Matt McClellan

Although health care reform has caused a lot of tumult, employers are still dealing with many of the same issues, especially escalating health care costs. For years, the only feasible option to try to contain health care spending was to adjust benefits and shift costs to employees through higher copays and deductibles.

“These days, people need to look beyond rates and benefits,” says T.C. Williams, the manager of channel strategy for Kaiser Permanente. “People need to concentrate on return on investment. They need to have a measurable return on their health care dollar and they need to find a health care plan that is going to provide that.”

Williams advises employers to partner with a health plan that focuses on total health and productivity — in other words, keeping employees at work and productive.

Smart Business spoke with Williams about how to ensure your health plan is maximizing the productivity of your work force.

What is total health and productivity, and how can it be achieved?

It is what it says: the total health of the employee base, the importance of that health, and the tools and resources an employer can expect from a health plan. The focus is on employee productivity. To achieve it, you must identify, analyze and understand some of the key drivers that have adverse effects on employee productivity.

How can employers control health care costs?

There are direct and indirect health care costs. Direct costs are actual medical and pharmaceutical costs based on utilization. Indirect costs are made up of short-term and long-term disability, absenteeism and presenteeism. Absenteeism is when you’re out of the office and therefore not productive. Presenteeism is when you’re at work, but you’re dealing with something, like a medical condition or a chronic disease, or when you’re coordinating care for a family member. You’re there but just not able to be as productive as you could be.

Studies have shown that health-related productivity costs are up to three times greater than direct medical and pharmacy costs alone. People have no idea that the most significant drivers of total health care expenditure come from indirect health care costs.

There are two schools of thought: one is that we can’t really control costs. On one hand that’s true. For example, we can’t control getting older, and as we get older the demand for health care increases.

On the other hand, there are some costs we absolutely can influence. We can have an impact on both direct and indirect costs with an emphasis on prevention, chronic condition management and work force health programs. Using these strategies not only addresses the largest source of employers’ health care costs — lost productivity — it also helps employees lead healthier lives.

What can be done to control presenteeism?

Employers have to accept that presenteeism is, and always will be, a major driver to expenditures. But, if employers have the right resources, they can do a lot to combat it.

Find a health plan that promotes health advocacy, gives employees and their families useful tools, and also drives better health outcomes with the use of health information technology, specifically by enabling individuals to be active participants in their health care through a personal health record.

Ask your health plan what tools they have. What’s in the arsenal of wellness programs? Do they offer on-site programs, like smoking cessation, behavior change classes and/or health risk assessments? The information that can be extracted from the completion and compilation of health risk assessments on your employee base is useful because it reports back to the employer: ‘Here’s what you’re dealing with. You have a high population of people dealing with morbid obesity. Here are the downstream effects of morbid obesity: diabetes and heart disease. Here’s what you can do now so you aren’t dealing with those costs down the line.’

What are the keys to implementing successful wellness initiatives?

Having wellness programs and incentive-based programs that an employer can implement at the worksite is a good start, but not enough by itself. There must be total buy-in at the executive and employer level. Owners and executives must embrace and promote the programs for them to be successful. Wellness programs are just one piece of total health and productivity. Also, ask your health plan what is done as far as prevention and the actual health care delivery system.

For instance, does the health plan have an integrated delivery system? Do patients and physicians both get reminders about needed screenings or immunizations? Do they enable secure online communications between the members and their physicians? That capability is extremely important in controlling presenteeism, because time away from work adds up with each visit to the doctor’s office.

What other controllable areas impact health care costs?

Chronic disease management is a huge factor. It’s a case of 10 percent of patients with chronic conditions using 80 percent of the total health care resources. The lack of coordination prevalent in American health care results in poor outcomes and higher costs across the board. You might want to ask if the health plan has electronic medical records, so that all caregivers — physicians, pharmacists, lab techs — can access a member’s record, helping avoid drug interactions and redundant tests. Does the system enable online sharing of best practices among providers so that the latest treatment protocols are readily accessible and available to implement in weeks or months, not years?

Partnering with your health plan can help identify some of the health-related conditions and situations that drive up costs, and give you strategies to put your work force on the path to improved health and productivity.

T.C. Williams is the manager of channel strategy for Kaiser Permanente. Reach him at (216) 479-5230 or anthony.c.williams@kp.org.

Computers crashing, a lost or stolen laptop or smart phone, a natural disaster, or just someone accidentally hitting the “delete” key — these are all ways a company can lose its data.

Studies show that 70 percent of businesses will experience or have experienced data loss. Disturbingly, 93 percent of businesses that have lost data for 10 days or more ended up filing for bankruptcy, and 50 percent of those companies filed for bankruptcy immediately.

“Without a backup solution in place, businesses are at the mercy of not having any data to recover,” says Don Beller, a senior manager with Skoda Minotti Technology Services.

Smart Business spoke with Beller about how to pick the right backup solution for you, and how to ensure your backup won’t let you down when you need it.

What are some steps companies can take to ensure they have a backup solution in place?

There are a multitude of backup solutions out there, including USB drives, CD-ROMs, tape drives, onsite appliances and even Internet-based backup solutions. There are many options and many price points for businesses, so companies need to determine what level they are at and how much they can afford to do. Whatever solution they decide to use, it has to be a complete solution. You don’t want to go with a less expensive solution that doesn’t give you a full system backup and allow you to fully recover.

What is the difference between a ‘complete’ solution and one that isn’t?

Today, there is a lot of buzz surrounding Internet-based backup solutions. Some of the less expensive solutions out there allow a user to back up data folders on their PC or server environment. They don’t necessarily back up the entire operating system of the server. So in the event of a disaster, you have all your data, but you still have to recover the environment to restore that data, too. Comparatively, a complete solution goes from the operating system level on up to all the data stored on that unit.

How does the backup process work?

With a tape drive or USB drive, you typically need more time to back up your data. It’s more of a file-by-file backup, so the system has to process all those files going to that tape, drive or unit. Other technologies are starting to use disk-to-disk imaging, which is more of a snapshot view of the system. Those are more robust backup systems, and they can use a quicker timeframe. Some imaging solutions can back up entire systems every 15 minutes throughout the day. That’s much faster than a tape drive backup, which could take hours to complete.

There are different methods of backing up as well. A lot of companies tend to lean toward doing a full backup every Friday night, letting it run over the weekend, then doing incremental backups throughout the week. Although that’s not a bad solution, it does lengthen the time of recovery. You get everything back, it’s just a longer process.

Some newer technology allows the appliance doing the backup to serve as a virtual server. With that, even if the hardware your original server resided on crashed, you can bring up a virtual environment on the backup appliance and get the company up and running while the original hardware is being repaired. This allows you to recover to more recent timestamps quicker.

What’s the cost difference between old technology and the new technology?

The cost has become pretty consistent. The old technology was tape drives, which are a volatile medium and susceptible to environmental conditions. Companies used to back up megabytes of data. Now we’re backing up gigabytes and terabytes of data. As our data needs grow, the tape drive costs increase as well. Now, the more expensive disk-to-disk technology is more in line with the added cost of tape drive. It makes sense to do disk-to-disk imaging.

How often should you back up your data?

It depends how comfortable you are with losing data. Can your company survive going backward one day? How about one week? With increasing amounts of data to be backed up, tape drives, USB drives and CD- or DVD-ROM drives are capable of backing up once a day. Essentially, you’re limited by the speed of the backup technology.

Disk-to-disk imaging technology allows more frequent backups during the day for a similar cost. So say it’s 3 p.m. and you’ve been working on a presentation all day. Somehow it gets deleted or corrupted. With the newer technology, you could go back to 2:45 p.m. and recover your data. With the older technology, you would have to go back to yesterday when the presentation didn’t even exist. You’ve lost a day’s worth of work.

How can companies be sure their data restoration will work?

Just create a test folder with mock data you could delete at random. Then periodically test that you could restore the mock data from whichever media you have backing up your system. I’d recommend testing backups at least monthly.

We had an experience where a company came to us with a box full of tapes. Their server crashed and they were looking for help. We got their system functional, but when we tried to restore their data, we discovered none of the 20 tapes they brought us were recoverable.

Backups are only as successful as they’re tested to be. If you don’t have a process in place to verify the information you’ve backed up is restorable, you might find yourself in a hard place where you can’t recover the data.

Don Beller is a senior manager with Skoda Minotti Technology Services. Reach him at dbeller@skodaminotti.com or (440) 449-6800.

Social media is changing the business landscape as quickly as a hot Tweet makes its way around the Internet.

However, businesses should be wary about how they and their employees use it, because regulations haven’t been able to keep pace.

“The legal system — as well as companies’ policies and procedures — have not kept up with the changing times,” says Jonathan Theders, president of Clark-Theders Insurance Agency Inc. “When it comes to social media, employers today don’t really know what to do.”

Smart Business spoke with Theders about what companies should know about the liability they could incur through the use of social media.

What kind of liability issues arise from using social media?

One of the issues can come in the area of HR. There are many established human resources rules and regulations in regard to discrimination: race, sex, ethnicity, religion. On a written application, you can make sure you don’t ask those questions.

However, companies are starting to engage job applicants by doing Internet searches, running a Google search on names, and checking out Facebook or LinkedIn pages. The danger in that is — whether intentionally or not — you can discover protected information.

Obviously, if there are photos on a person’s profile page, you could discover the person’s race, maybe their religion, or if they have a disability. From an HR standpoint, those things are very dangerous to know.

When using Google or social sites for background checks, there is no going back. If you find something out that you didn’t necessarily want to, it’s too late.

Also, it’s important to make sure that Google, Facebook and LinkedIn don’t replace a true background check. There are so many similar names out there, you could be pulling up false information about people and making decisions that are not based on fact.

Have there been any legal precedents for social media liability?

There is a bit of case law, but these issues are so new that it’s difficult to find good examples. On a Facebook page, you can use privacy settings to set your profile as open to the general public, or restrict it to ‘friends.’ If your settings are open to the public, it is generally accepted that everything shared is public information.

Sometimes a company has an employee who has access to a job applicant’s profile because of ‘friend’ status. If that person shares that protected information with his or her employer, without the direct approval of the applicant, it would likely be a violation of privacy laws. Your employee violated the job applicant’s privacy by allowing someone else — you — to view it.

To avoid problems like this, consider putting one person in charge of all the Internet applicant research. Make it a standardized procedure, so that one person is consistently doing it one way. Also, do it legally. No hacking into sites, no misrepresentation.

How can businesses avoid liability issues that can arise from publishing items on their websites?

The media are held to high standards when it comes to copyright infringement. Publishing companies have media liability or insurance that protects them, but most businesses aren’t in the publishing business. There is really a ‘new wave’ in which businesses are posting articles on their company’s website or social network page, but if you don’t have the right to attach that article, or if it was a protected document, it may cause problems.

If a business creates a Facebook profile, it would likely be considered under law to be protecting its brand. It would be part of commercial speech. So in trying to sell a product, it wouldn’t be protected under the same First Amendment rules. The main concern is that you are truthful in your advertising.

How can businesses that want to publish information protect themselves?

Make sure that there are concrete rules for postings. If employees are posting for the company or with regard to their LinkedIn profiles, make sure that you have rules in place. Be careful, because those posts could be considered mini-advertisements, so they have to be administered, controlled and approved by the company, because the liability can be really high.

Have one person monitor all postings for all social media. You must scrutinize what gets posted, especially if you are taking someone else’s information and uploading an article or linking to someone else’s page. Make sure that you have the legal right to do it or that you have permission from the owner.

Most companies have a general liability insurance policy. But in nearly every case, a general liability policy is not going to cover the types of claims that can be brought from improper use of social media.

Because it is so new and so fast paced, most employers don’t even understand it. The employees are far ahead on the use of it, and you have to have an open dialog about how the business will communicate using it.

What is appropriate employer/employee Facebook etiquette?

As a general rule, it is always better to keep a clear line between work and a personal life. You can ignore a request from a subordinate on Facebook. In particular, Facebook and MySpace are perceived as personal communication rather than a business function.

LinkedIn tends to have more of a professional function. Depending on what your company wants to do, it might be appropriate to connect with someone on LinkedIn, but it’s not appropriate for a boss to be a friend on Facebook.

Still, some of our employees are my friends on Facebook. If I were to find something out that I don’t like as an employer, what do I do about it? What is my legal right? All these issues pop up, but there is no definitive solution on what to do.

Jonathan Theders, CRA, is president of Clark-Theders Insurance Agency Inc. Reach him at (513) 779-2800 or jtheders@ctia.com.

The Ohio Bureau of Workers’ Compensation (BWC) calculates an employer’s annual premium based on three factors: the employer’s industry, claim costs and payroll.

In some cases, employers can reduce their workers’ compensation annual premiums by qualifying for any of the several alternative rating programs available, including Group Retrospective Rating, Deductible, Safety Council and One Claim Program, among others.

“It is important for employers to participate in the program that makes the most sense to their organization and to have studies completed that show the best savings options,” says Randy Jones, the senior vice president of TPA Operations for CompManagement, Inc.

Smart Business spoke with Jones about how to determine which of these options is right for your business.

What are some ways employers can reduce workers’ compensation annual premiums?

Again, there are three factors the Ohio BWC uses to calculate an employer’s annual premium: the employer’s industry, claim costs and payroll. To reduce annual premium, an employer may qualify for an alternative rating program. Employers can also control costs by ensuring timely reporting and investigation of their claims and then also working with their third-party administrator to utilize cost-containment strategies such as a transitional duty program, salary continuation, aggressive claims management and possibly settlement.

How can alternative rating programs help?

The BWC has several alternative rating programs that offer discounts toward annual premiums, whether up front or retrospectively. The programs available to employers are Group Rating, Group Retrospective Rating, Individual Retrospective Rating, Small and Large Deductible Programs, Drug Free Safety Program, Safety Council, One Claim Program and Self Insurance.

Some programs are also compatible with each other to allow an employer to ‘stack’ the discounts together up to the maximum discount allowed, which is determined annually by BWC. There are different eligibility requirements for each program as well as expectations that must be met in order to participate and maintain eligibility. However, each program has the goal of rewarding an employer for its focus on safety in the workplace and controlling claim frequency and severity.

What are the pros and cons of these alternative programs?

The main advantage tied to participating in any alternative rating program is the ability to potentially reduce your spend on workers’ compensation and thus impact your company’s bottom line. These programs all provide a mechanism that can result in cost savings if implemented properly. As mentioned, some programs offer an up front discount, while others are capable of being stacked together to maximize savings.

The amount of potential savings associated with each of these programs must always be weighed against the amount of time (and potential other costs) you may be required to invest in order to participate in these programs.

You also need to be aware of ‘stacking’ limitations that are associated with some of the programs. In some cases there is no up front discount, but rather the potential to receive deferred savings based on program performance. Your third-party administrator should be able to review these different programs and assist in identifying which ones are the best fit for your organization.

What kind of results can an employer expect from using one of these programs?

Each program has its own maximum discount determined annually by the BWC Board of Directors. Discounts vary by the amount of risk an employer wishes to take in a given year. For example, if an employer participates in the Deductible Program, it may choose from nine different levels ranging from $500 to $200,000. Available discounts go as high as 77 percent, dependent upon industry and the deductible level chosen.

An employer should pick the program that is best suited for its organization. With the addition of new alternative rating programs by the BWC in 2009, employers now have more options in order to make a selection based on risk tolerance, the size of their business and their overall payroll/premium.

How can employers determine which program makes the most sense for them?

Employers should contact their workers’ compensation third-party administrator to request a ‘feasibility study.’  A feasibility study is a tremendous tool for employers to evaluate the many different rating/discount programs in order to see how they can impact the costs associated with their workers’ compensation program. In addition, a ‘feasibility study’ should include which rating programs can be ‘stacked’ together for greater discount potential if qualifications are met.

When should an employer begin researching these programs to ensure it meets the filing deadline?

For a private employer, the deadline to enroll in a group rating discount program is the last business day of February each year. All other programs have an enrollment deadline of the last business day in April. For a public employer, the enrollment deadline for participation in group rating is the last business day of August. The deadline for all other programs for public employers is the last business day of October.

The one exception to these deadlines is for the Safety Council program. The deadline to enroll for both private and public employers is July 31.

Randy Jones is the senior vice president of TPA Operations for CompManagement, Inc. Reach him at (800) 825-6755, x2466, or Randy.Jones@sedgwickcms.com.

Whether you call it health care reform or health insurance reform, we are not addressing the cost of care.

“Cost reductions will come from greater efficiencies and improving the health and well-being of the population, not across-the-board cuts,” says Albert Ertel, chief operating officer of Alliant Health Plans.

There are several ways health plans are working to improve patient outcomes. One idea that is creating a lot of buzz is Accountable Care Organizations, or ACOs — partnerships between health care providers, physicians and hospitals that are being designed to identify best practices, improve patient outcomes and ultimately reduce costs.

Smart Business spoke with Ertel about how health plans need to be working together with providers to improve patients’ health and impact costs.

Why is there an increased focus on accountability?

Health care reform conversations among providers are centering on ACOs. Hospitals and physicians are exploring ACOs as possible strategies. The whole idea is to improve a person’s care by getting all of his or her providers on the same page and accountable for the outcomes. Accountability is achieved by determining a starting point and then measuring future results. The easy part of accountability is to follow the dollar. What is the readmission rate at a specific hospital and who were the admitting physicians? For example, if a Medicare patient is readmitted for the same diagnosis within 30 days, Medicare will not pay the hospital for that second hospitalization. Today, that event is fragmented between the physician and hospital. What if they both were responsible and paid accordingly for that patient to be well? Today, many payments are transaction-based; more tests equals more payments.

You could see hospitals look to re-evaluate physicians with admitting privileges. Accountability is as valid as the chain of information and data captured. Historically health plans have had the data from claims. But claims data is only part of the ‘new normal.’

What type of information is shared between the health plan and physician?

All encounters need to be captured. Logically, the ideal would be a single source where you can access information related to diagnoses, treatments and prescriptions. Currently, that place is usually in the physician’s notes. How would a specialist gain access to the primary care doctor’s history? Unless the physicians and other providers in that area are ‘clinically integrated’ it is almost impossible without a physical handoff of the patient’s records. Many physicians have electronic medical records (EMR) but many systems do not talk to one another. Technology should be available soon to fill this gap.

In what other ways do these partnerships emphasize accountability?

Clinical improvements will continue. But today, providers are paid on a fee-for-service basis; more treatment equals more money. Getting ‘a lot’ of care does not necessarily equate to ‘best of care.’ ACOs are defining ‘pay-for-performance’ models. Hopefully, we can move from a transactional-based payment methodology to episodes of care where physicians are rewarded for keeping patients healthy — and use the most effective resources.

Managed care has been using what I call ‘mother may I’ medicine. A physician would ask the payer permission for many treatments. It started as ‘cost-containment’ and included pre-certification or prior authorization. Health care, or should I say health care information, is evolving. As best practices are identified, the challenge will be getting information into the hands of physicians in ‘real time.’

Will ACOs catch on with health care providers?

Hospitals in Georgia are discussing ACOs today. Physicians are motivated because it will help their patients. Also, physicians are finding it difficult to practice medicine due to the cost of running their business. Many small physician offices are in survival mode.

How can they ‘band together’ to gain efficiencies and share information? Physician groups large and small will be having similar discussions about how they can each share in the huge volume of information that is generated about the population they serve, what services are available and what are needed, and how they can appropriately share the millions paid in health care dollars.

How are ACOs formed?

It sounds simple, but it isn’t. Physicians and a local hospital must first agree to clinically integrate, share their information, agree on best practices, measure results and divide monies appropriately. Add federal and state laws, regulations and rules, and it equates to ‘herding cats in a hail storm.’ Once clinical integration is in place, the providers agree to become an ACO and accept a level of risk. The best practices agreed upon begin to unfold and positively influence the population the ACO serves. But remember — health care is local and providers take responsibility for their communities.

How will these changes affect pricing and coverage?

A health plan’s goal is to cover as many lives as it can by keeping prices as low as possible. We look at ACOs as a real strategy to ‘team’ with providers and share risk. Information is the key. Capturing data and relating it to the local demographics is vitally important.

Alliant Health Plans was founded by providers. We have a keen understanding of the health insurance cycle and the impact that uninsureds have on a health care community. Lower premiums are a direct result of lower health care costs. The possibility of sharing with providers the goal of keeping the community healthy could be a game changer. One of the best paying patients is one than never needs to seek care.

Albert Ertel is COO of Alliant Health Plans. Reach him at (706) 629-8848 or aertel@alliantplans.com.

Whether it’s volunteering for a social services organization or serving on the board of directors of a favorite charity, people have different ways of giving back. Businesses should encourage community involvement because it benefits everyone from the employee to the employer to the individuals being helped.

“As a company, we recognize we have a social responsibility to help the communities we serve,” says Nicholas Browning, the president and CEO of FirstMerit Bank’s Akron region. “We benefit by being in those communities, so we feel a unique obligation to give back to those communities and make them better places to live and raise a family.”

Smart Business spoke with Browning about how businesses can get involved in their communities.

How can a company help busy employees find time for community service work?

First off, don’t tell people to volunteer; ask them to volunteer. If you are really committed to community involvement, people will volunteer. Again, don’t tell them what to do — simply say that community service is a part of the company culture. If an employee wants to be a part of that culture, then show them what you would like to see from them.

Honestly, community involvement can take whatever form an employee chooses. It’s not a cut-and-dried checklist, so encourage employees to find something they are really passionate about, and allow them to commit themselves to community involvement during work hours. If they are going to take time away from their families and time away from the office, then it should be for something they are passionate about.

If simply asking doesn’t work, how can a business encourage volunteering?

Do as much as you can to make it easy to volunteer. If you organize the community service effort and just ask for volunteers, employees will be more willing to pitch in than if they had to find a community service effort on their own. Having someone help organize activities for the company makes it easy for employees to volunteer.

Even in small businesses, there is usually someone who is passionate about community involvement. You can always ask your employees if they have any interest in helping organize community activities for the company. You may get a volunteer out of your work force who doesn’t mind heading that up for a year, or forever.

Even if you don’t have the resources to have a dedicated community relations person, you can have a volunteer in your business to do that for a set amount of time, and then rotate that responsibility.

How does a business’s community involvement benefit the employees?

First, it makes them feel good about working for the company. Most people want to work for an organization that cares about its friends and neighbors, not just the bottom line. And usually, your employees are those friends and neighbors, because you hire from within the communities you serve.

Community involvement also shows employees that the company cares about more than just the company itself. It helps boost morale and is great for team building. Employees often have a lot of fun working together toward a common goal. It creates a buzz around the office and it brings people together. Spending time away from the office as a group creates a closer working relationship between coworkers. Plus, you get to meet other like-minded, socially responsible people outside the workplace. That networking with other people and companies can be great for business. If you have people in a business development role meeting people from other companies, they are exposed to other opportunities.

Where can businesses find ideas on how to get involved in their communities?

A great place to start is the local United Way. It touches so many different organizations in so many different ways. They are a great resource to find what organizations need help in your area.

We have a group here in Akron called the Center for Nonprofit Excellence that is also a good resource. Also, there are other leadership programs throughout the community that are usually dialed in to nonprofit organizations that need assistance.

Finally, look in the community section of the newspaper. You could probably open the newspaper on any given day and find a story about an organization that’s in need.

What are some of the ways FirstMerit is involved with its community?

In Akron, we’ve spearheaded a lot of disaster relief fundraising efforts: The Fire Truck fund benefiting victims of the 9/11 disaster, the Hurricane Katrina relief fund, the Tsunami fund, and the Biloxi fund for the hurricane in New Orleans.

We organize a lot of fundraising through the bank. In March, we are organizing the Akron/Canton food bank drive. We will have one Saturday in the month of March where every branch in our Akron/Canton area will be a collection point for donated food. We also volunteer on low-income housing projects for construction work, through Habitat for Humanity.

We also have a budget for individuals who are on boards of directors to support those organizations. Last year we invested $650,000 in nonprofit organizations throughout greater Akron.

Nicholas Browning is the president and CEO of FirstMerit Bank’s Akron region. Reach him at nicholas.browning@firstmerit.com or (330) 384-7807.

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.

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.

There are two main ways to modify existing labor law: through legislation or through the National Labor Relations Board.

“The Employee Free Choice Act appears to be dead in the water,” says Mike Stief, a partner with Jackson Lewis LLP. “It is unable to be enacted in any form in the foreseeable future.”

Therefore, any change would have to come through the current NLRB.

Smart Business spoke with Stief about the new labor board and how it will impact union-free employers.

How can the makeup of the board affect labor law?

The current NLRB is made up of three Democratic appointees. There are supposed to be two appointees by the Republican Party, but there is one open seat. So you have a majority of the labor board who are very beholden to organized labor. The chairperson of the board, Wilma Liebman, was a minority member of the board during President Bush’s presidency. The most controversial member of the new labor board, Craig Becker, is a recess appointment. He is one of the more controversial figures on the labor board in recent memory.

Becker believes employers should be stripped of any legal cognizable interest in their employees’ election of representatives. He takes the position that we shouldn’t even have union elections anymore. He wants to restrict or eliminate an employer’s right to communicate with its employees during an election campaign. His views are very extreme; some even are in direct violation of the current National Labor Relations Act, which permits employers to communicate with their employees on this topic. Those rights have been in place since 1947.

Are any of those extreme changes realistically going to happen?

President Obama appointed the majority of the labor board. He owes a lot to organized labor, which helped get him elected. I’m not suggesting every one of Becker’s views will be adopted, but the board majority may take a close look at a lot of those issues.

How does the new labor board impact employers?

The board can affect change and impact non-union employers in two distinct ways: one is adjudication, which is developing a new body of case law.

The second way is rulemaking: the labor board can adopt rules that also could change the labor landscape. Just recently, the labor board proposed creation of a rule which would require every employer in this country to post in the workplace a notice of employees’ right to join a union. Right now, that only applies to certain federal contractors and subcontractors through an Executive Order signed by President Obama. If adopted, this proposed rule would require it for every employer. You may have to post it electronically, as well, if that is a way you customarily communicate with your employees.

This would be a constant reminder to the work force of the right to unionize, and therefore make it more likely that you will be the subject of organizing in the future.

Other potential rules that we might see deal with expedited elections, the more frequent use of mail ballots and/or e-voting.

Historically, people have voted in elections by elections being conducted at the worksite during work time. The NLRB does a very good job of running elections. Having an election on-site is beneficial to employers because it ensures the maximum number of employees vote. Statistics show in elections where the ballot is mailed to your home, voter turnout is less than elections that occur manually.

How may the board affect labor law through adjudication?

There are cases that are going to be decided by this labor board that will be very union-friendly. Among them: making it easier for temporary employees from a temp agency to vote in union elections along with the company’s regular employees.

This labor board will most likely overturn a decision issued by the previous labor board, which found it lawful for a company to prohibit the use of its computer systems for the purpose of organizing.

This labor board may also go back to a decision from the President Clinton-era board that provided non-union employees the right to have a co-worker witness present during an investigatory interview that could lead to discipline. Usually, those types of investigations involve highly sensitive matters. It might be a harassment, theft, or substance abuse issue, and an employer usually tries to keep those investigations as confidential as possible. That confidentiality could be compromised if there is a co-worker witness present.

What are some things union-free employers can do to minimize the impact of these potential changes?

They need to really examine their whole philosophy of remaining union-free. They need to make it an ongoing process. The best way to remain union-free is to eliminate or reduce the issues that cause people to look elsewhere for help.

The keys are a well-trained management staff, selecting supervisors with good people skills, not just good technical knowledge, training those supervisors, and regularly conducting vulnerability assessments to understand which issues exist in the workplace in an effort to correct them.

What should employers be doing now?

On February 17, 2011, from 8:30 to 10:30 a.m., Jackson Lewis LLP is conducting a complementary seminar titled: Surveying the New Labor Law Landscape: 11 Changes in 2011: Tips for Employers. Business owners that are interested should contact our offices to register.

Mike Stief is a partner with Jackson Lewis LLP. Reach him at (412) 232-0138 or stiefm@jacksonlewis.com.

Finding an underwriter and broker who can create the right insurance program for your particular industry has undeniable value. This is especially true for nursing homes and continuing care facilities, which have their own specific insurance issues.

“The predominant issues right now are fall prevention, pressure ulcers and dehydration,” says Jim Misselwitz, a vice president with ECBM Insurance Brokers and Consultants. “In general, those are the areas that are the most significant for nursing homes in order to improve the quality of care they give their clients. That also happens to be the area where the largest litigations are going on.”

Smart Business spoke with Misselwitz about how to build a strong insurance plan for nursing homes.

What steps can be taken to address the issues facing nursing homes?

One way to prevent falls is by implementing restraints. To do that, you have to have a lot of education and communication with the family to ensure they know the particulars, the background and status of this particular relative. Then, they will understand it is not done as a punishment but to maintain the safety of the individual.

There are also technical improvements that can help, such as nonskid surfaces in showers, automatic brakes on wheelchairs and edge protection devices that sound an alarm if someone gets near the edge of a bed.

Many nursing homes are developing the wound consultant position to combat pressure ulcers. Their job is to come in immediately when a pressure ulcer is recognized and begin a very aggressive treatment on that area that effectively limits further damage and growth of other ulcers.

Many pressure ulcers in nursing home settings are preventable through education and technology. The ulcers often appear on the backs of legs and heels. When a person is dormant in their nursing home situation, you have to provide movement to the body so the blood doesn’t stay in one area, which is probably the biggest contributor to pressure ulcers. Certain special boots and beds that vibrate can help.

Hydration, for the most part, can be improved by auditing and control. Keep good records. Make sure you know how much liquid each person has taken daily. Some marvelous systems allow the nursing home to know each patient’s fluid intake on a daily basis, and per shift, near automatically.

What are the keys to building the right insurance program for a nursing home?

There are three elements: a broker, an underwriter and the management of the nursing home itself. You’re looking for an underwriter who is very familiar with the industry, who has an established book of business in that field, who shows a willingness to become a partner with the facility, not only in terms of improvement but in giving them additional guidance, auditing and controlling the risks they find, and also giving them feedback on the losses that occur.

The program will be most effective when the nursing home’s management recognizes issues that need to be addressed from the top down, not the least of which is spending capital in order to bring some technical solutions to the facilities.

That has always been a tricky balancing act because funds are usually limited; income is steady but sometimes slow. So they have to be very cognizant of how to use money wisely to get the biggest return on investment.

Also, management needs to understand the importance of strong auditing and control mechanisms that allow them to troubleshoot problems before they become significant issues. When you get those two things from top management and you couple that with the underwriter, the third leg of the stool is the broker.

The broker’s job is to marry management’s expectations with what the underwriter can do in terms of pricing and coverage, then filter the importance and priority of the issues management needs to concentrate on — the issues with the largest potential risk.

Why is it important to hire a team with industry-specific expertise?

If you show up on the doorstep with just a general liability, professional liability or workers’ comp quote, that’s fine; it gives you the ability to transfer risk to the underwriter. But has it helped the facility control ultimate expenses down the road? If you’re not marrying those two issues together, when a soft market comes and prices are low, you’ll see premiums go down. When the market gets hard, you’ll see premiums go up.

Most nursing homes would like to get off that roller coaster. They want to be able to control costs in good markets and bad.

How can you determine which features to implement in an insurance program?

The key is examining where the facility is in terms of its development, in terms of addressing issues and implementing technical solutions. Then you need to look at the client mix inside the nursing home, the staff training needs and the kind of access you have to the staff in terms of supplementing their training needs.

Not all training comes from underwriters or loss control professionals. A lot comes from the vendors who sell the equipment. The equipment is often technically complex, so the staff has to learn how to use it and what to do in the event that something goes wrong.

Lastly, you need to develop and tailor a plan that fits the facility in terms of its continuum of development. Take its experience, capital budgeting process, staff, insurance costs and future plans, and marry that with an insurance program that will be supportive and flexible.

It should assist the nursing home to create a growth pattern and improve the quality of care to the clients.

Jim Misselwitz is a vice president with ECBM Insurance Brokers and Consultants. Reach him at (888) 313-3226 ext. 1278 or jmisselwitz@ecbm.com.