When an employer moves from a fully insured health care plan to a self-funded plan, it becomes responsible for 100 percent of the claims risk. That transition can be frightening, especially as medical costs continually increase. But purchasing stop-loss coverage from reinsurance carriers can help mitigate some of that risk.

“Stop loss allows an employer to transfer a portion of the claims risk to the reinsurance carrier in exchange for a monthly premium,” says Donna Cowden, Senior Vice President with Aon Hewitt Health & Benefits.

Smart Business spoke with Cowden, Candice Mill, Senior Vice President, Aon Risk Solutions Health & Benefits, and Daniel D’Alessandro, Regional Managing Director, Aon Risk Solutions, about how stop-loss coverage can help protect your business.

How can an employer limit risk with stop-loss coverage?

The employer can limit risk by purchasing aggregate coverage, which insures against an employer’s total annual claims exceeding an estimated dollar amount (with a corridor of 20 to 25 percent added), or specific coverage, which insures against a single, large, catastrophic claim that exceeds selected dollar amount (deductible) during the plan year.  They work well together by protecting the employer if the year’s claims have exceeded the carrier’s claims estimate plus margin, and monthly by limiting the loss of a large, unexpected claim. Aggregate claim reimbursement occurs at the end of the contract period, while specific claim reimbursements take place as they occur during the plan year.

How can an employer determine which type of coverage is the best fit?

Employers need to determine what risk they are trying to protect against. Are they concerned about overall claims exceeding a budgeted amount and feel comfortable absorbing large losses that might occur during the year, or are they only concerned about a hit if a large, unexpected claim occurs?

Aggregate stop-loss coverage protects an employer against claim volatility, if annual claims exceed what is budgeted. Smaller employers have a more difficult time absorbing the claim fluctuations, so they will purchase aggregate coverage.

Most employers will purchase specific coverage but the level of the specific deductible will depend on their size and risk tolerance. Specific-only coverage is typically for employers with more than 5,000 covered lives.

How does stop-loss coverage work with a self-funded benefit plan?

Self-funded employers that purchase stop-loss coverage have the benefit plan document and the stop-loss contract. The employer’s plan document outlines benefit provisions and how benefits are paid. Ideally, a stop-loss contract will overlay the provisions in the employer’s benefit plan. The employer does not want the stop-loss contract to have exclusions or limitations that contradict or add to the employer’s benefit plan.

How can an employer determine whether it should purchase stop-loss coverage?

It is critical for employers to understand their risk tolerance and determine how much they can tolerate paying out without creating a cash flow issue. How easy is it to fund a $500,000 claim month when claims generally run $100,000 per month? Once that is determined, they can purchase the contract that provides them the appropriate protection.

In what other ways within the contract can employers share risk to keep the premium down?

One way is an ‘aggregating-specific,’ or ‘split-funded specific,’ contract and the other is a ‘tiered,’ or ‘coinsurance,’ contract. With an aggregating-specific/split-funded contract, the employer shares in the risk for a reduction in premium. The employer will accept claims up to the specific deductible and will accept additional claim liability generally equal to a 20 to 30 percent premium reduction. If the employer has no claims over its specific deductible during the year, it saves the amount of the aggregating deductible. If there is a claim in excess of the specific deductible, it is paid by the employer until the aggregating deductible is exhausted and the carrier pays the remainder. With a tiered/coinsurance contract, the employer agrees to share in more risk after the specific deductible has been exceeded for a reduction in premium. Once the specific has been exceeded, the employer may take on a reduced percentage of claims above the deductible up to a specified dollar amount, after which the carrier accepts all risk.

What potential pitfalls should employers be aware of when switching plans?

The first year an employer switches to a self-funded plan, claims incurred but not paid when it moved are the responsibility of the fully insured carrier. So instead of 12 months of claims for that first self-funded plan year, the employer has only nine to 10 months. The stop-loss rates and contract are referred to as immature and are discounted up to 20 percent. The second-year rate increase will look very high because the rate is increasing by trend and the additional 20 percent because of a full claim year. Employers should purchase complementary contracts to prevent gaps in coverage.

How is health care reform affecting stop-loss coverage?

The most immediate impact is the change requiring benefit plans to have unlimited lifetime maximums. The stop-loss contract generally duplicates the benefit plan maximum, so when unlimited lifetime maximums were implemented, carriers struggled to determine the financial impact on their rates.  Stop-loss contracts should be reviewed to make sure the maximum reimbursement matches the employer’s maximum and the carrier hasn’t put a cap on the maximum. That would leave the employer at risk once the reimbursement maximum has been exceeded. We are also finding large employers that never had stop loss request very high specific deductibles because of the unlimited lifetime maximum.

Donna Cowden is Senior Vice President, Aon Hewitt Health & Benefits. Reach her at (336) 728-2316 or donna.cowden@aonhewitt.com.

Candice Mill is the Senior Vice President of Aon Risk Solutions, Health & Benefits. Reach her at candice.mill@aon.com or (412) 263-6387.

Daniel D’Alessandro is the Regional Managing Director of Aon Risk Solutions. Reach him at  daniel.dalessandro@aon.com or (412) 594-7515.

Published in Pittsburgh

Risk management continues to evolve. What began as an insurance purchasing role has expanded to a much broader responsibility.

Risk management now includes a more holistic analysis of business and financial risks, risk-bearing capacity and the development of strategic solutions to numerous areas of organizational risk.

The Risk and Insurance Management Society (RIMS) Annual Conference and Exhibition is the largest gathering of risk management practitioners in the world. This year, the event is set for May 1-5 in Vancouver. The conference provides three primary services to its 10,000 members: resources, networking and education.

“With 80 local chapters meeting regularly, RIMS members can learn about the industry, use the society’s variety of resources and make key connections with their peers and fellow  members,” says Jennifer Fahey, executive vice president and leader of Aon Risk Solutions, U.S. Sales and Marketing.

Smart Business spoke with Fahey and Patrick Lawton, vice president, strategic account manager, at Aon Risk Solutions, about the benefits of getting involved with RIMS.

What is RIMS, and who are its members?

RIMS is a nonprofit organization that focuses on advancing the practice of risk management. The majority of its members are risk managers or intermediaries for corporations and other organizations, insurers and other service providers. Financial officers and executives overseeing risk management with corporations and other organizations are also members. Membership facilitates contact with a broad array of professionals in disciplines, including IT, legal, finance and audit, as well as academics, regulators, elected officials and specialists from the risk management and insurance industry.

Why is continuing education so important in risk management?

Risk management, or risk mastery, has become a complex and challenging field. Clients are dealing with risk around the world and need sophisticated tools to address their myriad risks.

Traditional insurance is the best known of the risk manager’s risk transfer tools and risk mitigation is often the most efficient solution. Risk managers now need to make use of a variety of operational tools, including risk mitigation and prevention, as well as financial tools, including  captive and special purpose insurance companies, structured insurance transactions, integrated risk placements, loss portfolio transfers and risk retention methods. Risk managers are constantly blending financial techniques with traditional insurance to deal with increasingly complex risks.

Why should risk managers consider attending the RIMS annual conference?

Education, business efficiency and networking. Throughout the week, RIMS sessions provide continuing education on various aspects of risk, exposures and litigation, including hot topics such as cyberliability, enterprise risk management, crisis management, business continuity, emergency planning and so much more.

Because of the significant attendance by insurers and other service providers, Aon and other brokers and consultants — including many senior executives and participants from locations across and outside the U.S. — the conference presents an ideal opportunity to hold effective renewal, relationship and exploratory business meetings.

What kind of business is done at the conference?

All kinds. We meet to initiate or strengthen relationships; we meet with existing clients and insurers to prepare for upcoming renewals or review the risks of an organization with a prospective insurer that might have the ability to help manage some of that risk. Some meetings are specific to industry groups because of specialized exposures common to those industries.

For companies, it’s a great opportunity to meet with some of the industry’s best talent, glean insight into future industry trends through the senior management of insurers and brokers, as well as to meet with the individuals specifically underwriting their risk or determining claim outcomes.

How can meeting with those individuals help companies with their insurance issues?

Insurance contracts, like most forms of contracts, cannot anticipate every aspect of risk and exposure, so it’s important to have strong insurer relationships. Having strong personal relationships with not just the day-to-day underwriter, but also with the claims professionals and insurer’s management, helps companies negotiate through the gray areas.

Having been in this industry for more than two decades, I can absolutely vouch for the importance of clients’ and brokers’ underwriter and insurer relationships in working through claim issues.

How does RIMS support local communities?

Aon sponsors a Community Service day in conjunction with RIMS at the annual conference. It’s a long-term tradition that continues at the 2011 conference in Vancouver. This year we will be rebuilding an athletic field in Vancouver in an economically challenged area. RIMS also offers opportunities for students who are preparing to become risk management or insurance professionals. Since 1978, RIMS has sponsored funding for college students to attend the conference, with 30 students attending the 2010 conference in Boston.

How can someone get involved with RIMS?

Enroll online at www.rims.org. There are 80 local chapters. Most chapters meet monthly, with networking opportunities and presentations by experts on areas including litigation trends and exposures.

Having attended many of these local meetings across the country, they are a great source of local expertise.

Jennifer Fahey is an executive vice president and leader of U.S. Sales and Marketing with Aon Risk Solutions, the broking subsidiary of Aon Corp. Reach her at (212) 441-1197 or jennifer.fahey@aon.com.

Patrick Lawton is vice president, strategic account manager at Aon Risk Solutions. Reach him at patrick.lawton@aon.com.

Published in St. Louis

The 2011 insurance market seems fraught with both potential land mines and great opportunities. Brian Andrews, senior property broker at Aon Risk Solutions’ Pittsburgh office, advises that although insurance companies did well in 2010, there are some factors that are making them cautious entering 2011.

“More than ever, quality data is a key to your renewal, whether it’s a property or excess casualty account,” says Andrews.

Smart Business spoke with Andrews and Al Tobin, managing principal at Aon Risk Solutions, about what to expect in 2011.

What does 2011 hold for property, casualty and liability markets?

In 2011, non-catastrophic general property risks, general liability, and excess casualty will be competitive. Most insurance companies don’t see a change in the marketplace coming from anywhere other than the catastrophe-prone property side of the business. That means earthquake, terrorism event, or significant wind storm event.

The financial results from insurance companies were decent for 2010 for two reasons.  First, there were no catastrophic property losses in the U.S., outside of the BP oil disaster — no big hurricanes or earthquakes. The second is that there were many reserve releases — the surplus an insurance company keeps in order to pay previously reported claims or Incurred But Not Reported (IBNR) claims.

Insurance companies are conservative; they must make sure they have funds set aside for unexpected or growing losses, predominantly caused by casualty-related losses. Last year, many insurance companies came to the conclusion that their loss reserves were higher than necessary. Their actuaries allowed them to release some of those reserves, which helped boost profits for 2010. This shifting of funds is not something the industry can expect to occur again in 2011, which is why some insurers are taking the position that they can’t continue with rate reductions.

Most property insurance policies are placed for a one-year term. For risks subject to natural catastrophe exposures, insurance companies review hurricane forecasts with great detail. If an active hurricane season is predicted, insurance companies tend to become cautious. If it is supposed to be a mild hurricane season, insurers can take an aggressive approach to write more business. The 2011 forecasts are for a very active U.S. hurricane season, which will cause some concern for many insurers.

For natural catastrophe-prone risks, there is an additional factor influencing 2011: new predictive loss modeling programs. Many insurers use a model called RMS, which is updated on a regular basis. It is anticipated that the 2011 RMS model will drive the loss expectancies of insurers’ risk portfolios up. The damage hurricanes do to coastal properties is generally severe, but the damage that hurricanes can do from significant winds further inland has not been fully considered in the past. The new RMS model increases the loss expectancies for hurricanes that penetrate deeper inland.

How will insurance companies react?

Insurance company senior executives will review the 2011 storm season forecasts. They will instruct their underwriters to be prudent in knowing the risks they insure and protecting insurance company surplus with the appropriate protective reinsurance programs. This will drive a conservative approach from insurers for 2011 from a catastrophic risk perspective specific to hurricanes. From the insurance company perspective, if the new RMS model increases loss expectancies from a Category 3 storm from $1 billion to $1.2 billion, how will it respond? Will it write less business? Will it increase prices?

Most likely one aspect of the answer is that it will be more selective in the risks written in catastrophe-prone areas. This drives the need to be able to provide good data, or you are going to pay more for your insurance in 2011.

What can companies do to make sure their data is accurate?

For natural catastrophe-prone facilities, you need to know your secondary construction characteristics — year built, type of roof, number of stories, etc. If you have 20 properties in your portfolio, in the past you may have had good construction information on your largest five facilities, but you may not have had detailed information on the smaller facilities. For 2011, you should gather the secondary construction characteristics for all of the catastrophe-prone facilities. This can be done by a one-time loss control engineer visit to facilities to accurately collect the data. If you don’t provide the information to the insurers, the RMS model will default to worst case characteristics, resulting in higher loss expectancies and higher premiums charged.

What steps should companies take to prepare for 2011 insurance renewals?

Make sure you understand the global insurance marketplace. There are more choices than ever for customers, so getting good advice from your broker is critical. Look for a broker or agent who uses peer group benchmarking. Perhaps you are buying unnecessarily high limits? The use of sound peer group benchmarking and catastrophe modeling loss expectancy results to make decisions that enable the insured to properly set the amount of insurance purchased is very important to risk managers in this market. Considering reducing limits is a decision that should not be taken lightly, however in this economy there is considerable pressure on risk managers to buy the most cost-effective insurance product without giving up important coverage. Still, don’t trade a few dollars for inadequate limits. Good data can help one make this decision.

Brian Andrews is a senior property broker for Aon Risk Solutions. Reach him at brian.andrews@aon.com or (412) 594-7511.

Al Tobin is managing principal and national property leader with Aon Risk Solutions. Reach him at alfred.tobin@aon.com.

Published in Pittsburgh

Risk management continues to evolve. What began as an insurance purchasing role has expanded to a much broader responsibility.

Risk management now includes a more holistic analysis of business and financial risks, risk-bearing capacity and the development of strategic solutions to numerous areas of organizational risk.

The Risk and Insurance Management Society (RIMS) Annual Conference and Exhibition is the largest gathering of risk management practitioners in the world. This year, the event is set for May 1-5 in Vancouver. The conference provides three primary services to its 10,000 members: resources, networking and education.

“With 80 local chapters meeting regularly, RIMS members can learn about the industry, use the society’s variety of resources and make key connections with their peers and fellow  members,” says Jennifer Fahey, executive vice president and leader of Aon Risk Solutions, U.S. Sales and Marketing.

Smart Business spoke with Fahey about the benefits of getting involved with RIMS.

What is RIMS, and who are its members?

RIMS is a nonprofit organization that focuses on advancing the practice of risk management. The majority of its members are risk managers or intermediaries for corporations and other organizations, insurers and other service providers. Financial officers and executives overseeing risk management with corporations and other organizations are also members. Membership facilitates contact with a broad array of professionals in disciplines, including IT, legal, finance and audit, as well as academics, regulators, elected officials and specialists from the risk management and insurance industry.

Why is continuing education so important in risk management?

Risk management, or risk mastery, has become a complex and challenging field. Clients are dealing with risk around the world and need sophisticated tools to address their myriad risks.

Traditional insurance is the best known of the risk manager’s risk transfer tools and risk mitigation is often the most efficient solution. Risk managers now need to make use of a variety of operational tools, including risk mitigation and prevention, as well as financial tools, including  captive and special purpose insurance companies, structured insurance transactions, integrated risk placements, loss portfolio transfers and a variety of risk retention methods. Risk managers are constantly blending financial techniques with traditional insurance to deal with increasingly complex risks.

Why should risk managers consider attending the RIMS annual conference?

Education, business efficiency and networking. Throughout the week, RIMS sessions provide continuing education on various aspects of risk, exposures and litigation, including hot topics such as cyberliability, enterprise risk management, crisis management, business continuity, emergency planning and so much more. Because of the significant attendance by insurers and other service providers, Aon and other brokers and consultants — including many senior executives and participants from locations across and outside the U.S. — the conference presents an ideal opportunity to hold effective renewal, relationship and exploratory business meetings.

What kind of business is done at the conference?

All kinds. We meet to initiate or strengthen relationships; we meet with existing clients and insurers to prepare for upcoming renewals or review the risks of an organization with a prospective insurer that might have the ability to help manage some of that risk. Some meetings are specific to industry groups because of specialized exposures common to those industries. For companies, it’s a great opportunity to meet with some of the industry’s best talent, glean insight into future industry trends through the senior management of insurers and brokers, as well as to meet with the individuals specifically underwriting their risk or determining claim outcomes.

How can meeting with those individuals help companies with their insurance issues?

Insurance contracts, like most forms of contracts, cannot anticipate every aspect of risk and exposure, so it’s important to have strong insurer relationships. Having strong personal relationships with not just the day-to-day underwriter, but also with the claims professionals and insurer’s management, helps companies negotiate through the gray areas.

Having been in this industry for more than two decades, I can absolutely vouch for the importance of clients’ and brokers’ underwriter and insurer relationships in working through claim issues.

How does RIMS support local communities?

Aon sponsors a Community Service day in conjunction with RIMS at the annual conference. It’s a long-term tradition that continues at the 2011 conference in Vancouver. This year we will be rebuilding an athletic field in Vancouver in an economically challenged area. RIMS also offers opportunities for students who are preparing to become risk management or insurance professionals. Since 1978, RIMS has sponsored funding for college students to attend the conference, with 30 students attending the 2010 conference in Boston.

How can someone get involved with RIMS?

Enroll online at www.rims.org. There are 80 local chapters.

Most chapters meet monthly, with networking opportunities and presentations by experts on areas including litigation trends and exposures. Having attended many of these local meetings across the country, they are a great source of local expertise.

Jennifer Fahey is an executive vice president and leader of U.S. Sales and Marketing with Aon Risk Solutions, the broking subsidiary of Aon Corp. Reach her at (212) 441-1197 or jennifer.fahey@aon.com.

Published in Indianapolis

Traveling and working abroad often comes with risks, and savvy employers recognize that having employees overseas heightens their corporate liability. By protecting employees against the risks of global travel, employers can manage risks to their business, finances and reputation.

“In today’s litigious society, corporate governance and duty of care are paramount to a company’s crisis management strategy,” says Justin Priestley, executive director for Aon Crisis Management. “Businesses need to react to incidents in a timely and consistent manner, protecting their people, assets, balance sheet and brand reputation.”

Smart Business spoke with Priestley and Kevin J. Pastoor, CPCU, managing director of Aon Risk Solutions, about how to keep your employees safe abroad.

How can businesses ensure that they are meeting their duty of care requirements?

There is a lot of complicated case law on this subject, but the issues are simple. There are three things businesses should consider, and by doing so, they will meet their duty of care.

The first step is actively trying to understand what the risks are for your people, and that means doing a formal assessment of risk. If you say you didn’t know about it, that’s not good enough. You could have tried to find out.

The second thing you need to do is come up with appropriate risk management measures that are matched to the risks you think exist. You need to demonstrate that the plan you are coming up with is appropriate for the risks your employees are facing.

Third, organizations should have a plan and discuss it. Talk about appropriate levels of insurance and how employees are going to get to the airport if there is a problem. Broadly speaking, those steps together provide organizations with a much better opportunity to demonstrate that they are meeting duty of care.

How can businesses ensure they are prepared for travel emergencies?

An adviser can match what it delivers to what it thinks are the main pillars of activity. So up front, it would provide information to travelers so they are aware of the risks in a particular area. An adviser can also provide some basic-level training for travelers.

Another thing a consultant can do, if people are traveling to an elevated risk location — somewhere like Mexico or India — is conduct an independent risk assessment of that proposed journey. It can be done quite quickly; it’s not some long, laborious process. It provides the concerned organization with a third-party independent review for a journey before it is booked, which backs them up in their assessment.

What type of training and education should employers provide for traveling employees?

There are two types of training. E-learning allows organizations to show that people have done the training. We also do an elevated risk course, which is instructor-led.

That course tends to be more specific to a particular client. Another option is an elevated risk course, in which the threats and risks are determined for where someone is going, and then travelers are trained to understand them. For instance, if you are in Central America, kidnapping is one of the major risks, and this is how it happens.

Then a consultant can offer advice on situational awareness. Many people understand what to look for and how to notice if something suspicious is happening. There is some really basic advice on risk mitigation strategies, like not wearing your Rolex watch if you’re traveling in more interesting parts of the world.

It’s important to focus on sensible, pragmatic advice that businesspeople need to understand.

What innovative services can help business travelers?

Mobile technology enables a traveler to see a country’s risk information on the go. Putting that information in people’s pockets is actually quite useful.

It doesn’t produce 20 pages of data on each country. It’s short, concise and condensed. Most people don’t want to read for 30 minutes to understand an issue. They want to read it in two minutes.

Second, there is a nice travel management system for risk managers or corporate security that enables them to know at the push of a button where their people are on a day-to-day basis and what the risk exposure is for those people.

Aon WorldAware, our online country information service, grades risks by looking at what is going on in that country, the capability of the terrorist organizations and their modus operandi. It gives ratings of 1 through 5, on a daily, weekly, or monthly basis, and they can print a report showing how many people they have in low-risk countries, or Level 4 or 5 countries, how many incidents they have had and where those incidents occurred.

It is an independent assessment. A partner has people constantly reviewing every country. There are 10 factors, including terrorism, civil disobedience, kidnap and ransom, street crime. All 10 factors for every country are assessed and scored 1 through 5.

Countries rated 1 through 3 are appropriate for routine business travel. For countries 4 and 5, you have to consider the risks a bit more. To put that into context, Level 5 countries like Iraq, Somalia, or Afghanistan have extreme risks.

The system monitors what happens in the world on a daily basis, and the countries are updated as the risk profile changes. So the Netherlands was last changed in mid-December, but for Egypt, we’ve changed the site on a daily basis for the last three weeks.

Justin Priestley is executive director for Aon Crisis Management. Reach him at +44 (0)20 7882 0478 or justin.priestley@aon.co.uk.

Kevin J. Pastoor, CPCU, is managing director of Aon Risk Solutions. Reach him at (248) 936-5346 or kevin.pastoor@aon.com.

Published in Detroit

Directors and officers have two sources of protection in the event that claims are made against them for alleged wrongdoing: (1) indemnification from their company and (2) insurance. “Because there can be gaps in indemnification, companies should purchase insurance to make sure their people are protected,” says Christine Williams, a senior vice president and U.S. D&O practice leader with Aon Risk Solutions.

“A D&O policy affords coverage for any claims that are brought against a director or officer as a result of a wrongful act or omission committed by the director or officer in their capacity as such,” says Williams. “In light of potential gaps in indemnification and because of the ability for directors and officers to be sued, D&O has developed as a second source of financial protection for those sitting on the board of a company.”

Smart Business spoke with Williams and Chris Mower, senior vice president of Aon Risk Solutions’ Financial Services Group, about how to get the most comprehensive D&O coverage at the best cost.

Why is it necessary for companies to invest in D&O insurance?

A company can usually indemnify its directors and officers for defense costs, settlements, judgments and other costs incurred. However there are potential gaps in indemnification.

Indemnification itself is often inadequate, as it may not be available if the company has become insolvent and has no resources to pay the expenses incurred. It may also be against public policy considerations or statutory regulations to indemnify individuals in certain circumstances. In addition, a current board of directors may be unwilling to indemnify former directors and officers for alleged wrongdoing or misconduct.

Indemnification alone may not be enough for directors and officers in today’s regulatory and litigation environment.

What should companies look for when purchasing D&O insurance?

First and foremost, look at the financial stability and integrity of the insurance companies that are underwriting the risk. Typically, you want to look at criteria like A.M. Best and Standard & Poor’s ratings of A or better. Your broker’s financial security group should regularly review the financial condition of insurers. For example, during the financial crisis, some insurers were experiencing downgrades.

Also, pay attention to the claims-paying ability of the proposed insurers. How have they historically handled claims? Do they have the financial strength to pay claims? Then, take a look at the proposed structure of the D&O liability program.

How can a company determine which type of coverage is appropriate for its business?

There are many variations of D&O insurance available in the marketplace. The broker and client typically work together to ensure that the policy is tailored to meet the client’s specific needs.

A standard D&O policy covers three insuring clauses, referred to as A, B and C. Clause A covers directors and officers to the extent that the company is unable or unwilling to indemnify them. Clause B covers the company’s obligation to indemnify its directors and officers, subject to retention. Clause C covers the legal liabilities of the company associated with securities claims.

The second piece of the puzzle is determining the appropriate size of the retention. Companies should consider the strength of their balance sheet when determining the retention size, because a higher retention for B and C side coverage may allow them to achieve a lower premium.

What are the keys to obtaining the most comprehensive coverage at the best cost?

Clients cannot negotiate coverage directly, so you need to make sure your broker is acting as an advocate and differentiating your business and risk profile to the insurers. The concept of pre-underwriting the risk with the client and developing a risk profile for utilization by underwriters is recommended. A good broker will encourage one-on-one meetings to develop relationships with insurance companies, and those relationships will help in the event of a claim.

Differentiating your company is critical. A company can be classified as a financial institution and consequently be considered to be a difficult risk by the underwriting community. However, a specific financial institution could be a straight-forward asset manager versus a very complicated hedge fund or banking institution with multiple operations.

Another key consideration is how you structure the breadth of coverage. You want to get the insurers comfortable with the risk profile in order to obtain a broad breadth of coverage. The broker should focus on the breadth of the terms and conditions available while also developing long-term relationships between a client and its insurers.

How does a company’s risk profile affect the purchase of D&O insurance?

If a company has a fluctuating stock price, or if clients are withdrawing their assets from the company, insurers will deem that to be less favorable. From a risk profile perspective, insurers will look to charge an appropriate premium.

At the end of the day, insurers simply want to understand the scope of the risk so that they can provide acceptable terms and conditions to the insured with an appropriate premium.

Christine Williams is a senior vice president and a U.S. D&O practice leader with Aon Risk Solutions. Reach her at christine.williams@aon.com. Chris Mower is senior vice president of Aon Risk Solutions’ Financial Services Group, responsible for business development, consultation and placement of management liability insurance in conjunction with Aon’s retail offices. Reach him at (314) 854-0806 or chris_mower@aon.com.

Aon D&O events for the first quarter of 2011 will be held in New York, Cleveland and Los Angeles, and for the second quarter in Philadelphia and Pittsburgh. These events will focus on the D&O outlook for 2011. For more information on Aon D&O events, contact Kristen Jones at kristen.jones@aon.com.

Published in St. Louis

Directors and officers have two sources of protection in the event that claims are made against them for alleged wrongdoing: (1) indemnification from their company and (2) insurance. “Because there can be gaps in indemnification, companies should purchase insurance to make sure their people are protected,” says Christine Williams, a senior vice president and U.S. D&O practice leader with Aon Risk Solutions.

“A D&O policy affords coverage for any claims that are brought against a director or officer as a result of a wrongful act or omission committed by the director or officer in their capacity as such,” says Williams. “In light of potential gaps in indemnification and because of the ability for directors and officers to be sued, D&O has developed as a second source of financial protection for those sitting on the board of a company.”

Smart Business spoke with Williams and Cara Cortes, assistant vice president of Aon Risk Solutions — Financial Services Group, about how to get the most comprehensive D&O coverage at the best cost.

Why is it necessary for companies to invest in D&O insurance?

A company can usually indemnify its directors and officers for defense costs, settlements, judgments and other costs incurred. However there are potential gaps in indemnification.

Indemnification itself is often inadequate, as it may not be available if the company has become insolvent and has no resources to pay the expenses incurred. It may also be against public policy considerations or statutory regulations to indemnify individuals in certain circumstances. In addition, a current board of directors may be unwilling to indemnify former directors and officers for alleged wrongdoing or misconduct.

Indemnification alone may not be enough for directors and officers in today’s regulatory and litigation environment.

What should companies look for when purchasing D&O insurance?

First and foremost, look at the financial stability and integrity of the insurance companies that are underwriting the risk. Typically, you want to look at criteria like A.M. Best and Standard & Poor’s ratings of A or better. Your broker’s financial security group should regularly review the financial condition of insurers. For example, during the financial crisis, some insurers were experiencing downgrades.

Also, pay attention to the claims-paying ability of the proposed insurers. How have they historically handled claims? Do they have the financial strength to pay claims? Then, take a look at the proposed structure of the D&O liability program.

How can a company determine which type of coverage is appropriate for its business?

There are many variations of D&O insurance available in the marketplace. The broker and client typically work together to ensure that the policy is tailored to meet the client’s specific needs.

A standard D&O policy covers three insuring clauses, referred to as A, B and C. Clause A covers directors and officers to the extent that the company is unable or unwilling to indemnify them. Clause B covers the company’s obligation to indemnify its directors and officers, subject to retention. Clause C covers the legal liabilities of the company associated with securities claims.

The second piece of the puzzle is determining the appropriate size of the retention. Companies should consider the strength of their balance sheet when determining the retention size, because a higher retention for B and C side coverage may allow them to achieve a lower premium.

What are the keys to obtaining the most comprehensive coverage at the best cost?

Clients cannot negotiate coverage directly, so you need to make sure your broker is acting as an advocate and differentiating your business and risk profile to the insurers. The concept of pre-underwriting the risk with the client and developing a risk profile for utilization by underwriters is recommended. A good broker will encourage one-on-one meetings to develop relationships with insurance companies, and those relationships will help in the event of a claim.

Differentiating your company is critical. A company can be classified as a financial institution and consequently be considered to be a difficult risk by the underwriting community. However, a specific financial institution could be a straight-forward asset manager versus a very complicated hedge fund or banking institution with multiple operations.

Another key consideration is how you structure the breadth of coverage. You want to get the insurers comfortable with the risk profile in order to obtain a broad breadth of coverage. The broker should focus on the breadth of the terms and conditions available while also developing long-term relationships between a client and its insurers.

How does a company’s risk profile affect the purchase of D&O insurance?

If a company has a fluctuating stock price, or if clients are withdrawing their assets from the company, insurers will deem that to be less favorable. From a risk profile perspective, insurers will look to charge an appropriate premium.

At the end of the day, insurers simply want to understand the scope of the risk so that they can provide acceptable terms and conditions to the insured with an appropriate premium.

Christine Williams is a senior vice president and a U.S. D&O practice leader with Aon Risk Solutions. Reach her at christine.williams@aon.com. Cara Cortes is an assistant vice president of Aon Risk Solutions — Financial Services Group. Reach her at cara.cortes@aon.com or (412) 594-7566.

Aon D&O events for the first quarter of 2011 will be held in New York, Cleveland and Los Angeles, and for the second quarter in Philadelphia and Pittsburgh. These events will focus on the D&O outlook for 2011. For more information on Aon D&O events, contact Kristen Jones at kristen.jones@aon.com.

Published in Pittsburgh

Directors and officers have two sources of protection in the event that claims are made against them for alleged wrongdoing: (1) indemnification from their company and (2) insurance. “Because there can be gaps in indemnification, companies should purchase insurance to make sure their people are protected,” says Christine Williams, a senior vice president and U.S. D&O practice leader with Aon Risk Solutions.

“A D&O policy affords coverage for any claims that are brought against a director or officer as a result of a wrongful act or omission committed by the director or officer in their capacity as such,” says Williams. “In light of potential gaps in indemnification and because of the ability for directors and officers to be sued, D&O has developed as a second source of financial protection for those sitting on the board of a company.”

Smart Business spoke with Williams and Mary Pulley, managing director of health care at Aon Risk Solutions, about how to get the most comprehensive D&O coverage at the best cost.

Why is it necessary for companies to invest in D&O insurance?

A company can usually indemnify its directors and officers for defense costs, settlements, judgments and other costs incurred. However there are potential gaps in indemnification.

Indemnification itself is often inadequate, as it may not be available if the company has become insolvent and has no resources to pay the expenses incurred. It may also be against public policy considerations or statutory regulations to indemnify individuals in certain circumstances. In addition, a current board of directors may be unwilling to indemnify former directors and officers for alleged wrongdoing or misconduct.

Indemnification alone may not be enough for directors and officers in today’s regulatory and litigation environment.

What should companies look for when purchasing D&O insurance?

First and foremost, look at the financial stability and integrity of the insurance companies that are underwriting the risk. Typically, you want to look at criteria like A.M. Best and Standard & Poor’s ratings of A or better. Your broker’s financial security group should regularly review the financial condition of insurers. For example, during the financial crisis, some insurers were experiencing downgrades.

Also, pay attention to the claims-paying ability of the proposed insurers. How have they historically handled claims? Do they have the financial strength to pay claims? Then, take a look at the proposed structure of the D&O liability program.

How can a company determine which type of coverage is appropriate for its business?

There are many variations of D&O insurance available in the marketplace. The broker and client typically work together to ensure that the policy is tailored to meet the client’s specific needs.

A standard D&O policy covers three insuring clauses, referred to as A, B and C. Clause A covers directors and officers to the extent that the company is unable or unwilling to indemnify them. Clause B covers the company’s obligation to indemnify its directors and officers, subject to retention. Clause C covers the legal liabilities of the company associated with securities claims.

The second piece of the puzzle is determining the appropriate size of the retention. Companies should consider the strength of their balance sheet when determining the retention size, because a higher retention for B and C side coverage may allow them to achieve a lower premium.

What are the keys to obtaining the most comprehensive coverage at the best cost?

Clients cannot negotiate coverage directly, so you need to make sure your broker is acting as an advocate and differentiating your business and risk profile to the insurers. The concept of pre-underwriting the risk with the client and developing a risk profile for utilization by underwriters is recommended. A good broker will encourage one-on-one meetings to develop relationships with insurance companies, and those relationships will help in the event of a claim.

Differentiating your company is critical. A company can be classified as a financial institution and consequently be considered to be a difficult risk by the underwriting community. However, a specific financial institution could be a straight-forward asset manager versus a very complicated hedge fund or banking institution with multiple operations.

Another key consideration is how you structure the breadth of coverage. You want to get the insurers comfortable with the risk profile in order to obtain a broad breadth of coverage. The broker should focus on the breadth of the terms and conditions available while also developing long-term relationships between a client and its insurers.

How does a company’s risk profile affect the purchase of D&O insurance?

If a company has a fluctuating stock price, or if clients are withdrawing their assets from the company, insurers will deem that to be less favorable. From a risk profile perspective, insurers will look to charge an appropriate premium.

At the end of the day, insurers simply want to understand the scope of the risk so that they can provide acceptable terms and conditions to the insured with an appropriate premium.

Christine Williams is a senior vice president and a U.S. D&O practice leader with Aon Risk Solutions. Reach her at christine.williams@aon.com.

Mary Pulley is managing director of Aon Risk Solutions. Reach her at (317) 237-2405 or mary.pulley@aon.com.

Aon D&O events for the first quarter of 2011 will be held in New York, Cleveland and Los Angeles, and for the second quarter in Philadelphia and Pittsburgh. These events will focus on the D&O outlook for 2011. For more information on Aon D&O events, contact Kristen Jones at kristen.jones@aon.com.

Published in Indianapolis

Directors and officers have two sources of protection in the event that claims are made against them for alleged wrongdoing: (1) indemnification from their company and (2) insurance. “Because there can be gaps in indemnification, companies should purchase insurance to make sure their people are protected,” says Christine Williams, a senior vice president and U.S. D&O practice leader with Aon Risk Solutions.

“A D&O policy affords coverage for any claims that are brought against a director or officer as a result of a wrongful act or omission committed by the director or officer in their capacity as such,” says Williams. “In light of potential gaps in indemnification and because of the ability for directors and officers to be sued, D&O has developed as a second source of financial protection for those sitting on the board of a company.”

Smart Business spoke with Williams and Kevin J. Pastoor, managing director, Aon Risk Solutions, about how to get the most comprehensive D&O coverage at the best cost.

Why is it necessary for companies to invest in D&O insurance?

A company can usually indemnify its directors and officers for defense costs, settlements, judgments and other costs incurred. However there are potential gaps in indemnification.

Indemnification itself is often inadequate, as it may not be available if the company has become insolvent and has no resources to pay the expenses incurred. It may also be against public policy considerations or statutory regulations to indemnify individuals in certain circumstances. In addition, a current board of directors may be unwilling to indemnify former directors and officers for alleged wrongdoing or misconduct.

Indemnification alone may not be enough for directors and officers in today’s regulatory and litigation environment.

What should companies look for when purchasing D&O insurance?

First and foremost, look at the financial stability and integrity of the insurance companies that are underwriting the risk. Typically, you want to look at criteria like A.M. Best and Standard & Poor’s ratings of A or better. Your broker’s financial security group should regularly review the financial condition of insurers. For example, during the financial crisis, some insurers were experiencing downgrades.

Also, pay attention to the claims-paying ability of the proposed insurers. How have they historically handled claims? Do they have the financial strength to pay claims? Then, take a look at the proposed structure of the D&O liability program.

How can a company determine which type of coverage is appropriate for its business?

There are many variations of D&O insurance available in the marketplace. The broker and client typically work together to ensure that the policy is tailored to meet the client’s specific needs.

A standard D&O policy covers three insuring clauses, referred to as A, B and C. Clause A covers directors and officers to the extent that the company is unable or unwilling to indemnify them. Clause B covers the company’s obligation to indemnify its directors and officers, subject to retention. Clause C covers the legal liabilities of the company associated with securities claims.

The second piece of the puzzle is determining the appropriate size of the retention. Companies should consider the strength of their balance sheet when determining the retention size, because a higher retention for B and C side coverage may allow them to achieve a lower premium.

What are the keys to obtaining the most comprehensive coverage at the best cost?

Clients cannot negotiate coverage directly, so you need to make sure your broker is acting as an advocate and differentiating your business and risk profile to the insurers. The concept of pre-underwriting the risk with the client and developing a risk profile for utilization by underwriters is recommended. A good broker will encourage one-on-one meetings to develop relationships with insurance companies, and those relationships will help in the event of a claim.

Differentiating your company is critical. A company can be classified as a financial institution and consequently be considered to be a difficult risk by the underwriting community. However, a specific financial institution could be a straight-forward asset manager versus a very complicated hedge fund or banking institution with multiple operations.

Another key consideration is how you structure the breadth of coverage. You want to get the insurers comfortable with the risk profile in order to obtain a broad breadth of coverage. The broker should focus on the breadth of the terms and conditions available while also developing long-term relationships between a client and its insurers.

How does a company’s risk profile affect the purchase of D&O insurance?

If a company has a fluctuating stock price, or if clients are withdrawing their assets from the company, insurers will deem that to be less favorable. From a risk profile perspective, insurers will look to charge an appropriate premium.

At the end of the day, insurers simply want to understand the scope of the risk so that they can provide acceptable terms and conditions to the insured with an appropriate premium.

Christine Williams is a senior vice president and a U.S. D&O practice leader with Aon Risk Solutions. Reach her at christine.williams@aon.com.

Kevin J. Pastoor is managing director of Aon Risk Solutions. Reach him at (248) 936-5346 or kevin.pastoor@aon.com.

Aon D&O events for the first quarter of 2011 will be held in New York, Cleveland and Los Angeles, and for the second quarter in Philadelphia and Pittsburgh. These events will focus on the D&O outlook for 2011. For more information on Aon D&O events, contact Kristen Jones at kristen.jones@aon.com.

Published in Detroit

Directors and officers have two sources of protection in the event that claims are made against them for alleged wrongdoing: (1) indemnification from their company and (2) insurance. “Because there can be gaps in indemnification, companies should purchase insurance to make sure their people are protected,” says Christine Williams, a senior vice president and U.S. D&O practice leader with Aon Risk Solutions.

“A D&O policy affords coverage for any claims that are brought against a director or officer as a result of a wrongful act or omission committed by the director or officer in their capacity as such,” says Williams. “In light of potential gaps in indemnification and because of the ability for directors and officers to be sued, D&O has developed as a second source of financial protection for those sitting on the board of a company.”

Smart Business spoke with Williams and Chris Smith, the senior vice president of Aon Risk Solutions, about how to get the most comprehensive D&O coverage at the best cost.

Why is it necessary for companies to invest in D&O insurance?

A company can usually indemnify its directors and officers for defense costs, settlements, judgments and other costs incurred. However, there are potential gaps in indemnification.

Indemnification itself is often inadequate, as it may not be available if the company has become insolvent and has no resources to pay the expenses incurred. It may also be against public policy considerations or statutory regulations to indemnify individuals in certain circumstances. In addition, a current board of directors may be unwilling to indemnify former directors and officers for alleged wrongdoing or misconduct.

Indemnification alone may not be enough for directors and officers in today’s regulatory and litigation environment.

What should companies look for when purchasing D&O insurance?

First and foremost, look at the financial stability and integrity of the insurance companies that are underwriting the risk. Typically, you want to look at criteria like A.M. Best and Standard & Poor’s ratings of A or better. Your broker’s financial security group should regularly review the financial condition of insurers. For example, during the financial crisis, some insurers were experiencing downgrades.

Also, pay attention to the claims-paying ability of the proposed insurers. How have they historically handled claims? Do they have the financial strength to pay claims? Then, take a look at the proposed structure of the D&O liability program.

How can a company determine which type of coverage is appropriate for its business?

There are many variations of D&O insurance available in the marketplace. The broker and client typically work together to ensure that the policy is tailored to meet the client’s specific needs.

A standard D&O policy covers three insuring clauses, referred to as A, B and C. Clause A covers directors and officers to the extent that the company is unable or unwilling to indemnify them. Clause B covers the company’s obligation to indemnify its directors and officers, subject to retention. Clause C covers the legal liabilities of the company associated with securities claims.

The second piece of the puzzle is determining the appropriate size of the retention. Companies should consider the strength of their balance sheet when determining the retention size, because a higher retention for B and C side coverage may allow them to achieve a lower premium.

What are the keys to obtaining the most comprehensive coverage at the best cost?

Clients cannot negotiate coverage directly, so you need to make sure your broker is acting as an advocate and differentiating your business and risk profile to the insurers. The concept of pre-underwriting the risk with the client and developing a risk profile for utilization by underwriters is recommended. A good broker will encourage one-on-one meetings to develop relationships with insurance companies, and those relationships will help in the event of a claim.

Differentiating your company is critical. A company can be classified as a financial institution and consequently be considered to be a difficult risk by the underwriting community. However, a specific financial institution could be a straight-forward asset manager versus a very complicated hedge fund or banking institution with multiple operations.

Another key consideration is how you structure the breadth of coverage. You want to get the insurers comfortable with the risk profile in order to obtain a broad breadth of coverage. The broker should focus on the breadth of the terms and conditions available while also developing long-term relationships between a client and its insurers.

How does a company’s risk profile affect the purchase of D&O insurance?

If a company has a fluctuating stock price, or if clients are withdrawing their assets from the company, insurers will deem that to be less favorable. From a risk profile perspective, insurers will look to charge an appropriate premium.

At the end of the day, insurers simply want to understand the scope of the risk so that they can provide acceptable terms and conditions to the insured with an appropriate premium.

Christine Williams is a senior vice president and a U.S. D&O practice leader with Aon Risk Solutions. Reach her at christine.williams@aon.com. Chris Smith is the senior vice president of Aon Risk Solutions, Inc. Reach him at (216) 623-4101 or chris_smith@aon.com.

Aon D&O events for the first quarter of 2011 will be held in New York, Cleveland and Los Angeles, and for the second quarter in Philadelphia and Pittsburgh. These events will focus on the D&O outlook for 2011. For more information on Aon D&O events, contact Kristen Jones at kristen.jones@aon.com.

Published in Cleveland
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