Amy Dison

Saturday, 26 July 2008 20:00

Business income coverage

When a major fire strikes a business, it is very traumatic, but it does not have to be completely debilitating.

The recovery often depends on fore-thought and planning, says Christine Jones, CIC, a commercial insurance broker with Westland Insurance Brokers.

The need to insure the business’s financial stream is crucial in protecting it from unexpected disasters. Business income coverage is a form of property coverage designed to pay the loss of income and continuing expenses that allows a business to recover following a total or partial shutdown of operations, Jones says. Its purpose is to replicate the income stream and cover expenses as if no loss had occurred, replacing income, ongoing expenses and payroll while the business is out of commission.

Smart Business spoke with Jones about business income coverage, how to determine the appropriate limit and how this coverage can potentially save your business.

How do business owners determine what type of coverage they need?

There are two ways business income coverage is typically written.

The first is actual loss sustained. This often provides the best form of coverage for a business. There is usually no limit to the amount reimbursed with this type of coverage within the 12-month policy period. A company simply must prove it would have made that amount of money.

If actual loss sustained is not available, the insured will have to determine a limit that is appropriate to his or her business. This amount is determined by providing the insurance agent with income history and statements and completing a detailed worksheet to calculate future income projections of the business.

How does a business owner determine the correct limit of coverage?

Determining limits can be more cumbersome with business income and extra expense coverage. It is not the same as determining coverage for property or a physical asset. There is not a tangible value for future income. Therefore, worksheets and projections must be worked out carefully to determine the most accurate income amount possible and the correct limit required.

To determine the correct limit, we start by asking some questions:

How long will it take to reopen?

Keep in mind fire investigation, debris removal, etc. Will you rebuild at the current site or move to a new location? Would the new facility require architectural changes? What is the estimated time needed to draw up new plans? How long will it take to obtain proper building permits? How often does the board meet if you need planning and zoning approval to rebuild? It is important to factor in potential delays. Finally, there is the time necessary for the building process itself.

What are other cost issues?

Are you planning to keep all employees or just key employees? If you let your employees go, new ones will have to be hired and trained before reopening for business. Plus, you may lose talented emloyee to a competitor. You must also keep in mind the time required to replenish stock and replace machinery, equipment and furnishings.

What happens if a business loses customers in the period that it is down?

Extended period of indemnity coverage helps with that, as well. After the business reopens, the income stream may continue to be disrupted if customers have moved to a competitor. Some may even not return. Coverage typically only lasts until premises are restored within the 12-month period or the limit of insurance is exhausted, whichever comes first. However, most carriers will provide an extended period of indemnity, which kicks in after a business reopens. Often, there is a gap when a business reopens between what a business was earning before the loss and what it is earning after it reopens. This will help owners recover. Extended periods of indemnity are typically 30 to 120 days and will cover any loss of income for that period but will cease after that period whether you are fully up and running or not.

Are there other types of coverage business owners should utilize to help their business reopen after a loss?

Extra expense coverage is also beneficial. This coverage includes those extra expenses mentioned earlier. It is used to avoid or minimize the shutdown of a business. This may mean moving down the street to lease a facility close to your original location. This coverage would pay for that new lease and to move any supplies that were salvageable. It is also designed to minimize suspension of operations if the business cannot continue to operate. The quicker you can get back in business, the less likely customers are to leave for the competitor.

Extra expense coverage is critical for any company whose customers depend on it on a daily basis. For example, an insurance agency will have clients with claims every day. It is crucial to find any means necessary to get up and running so customers do not leave and are provided the customer service they expect.

CHRISTINE JONES, CIC, is a commercial insurance broker with Westland Insurance Brokers. Reach her at (619) 641-3213 or at CJones@westlandib.com.

Saturday, 26 July 2008 20:00

Check it out

No matter how big or small your business is, it needs a checking account to survive. Every owner knows this, making it one of the few easy decisions to make.

But, deciding which account is right for you and your business is a more difficult endeavor. While many services and features are offered by every bank across the board, each individual bank has its own individual intricacies. The key is to wade through all the bells and whistles to figure out what account will increase your business’s efficiency and productivity — without extra or hidden fees.

Luckily, there are several banking options for today’s business owner, says Mike Kramer, a business banking team leader with FirstMerit Bank.

Smart Business spoke with Kramer about business checking accounts, what to look for in them and why they’re so important.

When is it time for a company to look for a new business checking account?

Actually there are several reasons for a company to look for a new checking account; some are specific to changes in the company and some are market driven. As a company grows or enters into new markets, transaction levels and types may change. These volume changes may increase the cost associated with a particular account and the transaction types may increase the company’s exposure to risk. This is the perfect time to investigate available alternatives.

A second reason to consider a change is general changes in accounts offered by local financial institutions. New products and services are continually being introduced to the market, and it just makes good business sense to make sure you are getting the services you need at the most economical cost.

What features should one expect in a business checking account?

Specific features are somewhat dependent upon how the company receives and manages its cash flow. For example, a company that receives a large volume of smaller consumer payments has much different needs than a business with a few clients with high dollar transactions. However, in general, it is important to consider five factors.

First, is there a monthly maintenance fee and what type of compensating balance is needed to offset that fee? A $15,000 compensating balance requirement will cost you $300 annually in lost interest income assuming a 2 percent return on your investment. Second, how many transactions does that monthly fee or compensating balance buy you? Is that sufficient to meet the transaction needs of your business? Third, what is the cost of making a mistake, what is the fee for an NSF or overdraft occurrence? Fourth, what are the costs to access your money? Are there fees for ATM or PIN transactions? Fifth, does the bank you are considering have a full line of products and services to meet your needs both today and as your business grows?

It’s the Internet age; can you tell us a bit about Internet banking?

Internet banking is a powerful tool that helps owners save time and manage their businesses. It’s important for owners to realize the benefits of a robust business Internet banking platform in comparison to a standard personal Internet banking solution. Make sure you have the ability to assign user rights to trusted employees or advisers at the account level. It is also important to check how long transaction history and check and statement images are available.

Another consideration is the ability to download transaction activity to your financial software. Online bill pay is also a great service to save business owners money. Be sure to ask about fees associated with online bill pay, though. Also, ask what other Web tools the bank can provide to help you manage your business.

Debit card access is another feature many businesses desire. What is involved with it?

It is a relatively simple process to sign up for a debit card, which will allow you to access the funds in your business checking account. Check to make sure your bank offers zero liability protection against fraudulent use. You should also check to see if you will earn any rewards for using your debit card. By using your debit card for purchases, you may also have the ability to get both summary and cardholder management reporting, which allows you to track expenses by merchant category (i.e. gas, restaurants, etc.).

Is it difficult to switch checking accounts?

That depends to a large degree on the bank you are switching to. Look for a bank that will assist you through the process, one that has a reputation for a high level of customer service. While you will rarely change account relationships, for banks, completing these changes is a part of daily business. This not only applies to the mechanics involved, but also to getting you into the account that’s right for you, with a full suite of ancillary services to save you time and money.

Is there anything else to consider?

Yes, getting the right account for your business should be your primary concern, but you may also want to look into a workplace banking offering for your employees. This is a nice benefit you can provide your employees at no cost to you.

MIKE KRAMER is a business banking team leader with FirstMerit Bank. Reach him at michael.kramer@firstmerit.com.

Saturday, 26 July 2008 20:00

Check it out

No matter how big or small your business is, it needs a checking account to survive. Every owner knows this, making it one of the few easy decisions to make.

But, deciding which account is right for you and your business is a more difficult endeavor. While many services and features are offered by every bank across the board, each individual bank has its own individual intricacies. The key is to wade through all the bells and whistles to figure out what account will increase your business’s efficiency and productivity — without extra or hidden fees.

Luckily, there are several banking options for today’s business owner, says AnnaMaria Soliman, AVP, a banking relationship manager with FirstMerit Bank.

Smart Business spoke with Soliman about business checking accounts, what to look for in them and why they’re so important.

When is it time for a company to look for a new business checking account?

Actually there are several reasons for a company to look for a new checking account; some are specific to changes in the company and some are market driven. As a company grows or enters into new markets, transaction levels and types may change. These volume changes may increase the cost associated with a particular account and the transaction types may increase the company’s exposure to risk. This is the perfect time to investigate available alternatives.

A second reason to consider a change is general changes in accounts offered by local financial institutions. New products and services are continually being introduced to the market, and it just makes good business sense to make sure you are getting the services you need at the most economical cost.

What features should one expect in a business checking account?

Specific features are somewhat dependent upon how the company receives and manages its cash flow. For example, a company that receives a large volume of smaller consumer payments has much different needs than a business with a few clients with high dollar transactions. However, in general, it is important to consider five factors.

First, is there a monthly maintenance fee and what type of compensating balance is needed to offset that fee? A $15,000 compensating balance requirement will cost you $300 annually in lost interest income assuming a 2 percent return on your investment. Second, how many transactions does that monthly fee or compensating balance buy you? Is that sufficient to meet the transaction needs of your business? Third, what is the cost of making a mistake, what is the fee for an NSF or overdraft occurrence? Fourth, what are the costs to access your money? Are there fees for ATM or PIN transactions? Fifth, does the bank you are considering have a full line of products and services to meet your needs both today and as your business grows?

It’s the Internet age; can you tell us a bit about Internet banking?

Internet banking is a powerful tool that helps owners save time and manage their businesses. It’s important for owners to realize the benefits of a robust business Internet banking platform in comparison to a standard personal Internet banking solution. Make sure you have the ability to assign user rights to trusted employees or advisers at the account level. It is also important to check how long transaction history and check and statement images are available.

Another consideration is the ability to download transaction activity to your financial software. Online bill pay is also a great service to save business owners money. Be sure to ask about fees associated with online bill pay, though. Also, ask what other Web tools the bank can provide to help you manage your business.

Debit card access is another feature many businesses desire. What is involved with it?

It is a relatively simple process to sign up for a debit card, which will allow you to access the funds in your business checking account. Check to make sure your bank offers zero liability protection against fraudulent use. You should also check to see if you will earn any rewards for using your debit card. By using your debit card for purchases, you may also have the ability to get both summary and cardholder management reporting, which allows you to track expenses by merchant category (i.e. gas, restaurants, etc.).

Is it difficult to switch checking accounts?

That depends to a large degree on the bank you are switching to. Look for a bank that will assist you through the process, one that has a reputation for a high level of customer service. While you will rarely change account relationships, for banks, completing these changes is a part of daily business. This not only applies to the mechanics involved, but also to getting you into the account that’s right for you, with a full suite of ancillary services to save you time and money.

Is there anything else to consider?

Yes, getting the right account for your business should be your primary concern, but you may also want to look into a workplace banking offering for your employees. This is a nice benefit you can provide your employees at no cost to you.

ANNAMARIA SOLIMAN, AVP, is a banking relationship manager for FirstMerit Bank. Reach her at annamaria.soliman@firstmerit.com or (440) 442-9821.

Wednesday, 25 June 2008 20:00

Drive safely

Many major companies carry some form of basic commercial vehicle coverage. However, there are some gaps or extensions in commercial vehicle coverage of which many business owners are unaware, but without them, can be seriously affected. Business owners often look for ways to cut costs, but ignoring all necessary coverage is not the best business plan. There are many other ways to reduce costs and carry adequate coverage.

Third-party lenders and/or investors require that businesses carry basic commercial vehicle coverage, but they do not require extensions of coverage that are necessary for most companies, says John Harper, commercial insurance broker for Westland Insurance Brokers. It is important to evaluate the company’s risk potential and all the vehicles that are used to conduct business in order to determine adequate coverage.

Smart Business spoke with Harper about determining adequate commercial vehicle coverage and how to reduce costs without reducing coverage.

How can a business owner determine what, if any, commercial vehicle insurance policy is needed?

Any entity operating a business, whether it is a sole proprietor or other legal form, which owns autos and has exposure to loss, requires a commercial vehicle policy. Even if the business owner does not own autos for specific business use, there still may be exposure and risk due to hired autos and autos operated by employees.

Proper coverage is often overlooked for any employee driving a noncompany-owned vehicle for business actions. Such coverage is referred to as employers’ non-ownership coverage. If you work in an office where you are asked to perform any business-related task, such as taking mail to the post office in your personal vehicle, your company must carry the appropriate coverage. If you were in an accident on the way to the post office, your company is responsible for the operation of that auto. It is important for business owners to identify all potential risks and seek the necessary coverage.

Extensions of commercial vehicle insurance, such as lease gap coverage and rental reimbursement, should also be utilized when necessary. Lease gap coverage is necessary if a vehicle is totaled and the insurance company does not pay you enough to pay off the lease. Lease gap coverage then covers the difference. Rental reimbursement coverage is utilized if your car is damaged and it requires you to rent a vehicle.

Are there preventive measures in which business owners should invest to reduce risk and overall cost?

There are many prevention methods that should be used to help reduce the risk potential, therefore reducing costs without cutting coverage. Investing in driver selection and training is key. Training and monitoring programs increase education and reduce overall risk and cost. Underwriters look favorably upon such prevention.

Studies show that selecting drivers with good driving records reduces overall risk of accidents. Underwriters will look to see that the vast percentage of your drivers have little or no activity on their driving record. Underwriters also look at the ages of drivers. They do not like to see a larger percentage of younger drivers in a fleet.

Regular vehicle maintenance is also a crucial method to reduce risks. With proper maintenance, the likelihood for vehicle malfunction decreases dramatically.

Safety programs and training may be offered by your insurance company. This training and service can be provided on a fee basis. External companies can also provide such training that underwriters deem acceptable. Insurance companies can also help screen driving records to ensure new hires have the type of driving record for which a company is looking. Employers should review laws for screening driving records, as they vary from state to state.

What is the risk of reducing coverage if you reduce costs?

An employer should make well-educated decisions from a risk management standpoint with the help of an experienced broker. If you choose to select a higher deductible, you will want to know how many claims you have each year and the price difference for the different deductible options. There is a plan with appropriate coverage in the market for every consumer. It simply takes a little research to determine what plan gives you the best cost with the best coverage for your company.

How can an employer research its insurance history to determine what plan meets its individual needs?

It is beneficial for a business owner to utilize a broker who can become a member of the employer’s team and become the central point of contact. A consumer’s loss history and loss trends should be researched to determine which deductibles are suitable for its situation. Brokers should help a business owner identify claims scenarios, such as rear-end accidents, accidents caused by lack of driving experience or even excessive cell phone usage. Once the causes of claims are determined, an owner can select the appropriate coverage and implement a tailor-made education, training and monitoring program to prevent such claims in the future.

JOHN HARPER is a commercial insurance broker for Westland Insurance Brokers. Reach him at JHarper@westlandib.com or (619) 641-3208.

Wednesday, 25 June 2008 20:00

A 401(k) for everyone

One of the biggest concerns Americans have today deals with future finances and retirement. People are concerned with whether they will have enough money to live on when they retire. This concern is especially troublesome for employees of companies that do not offer any type of 401(k) option.

Most employees of small businesses are not offered a 401(k) option because larger financial firms are not marketing to small firms. Until recently, if small business owners wanted to offer employees a 401(k) option, they had to invest in plans that were very costly to themselves and their employees, says Thomas Cox, a business banking team leader for FirstMerit Bank.

However, says Cox, there are a few institutions offering new products that give small businesses the same 401(k) services as larger companies, but at a price they can afford.

Smart Business spoke with Cox about the value of 401(k) plans for small businesses and how offering such plans can help attract and retain employees.

How valuable are 401(k) plans today?

401(k) plans are more valuable today than ever. They are the most beneficial retirement plans on the market. Contributions are made on a tax deferred basis and investment earnings are deferred as well. In many instances, employers match at least a portion of the contributions you make. In the current economic environment, it is crucial to plan carefully and save to secure your future. Now, more than ever, is the perfect time to begin saving for your retirement.

How can small business owners use 401(k) plans to attract potential employees and retain current employees?

Small businesses typically do not offer 401(k) plans because they are too costly. With 401(k) programs structured specifically for small businesses, owners can afford to offer a plan to attract a new group of employees and retain employees. These same employees might otherwise move to a larger competitor who is able to offer retirement options. If retirement is truly the No. 1 concern for Americans, then offering such programs will make business owners much more competitive in their community.

For a small business, such as a family-owned carpet company, there is often no retirement plan in place. This means that employees must save on their own and do not have tax-deferred options. If a small business is able to offer a tax-deferred savings option, it should appear much more attractive as an employer, therefore attracting new employees and retaining those employees it values.

What 401(k) options are now available to small businesses?

Now, there is a program designed for small businesses that is very similar to other 401(k) plans on the market. It is a 401(k) program with the same contribution regulations and opportunity for employer matching contributions as are available in larger firms. But its design makes it more understandable to participants and owners and it is structured to be affordable. Each employee directs his or her own investments within a select group of funds. By offering such a plan to employees, business owners can save for their own retirement as well. The employer is often as excited as the employees because they too are faced with the challenge of saving and planning for retirement.

When should people start investing and how much should be invested?

People should start investing immediately. We are all living longer and plan to retire some day. Thus, starting early is critical. You can start small and defer only a small percentage of your income if saving is an issue. Contributions can always be increased as your earnings increase. Unfortunately, no one can guarantee that current government supported retirement plans, such as Social Security, will remain in effect. You can secure your own future by investing in a 401(k) to ensure you are able to maintain the lifestyle you enjoy during your retirement years.

What would you say to people who say they cannot invest in a 401(k) because they need the money for the increased cost of living?

This is a problem because a lot of people think that way right now. But the truth is, you really can’t afford not to save. It’s important to pay yourself first. That is what you are doing when you invest in a 401(k). In today’s market, many investment opportunities are on sale. Investing now means you are buying low and investing for the future, which will likely provide a much better payout than if you wait. You are using tax-deferred money to create a retirement nest egg.

What should individuals consider when planning for retirement?

Start by asking yourself when you plan to retire and what lifestyle you want to live in retirement. Then, evaluate your life plan and determine expenses you will likely have in the future, such as college tuition, housing and medical care. It is important to adjust your investment strategy as you age or market conditions change. Plans change as life changes, so it is important to update and adjust your financial plan often. However, as in just about everything, having a plan is the most important thing you can do right now to secure the retirement of your dreams.

THOMAS COX is a business banking team leader with FirstMerit Bank. Reach him at thomas.cox@firstmerit.com.

Friday, 25 April 2008 20:00

Overlooked property insurance

While not all property insurance policies are alike, one commonality that exists in polices is a section titled “Exclusions.” Many times, appearing under such a heading is an often overlooked and misunderstood boiler and machinery (B&M) exclusion, which takes away coverage for mechanical breakdown, electrical injury and steam explosion.

Many businesses do not realize their property policy does not protect against property damage caused by sudden or accidental equipment failure, says Ken Harrison, commercial insurance broker with Westland Insurance Brokers. Taking a few minutes to understand boiler and machinery coverage can save business owners a lot of time and hassle in the event of a triggered loss.

Smart Business spoke with Harrison about boiler and machinery insurance and how business owners and risk managers can be assured they are buying a comprehensive policy that maximizes coverage and protects their business when it’s needed most.

What is boiler and machinery insurance?

Today, boiler and machinery insurance is an integral part of most insurance programs. Boiler and machinery coverage fills in the gaps created from exclusions in a standard property insurance policy. B&M provides coverage for three causes of loss, including electric arching, mechanical breakdown and steam explosion. Business owners often do not realize that without B&M coverage, they are not buying an ‘all-risk’ policy. Whether a small office or a large production plant, B&M coverage provides protection needed to mitigate significant costs and potential catastrophic revenue losses in the event of a sudden or accidental equipment breakdown.

Why is boiler and machinery coverage excluded from property policies?

Traditional B&M is excluded from property policies because of the underwriting, claim and engineering expertise typically required. In addition, steam boilers and pressure vessels require jurisdictional inspections and permit certifications that vary by state. Without B&M coverage, business owners are required to pay fees to state engineers for inspection services that would otherwise be included with an insurance policy.

Who needs boiler and machinery protection?

Every business has B&M exposure. Most business owners think because they do not own any steam boilers or production machinery that they don’t need such coverage. In fact, any company with a heating and cooling system or even just simple electrical outlets needs B&M coverage. Equipment or electrical failure can occur in water heaters, cookers/kettles, presses, refrigerators, compressors, generators, transformers and even switchboards. As equipment and electrical lines age, accidents and failures will happen. All businesses should have coverage either included with their property section or purchased as a stand-alone supplemental policy.

What causes boiler and machinery losses?

Losses occur from a variety of causes. Some typical reasons for B&M failures include:

  • Old or fatigued equipment and electrical panels

  • Lack of proper maintenance

  • Machinery/circuits used beyond capacity

  • Lack of safety devices

  • Operator error

  • Dirty or dusty operating environment To help prevent such losses, business owners should routinely inspect equipment and provide continuous education to employees who operate or maintain machinery.

Why is boiler and machinery coverage important?

Boiler and machinery insurance covers sudden and accidental failure of equipment and any resulting damage, such as spoilage or loss of income due to unexpected temporary business shutdown. Some of the most significant costs associated with equipment failure are not so much the direct cost of the failed machine but rather the indirect costs, such as downtime, product spoilage or utility interruption.

For example, let’s say a power surge causes electric arching in a server room control panel housing a telecommunications system, and a company’s phone and computer systems go down. As a result, revenue is lost while the system is restored. With B&M coverage, the cost to repair the control panel and phone system and any loss of income suffered would likely be restored.

What should business owners be aware of when considering B&M coverage?

Business owners and risk managers should review their insurance policies closely with their agent or broker to determine whether or not B&M coverage exists within their program. Insurance buyers should be advised about their coverage and feel confident they are making informed decisions. When purchasing a B&M policy, business owners should remember to choose a policy that includes not only direct physical loss to property but also any loss of income or consequential loss, known as spoilage. There are very few businesses, if any, that do not have a B&M exposure. For a fraction of the cost of a property policy, no company should be without B&M coverage.

KEN HARRISON, MBA, is a commercial insurance broker with Westland Insurance Brokers. Reach him at kharrison@westlandib.com or (949) 553-9700.

Wednesday, 26 March 2008 20:00

Making vital sacrifices

There are currently numerous options available for retiree health care coverage, such as the choice of a standard plan to supplement basic Medicare, called Medicare supplement, or customized plans offered by an employer that supplement or “wrap” around Medicare. There are Medicare Advantage Plans of various designs and benefit offerings structured like HMOs or Preferred Provider Organizations (PPOs) and even Private Fee For Service Plans. Employers can select plans off the shelf or develop customized plans to meet their needs.

Thanks to the Medicare Modernization Act, employers now have options that previously weren’t available to business owners, says Edward Ries, executive director of government programs with Priority Health.

Smart Business spoke with Ries about retiree benefit programs and how employers can choose a program that provides sufficient coverage at a reasonable cost.

What is the Medicare Advantage Program?

The Medicare Advantage Program (MAP) provides benefit plans that have full coverage similar to regular Medicare, but coverage is provided by private companies under contract to the federal government. This allows retirees to receive, at a minimum, the same set of benefits offered by the federal government but with the specialized service a private company is able to offer. Frequently these plans can offer benefits beyond regular Medicare. This is not a supplement plan; it is a replacement for a standard Medicare plan also referred to as Medicare C. To be eligible for the MAP, you must be eligible for both Medicare Part A and B. This program does not require a consumer to purchase supplemental coverage. In fact, it is illegal for agents to sell a supplemental plan if they know an individual is covered by the MAP.

Why would a consumer want to receive coverage from a private company?

Private companies are able to coordinate care for consumers. After joining a plan, consumers may fill out a detailed medical survey that is used by the private company to help guide the consumer toward the most appropriate care. With this information, the provider is able to help the consumer select physicians and plans that meet his or her individual needs.

Frequently, MAPs provide more benefits than you may get with Original Medicare. There is a higher focus on delivery of quality care through private companies that use various means to monitor the care that is provided. These companies check the professional and educational backgrounds of all their participating physicians to ensure that their customers are receiving care only through highly qualified individuals. This takes some of the research, leg work and uncertainty out of the process for the consumer.

What are the benefits of the MAP for retirees?

There are also significant cost advantages for consumers. Medicare typically requires 20 percent co-pay for services. MAPs frequently have a set co-pay, which can provide both major cost savings and predictability for a retiree. There are additional benefits or specialized services with the MAP. This program may offer additional disease management programs for consumers that are not offered in regular Medicare. Finally, the MAP is run by private companies and, therefore, they are able to offer better customer service. This means there will be a person on the end of the line whose sole job is to help you if you have questions about coverage or costs.

What does the MAP cost an employer?

The cost depends on how generous employers want to be with their retiree coverage. There are some programs that carry very low premiums so an employer could provide that plan at very little cost.

Often, employers add benefits to the plans so that retirees receive the same benefits they did when they were employed. The cost varies depending on the choices the employer makes for their retirees.

Because of the variety of plans, it is important for employers to review the details of each plan carefully and determine which plan meets the needs of their employees and retirees. Look at financials. The size of the company also may determine the plan that they offer. While larger companies are usually able to offer retirees benefit plans, the MAP enables companies of all sizes the ability to adjust their plans to work with their financial abilities.

Why are employers selecting the MAP instead of other options for their retiree coverage?

A MAP is very easy to administer. You have the power to select the benefits the retirees receive while removing yourself from the day-to-day administration that benefit service requires. Selecting this program makes the transition into retirement much easier for the employee. It provides continuity for retirees because they will likely still be able to select the same coverage and physicians they were using while they were employed.

EDWARD RIES is executive director of government programs with Priority Health. Reach him at Edward.Ries@priorityhealth.com or (616) 464-8296.

Sunday, 24 February 2008 19:00

D&O coverage

Directors and officers today face significantly more liability than in past years as corporate scandals become more visible. The fundamental principles governing their conduct come under increasing judicial and regulatory scrutiny due, in large part, to recent corruption.

The Sarbanes-Oxley Act, which was signed into law in 2002, expanded the responsibilities as well as the potential liabilities of corporate officers and directors. Although this legislation protects shareholders and is expected to improve corporate governance, it also bears the risk of increasing the number of litigations, says Victor Farfan, commercial insurance broker, with Westland Insurance. Increased corporate governance has heightened the importance of indemnification of corporations’ directors and officers. These factors have led to the need and development of more sophisticated Director’s and Officer’s Liability Insurance (D&O).

Smart Business spoke to Farfan about this coverage and how executives can make sure they are properly insured.

What is Director’s and Officer’s Liability Insurance?

In general, insurance policies for directors and officers provide coverage for defense costs and liability payments (both judgments and settlements) for covered wrongful acts if a claim is made against the insured during the policy period. This is often referred to as ‘Side’ A coverage. In addition, most policies afford coverage for the company’s own expenses incurred in indemnifying covered persons pursuant to the corporate indemnity in the company by-laws. This is often referred to as ‘Side’ B coverage. Usually, there is a deductible that applies to claims within ‘Side’ B coverage, and D&O policies typically require that the company advance defense costs and make payment for any judgment or settlement before the insurance company will pay.

Some D&O policies also contain ‘Side’ C coverage for loss incurred by the company entity. For a publicly traded company, the entity coverage for D&O typically is limited to claims against the company arising under federal or state securities statutes or under SEC rules and regulations.

A number of D&O carriers now offer ‘Side’ A only or ‘Side’ A DIC (Difference In Conditions) D&O policies, with a dedicated limit of liability covering directors and officers when indemnifications and standard D&O may be unavailable. One must also consider that when various state statutes restrict a corporation’s ability to indemnify its directors and officers in connection with shareholder derivative actions, coverage under ‘Side’ B D&O policies may be restricted. Therefore, it is common for directors and officers to rely on ‘Side’ A D&O policies for coverage for shareholder derivative actions.

Why should directors and officers invest in such coverage?

Director’s and Officer’s Insurance is the main line of defense against ruinous jury awards and legal settlements. There is a chance your personal assets may still be at risk as a result of the SEC seeking settlements that specify payments come from personal funds rather than insurance. A good D&O policy can provide important protection for an innocent director or officer from honest mistakes and even fraud committed by others.

Director’s and Officer’s Insurance premiums are falling to incredibly low levels for all buyers, including privately held corporations. With this in mind it, doesn't make any sense to expose one's personal assets and estate to the risk of an uninsured loss. Directors and officers of privately held corporations face the same risk as those of publicly held firms. Avoid the risk of being sued for complaints alleging fraud, unfair competition, interference with prospective economic advantage, infringement of trade secrets and several other alleged wrongful acts and consider how D&O can protect you.

Why aren’t all directors and officers covered?

Many directors and officers have never closely examined the D&O policies and may falsely believe they are immune from personal financial liability. The recent exposé of corporate scandals has lead to a crackdown on corporate malfeasance and fraud investigated by government regulators and prosecutors. This threat of criminal fines and civil judgments has caused D&O providers to place many limitations on policies. Some have even attempted to rescind policies altogether.

How can directors and officers select the proper coverage for their industry?

The issues directors and officers deal with will vary within the industry in which the company operates. To ensure proper and sufficient coverage, make sure all information provided to the insurer is as accurate as possible. Outright misrepresentations and mistakes could give the insurer all the ammunition it needs to have a policy cancelled.

In this era of heightened regulatory supervision and shareholder unrest, company executives need to take the time to review the precise wording of their policies. Policyholders should review wording before they purchase their policies. By investing the time upfront in scrutinizing the wording, they can be assured the protection intended to be obtained through the purchase of a policy will be there when they need it most.

VICTOR FARFAN is a commercial insurance broker with Westland Insurance. Reach him at vfarfan@westlandib.com or (949) 553-9700 x 3319.

Sunday, 24 February 2008 19:00

Encouraging healthy living

If a stranger were to hand you $1,000 and told you to spend it however you wish, you may spend it more recklessly than you would if you had worked 40 hours for that money. It is likely that if you are dealing with money for which you worked, you will be more responsible and spend reasonably. That is how many business owners are viewing employee health benefits these days, utilizing consumer-driven health (CDH) plans to shift the overall responsibility of health care to the employee.

It is inevitable that employees will be increasingly more responsible, both financially and through decision-making, for their own health care, according to Sally Stephens, president of Spectrum Health Systems. CDH plans can open employees’ eyes to the real costs of health care, particularly prescription drugs. These plans do represent a fundamental shift for employees and, the more an employer can support them in the process, the more successful the plan performance, says Stephens.

Smart Business spoke with Stephens about the shift of responsibility and how employees and employers can successfully prepare for such changes.

Why are employers switching to CDH plans?

There are two primary reasons why employers are implementing CDH plans: as a way to shift cost to employees and as a long-term strategy to reward people for adopting healthy lifestyles. CDH plans represent a fundamental shift in the way employers will deliver health care in the future. Employers are increasingly turning to CDH plans as a solution for controlling the rising cost of health care. The basic premise is that knowledgeable employees armed with the appropriate information and in part spending their own money will be more judicious when consuming health care services. In fact, studies indicate that first-year savings can be as high as 8 percent of the employer’s premium.

Not everyone is switching to CDH plans. Why keep a traditional plan?

Employers are not staying with traditional coverage because they view it as better. Employers that are not convinced of the value of CDH plans believe that their employees are not Internet-savvy enough to use the online tools and many are skeptical about employee willingness to modify unhealthy behaviors. Others feel that workers’ unions would never support such a plan design.

How do employers implement CDH plans and assist employees with them?

To make CDH plans work effectively, employers, brokers, agents and health benefits administrators must do more to remove barriers that prevent consumers from making informed choices. It is vital to communicate early and often using multiple platforms, such as workshops, written materials and Web-based tools. To provide employees with real choice, one must help employees understand how deductibles, co-payments and premiums interact. Human resource managers can show employees how to annualize premiums, co-pays and deductibles in order to more effectively evaluate which plans may provide the most value for their dollars. In deciding to take this step, many employers build in time to educate employees about the new health plan. Some even spend an entire year preparing employees for this transition. As long as the employer sponsors the health plan, it will be responsible for properly educating its employees on the benefits and use of any health plan it offers.

What do CDH plans offer employees?

One of the main benefits of CDH plans is that they can force the market to become more competitive. CDH plans seek to remedy the lack of consumer accountability that has caused the inflation of health care prices. With carefully administered plans, employees are given the shield of a Health Savings Account or Health Reimbursement Account to minimize the impact of health care costs. Consumers then can fight back against the rising cost of health care. This is a long-term benefit for consumers.

What are the differences between a traditional plan and a CDH plan?

In a CDH plan, employees will be much more involved in their own health care and decision-making. They will need to educate themselves about deductibles and prices. Price transparency is critical for empowering consumers to make appropriate health care choices. Consumers deserve reliable information about the comparative prices and quality of health-care-related goods and services, however, complete price transparency is not so readily available at this time. This makes price comparison difficult. Another barrier for consumers to making the most of consumer-driven health plans is the relative complexity and paperwork involved, when compared with a traditional plan. With proper implementation and education, the hurdles are manageable, and will lead to better, more competitive health care in the future.

Do CDH plans raise new financial concerns?

A common concern with CDH plans is whether lower-paid employees can tolerate the additional financial exposure. Essentially, traditional managed-care plans do not alleviate financial exposure so much as control its variability. Regardless of income level, a thoughtfully designed plan lowers total cost share for healthy employees and does not significantly alter costs for the chronically or critically ill. It is the moderate users who stand to gain or lose from the change to CDH. Other users may see costs decrease through behavior change.

SALLY STEPHENS is the president of Spectrum Health Systems. Reach her at Sally.Stephens@spectrumhs.com.

Sunday, 24 February 2008 19:00

Put it out

According to the Centers for Disease Control and Prevention, employees who use tobacco cost their employers $1,300 more per year than those who don’t. Typically, smokers have higher health care costs, higher absenteeism and overall less productivity. While these statistics are not new, employers today are taking steps to prevent such costs from accruing.

Many employers are creating a smoke-free work environment that either prohibits employees from smoking on their premises or, in some cases, from smoking at all.

“Seventy percent of employees claim they want to quit smoking, and employers are implementing policies and education programs that help them in this process,” says Wendy Wigger, director of wellness for Priority Health. “Arming employees with the right tools and education is a win-win for employees and employers.”

Smart Business spoke with Wigger about an employer’s right to implement smoke-free polices and how to successfully implement such policies.

Is creating a smoke-free workplace legal?

Yes. Employers have the right to create a safe working environment for all employees. This gives employers the right to protect nonsmokers from second-hand smoke in the work environment. I should note that, in some cases, a labor union may have smoking breaks or lounges included in their contract, but this is something we’re seeing less and less.

Currently, a growing number of counties in Michigan are implementing work-site regulations requiring businesses to provide a smoke-free worksite. Restaurants and bars are excluded.

This has been spurred in part by employee feedback and statistics from places such as the CDC, which reports there are more than 250 toxic chemicals in cigarettes and more than 50 that have been linked to causing cancer. These chemicals can be found in second-hand smoke, thereby placing nonsmokers at risk for disease.

Don’t employees have the right to take a break and smoke if they wish?

In general terms, smokers aren’t considered a protected class under the American Disabilities Act. Therefore, employers aren’t legally obligated to provide smoke rooms or smoke breaks to employees.

An employer has the right to create its own worksite policies that address the issue of smoking on premises or during work time. Some employers have taken a stance to not only specify they are a smoke-free workplace but that they also will not hire smokers.

What are some of the best practices used by companies throughout Michigan who went smoke free?

Communication and support are two key factors employers should consider to ensure a smooth and successful implementation of a smoke-free work policy. This includes providing ample notice to employees that such a policy is going into place. With good notice and supportive resources, the employer is less likely to meet resistance. The following are best practice steps utilized by many employers:

  • Educate employees. Supply employees with the statistics about the dangers of smoking and second-hand smoke.

  • Assess the effect on employees. Survey employees to see how many people the policy will affect and obstacles they may face.

  • Give employees ample notice of a policy change. Aim to provide at least six months notice.

  • Provide supportive quitting materials and education. It’s important to provide many tools through different mediums. There may be online classes as well as printed materials and guides to help people through the quitting process.

  • Include support for families. If an employee has family members who smoke, it may be beneficial to offer help to them, as well.

  • Clearly establish policies and communicate policies to employees.

  • Implement and enforce new polices in a nondiscriminatory manner.

  • Consider offering incentives to non-smokers and those trying to quit.

How can employers use incentives to help implement a smoke-free environment?

Incentives are a great way to motivate employees to quit smoking. I encourage employers to consider rewarding all nonsmokers — not just those who are trying to quit. One way to accomplish this is to offer a monetary incentive to anyone who is not smoking six months from the policy start date. Some employers have rebated the co-pay amount for nicotine replacement therapies for employees trying to quit. Regardless of your approach, you want to be conscious of the message you convey to all employees. This can be a winwin for all.

WENDY WIGGER is the director of wellness for Priority Health. Reach her at (616) 464-8758 or Wendy.Wigger@priorityhealth.com.

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