain kinds of credit and debit card transactions will be determined solely by the technology used in the transaction. Whoever has the least EMV-compliant technology—either the merchant processing the transaction or the card issuer—will be liable for the costs of the fraudulent charge.

Such a shift could have huge financial implications for businesses, especially since card issuers have typically borne the bulk of fraud liability. To minimize the impact of this shift on your business, it’s important to understand what EMV is, why it’s being adopted as the new standard and what the new technology will and won’t do in terms of minimizing risk.

Understanding the New Technology
credit-card-frontEMV replaces the old standard of encoding cardholder information—the magnetic stripe on the back of the card—with a microprocessor chip that’s embedded within the card. Customers then punch in a personal identification number (PIN), much like a debit card, or sign for the transaction in the same way customers currently do with magnetic stripe cards.

Whoever has the least EMV-compliant technology—either the merchant processing the transaction or the card issuer—will be liable for the costs of the fraudulent charge.

EMV cards offer major security benefits. Specifically, in contrast to their magnetic stripe counterparts, EMV chip cards are almost impossible to clone. On magnetic stripe cards, thieves can steal cardholder information using a device called a “skimmer.” On EMV chip cards, cardholder information is stored in a microprocessor that generates a unique signature for every transaction, effectively “communicating” its authenticity every time it’s scanned. In fact, in countries that have adopted the EMV standard, the use of counterfeit cards has dropped nearly to zero.

EMV Migration – What Businesses Need to Do
There are certain steps a business will have to take in order to become EMV compliant. These can take time, so starting as soon as possible is the best strategy.

  • Examine Hardware: Some businesses that have upgraded point-of-sale (POS) card readers in the past few years might find them capable of reading EMV cards. Many businesses, however, will have to upgrade their existing hardware.
  • Consult With Third Parties: Businesses should contact their merchant acquirers, payment processors and independent software vendors. These third parties can help by offering specific recommendations and solutions that fit with each individual business’s needs.
  • Purchase and Certify New Hardware: The merchant acquirer or payment processor should be able to tell a business what certification, if any, that business might need.
    • Often, if the card reader isn’t heavily customized, the acquirer or processor may have already taken care of certification.
    • If, however, the card reader is highly integrated into the business’s POS, that business might need to obtain proper certifications. In some cases, the same policy can cover multiple events.
    • Certification takes time. Level 3 certification, for instance, can take anywhere from a couple of weeks to several months.
  • Decide on Chip-and-PIN or Chip-and-signature: Businesses should also consider whether the terminals they purchase can handle chip-and-PIN transactions or only chip-and signature transactions. At the moment, most card companies are issuing chip-and-signature cards. However, it’s likely that chip-and-PIN will be the standard in a few years. Rather than update hardware twice, it might make sense to make that investment now.
  • Implement Internal Training: EMV cards are processed a bit differently than magnetic stripe cards, so it’s important that employees understand the differences:
    • The total amount of the transaction must be entered into the terminal before the card is inserted.
    • An EMV card must remain inserted in the terminal for the entire duration of the transaction.
  • Educate Customers: Most businesses will be far more knowledgeable on the new technology than their customers. Teaching employees how to instruct customers on using their new EMV cards will be essential in making the transition as smooth as possible.

Important Exclusions to EMV
The liability shift only applies to card-present, face-to-face transactions. Currently, there’s a separate liability shift, scheduled for October 2017, for ATM withdrawals and automated fuel dispensers.

Card-not-present (CNP) transactions won’t be affected by the liability shift. That means that even if a business has an EMV-compliant terminal, if the card information is manually entered, or if the transaction occurs on the internet, the business will usually be responsible for the costs associated with a fraudulent transaction.

It’s also worth noting that many EMV cards will also have a magnetic stripe in addition to the chip. If a business uses the stripe to read the card rather than use the chip, it will assume liability, regardless of whether the terminal is EMV compliant or not.

Putting it All Together
EMV is a technology designed to reduce losses and should be thought of as another piece of your business’s overall security strategy. For more information on how to assess and mitigate your business’s risks, contact your professional agents and underwriters here at Morris & Reynolds Insurance today.

Personal Automobiles for Business Use

According to the U.S. Census Bureau, there are more than 240 million registered motor vehicles in the United States, and an estimated one-fourth of those are used for business in some way. If you have employees who use personal vehicles for business use, you could be exposing your business to a significant liability risk.

Even if your employees have Personal Auto Policies (PAPs) for their personal vehicles, in the event of a serious accident that occurs during business use, your business could be sued to collect additional damages.

What is “Business Use”?
Activities that constitute general business use include visiting customers, picking up supplies, attending conferences, and commuting to and from work. For activities like this, the general business use of a personal vehicle is usually covered by a PAP. This is because a policy purchased for a specific vehicle is considered the primary insurance, which covers damages before any other policy takes effect.

An exception to general business use is livery, or carrying goods or people for a fee. Livery includes the delivery of items such as food, flowers, or wholesale or retail items to customers, as well as chauffeur services. Carpooling or ridesharing is not considered livery and is covered under a PAP.

Employees that work from home can still pose a risk if they use personal vehicles for business use. It may be more difficult to ascertain the driving habits of employees that work from home or the operational status of their vehicles. Communicate regularly with these employees concerning your company’s policy for the use of personal vehicles.

Employee PAP Coverage
For employees using their personal vehicles, the primary insurance on the vehicles will likely be their PAPs. You should know how your employees are covered for the business use of their vehicles. Encourage your employees to speak with their PAP carriers to be sure of their coverage and to make it clear to the insurance agents what business activities the vehicles may be used for.

Some PAPs appear to exclude coverage for business use, but they may include broad exceptions for a private passenger automobile, or pickup trucks and vans. However, some policies may be stricter depending on the circumstances. Clarification may prevent complications if a claim must be filed.

Four Ways to Reduce Risk
Though employees’ use of personal automobiles may pose a risk to your business, there are steps you can take to help protect both your employees and your business from liability.

Review driving records and create an approved-driver list: All employees that use a vehicle for business use should be cleared to drive by a manager. This process should include reviewing motor vehicle records and PAP coverages regularly and maintaining records to help reduce risk exposure.

Establish standards for personal vehicles: Even employees without any incidents on their motor vehicle records can be a risk to your business if they are driving personal vehicles that are not properly maintained. Establish company guidelines for maintaining personal vehicles. If employees are compensated for time spent driving or if they routinely use their personal vehicles for business, consider regularly collecting maintenance reports to gauge the reliability of personal vehicles.

Make the company policy clear: After you create guidelines for the use of personal vehicles at your business, be sure to communicate them to your employees in a clear and timely manner. Although it is common to have policies against the use of intoxicating substances or mobile devices while driving, reminding employees of all of your company policies is an effective way to mitigate risk.

Establish rental vehicle policies: The use of rental vehicles for business also presents exposure to risk. It may be beneficial to establish a relationship with a particular rental vehicle agency to determine which vehicles best suit the needs of your business and employees while traveling. You should also give your employees guidelines on which rental vehicle insurance coverages to accept during the rental process.

Obtaining Appropriate Liability Insurance
Additional coverage may be needed if any potential risks from personal auto use threaten your business. A standard Business Auto Policy (BAP) will protect your business from any additional liability after an employee’s PAP has paid for damages related to personal auto use.

Although employees who have personal vehicles should be required to have PAPs, obtaining liability insurance should be a priority to protect your business. In the event of a serious accident, your employees’ PAP coverage may not be adequate to pay for all the damages. Be sure to prepare a list of vehicles that may be used by employees and the type of business they may be used for.

More Information
Contact Morris & Reynolds Insurance at 305.238.1000 in order to discuss your coverage options, or for more information, visit our website’s Commercial Auto & Truck Insurance page.

Employment Practices Liability Insurance

From the moment that you start the pre-hiring process until the exit interview, you are vulnerable for a lawsuit. As a result, your business should take a hard look at whether it can afford to defend itself against alleged wrongful employment practices accusations. If not, there is an insurance solution called Employment Practices Liability that protects against wrongful termination, discrimination (age, sex, race, disability, etc.) or sexual harassment suits from your current, prospective or former employees. This coverage applies to directors, officers and employees, and can sometimes extend to third party liabilities.


Why Choose Employment Practices Liability Insurance?
According to researchers, three out of five employers will be sued by a prospective, current or former employee while they are in business. While many suits are groundless, defending against them is costly and time-consuming.

Employment Practices Liability Insurance provides protection from the following wrongful employment practices, including:

  • Harassment
  • Discrimination
  • Actual or alleged wrongful dismissal, discharge or termination
  • Employment-related misrepresentation
  • Employment-related libel, slander, humiliation, defamation or invasion of privacy
  • Wrongful failure to employ or promote
  • Wrongful deprivation of a career opportunity, wrongful demotion or negligent evaluation
  • Wrongful discipline
  • Vicarious liability for intentional acts
  • Punitive damages
  • Coercion or humiliation in relation to race, marital status, gender, age, physical and/or mental impairments, pregnancy, sexual orientation and any other protected class established by federal, state and local statutes

Many policies offer the following inclusions and add-ons:

  • Consultation, HR assistance and other risk management consultative services.
  • Coverage for defense costs outside the policy limits (for qualifying risks).
  • Third party liability coverage (for qualifying risks).
  • Wage and Hour Coverage for claims alleging wage and hour violations.
  • Volunteer workers can be added as additional insureds.
  • Extended reporting periods may be added.

To learn more about Employment Practices Liability coverage and how Morris & Reynolds Insurance can help protect your business, contact us today at 305.238.1000.