Detroit (1202)

Although product recalls such as those at Toyota have recently received a lot of media attention, recalls are nothing new.

“As far as consumer safety goes, whether it is consumer products or food products, there is certainly a much higher profile and increased number of recalls just because of the environment we’re in right now,” says Bernie Steves, managing director of Aon Risk Solutions Crisis Management Practice. “Clients are being faced with heightened risk and exposure. Fortunately, the insurance marketplace has learned over the years to respond in a more affordable fashion and with a broader scope of coverage than it has been able to in the past.”

Smart Business spoke with Steves about how product recall insurance can help your company should you find yourself facing a recall.

How often do product recalls happen?

There have been many high-profile recalls, particularly in the automotive area, over the last 12 months. From a media standpoint, a lot of that relates to the Toyota recall. There has been a lot of attention focused on it and a lot of concern, but it is something that has been occurring all along.

In reality, there have been more than 390 million car, truck or bus recalls since the National Traffic and Motor Vehicle Safety Act was passed in 1966. There are an awful lot of recalled automotive products out there, whether they are cars or component parts. Generally, those are all safety related defects, or they don’t meet federal safety standards.

What should companies know about product recall insurance?

The biggest change is that, in the past, it’s been a specialized type of insurance. It continues to be specialized, but the insurance marketplace has gained considerable knowledge in the last 10 years since it has been offering this type of coverage. The market has really homed in on what the exposures are and how it is underwritten. So the program now is much more affordable for smaller and midsized companies.

In past years, you were looking at minimum premiums and minimum retentions from six figures on up. That really limited those companies that could afford to purchase the coverage.

Today, with minimum premiums as low as $25,000 and deductibles starting at $50,000, it is applicable to a much larger range of businesses.

How do these policies work?

The recall of a product triggers the policies. The ultimate vehicle manufacturer is responsible for initiating the recall, but the source of the problem could come from any level of supplier — the guy that makes the screw or an integrated system provider to the OEM.

Generally speaking, there does have to be potential for bodily injury or property damage to occur because of the product in question. One thing that has changed is the availability to include ‘impaired property’ in the coverage.

Impaired property is an extension to these programs that extends the trigger beyond the bodily injury aspect, so that your product is making the end product less useful because it incorporates your product that is known to be defective. In other words, you get beyond that bodily injury aspect. So if the window doesn’t go up and down on a car, it’s not really a safety issue, but there is certainly an impairment issue.

While these policies were initially designed to respond only to those instances where there was potential for bodily injury, with the addition of this impaired property coverage, it can be extended to include situations where the end product is simply less useful.

How does product recall insurance respond to a claim?

There are a few ways these policies can respond. We generally look at either first- or third-party losses under these policies.

First-party losses are segregated into the losses that the insured themselves incur. For instance, take a component part manufacturer that incurs expenses to recall the product, such as notification, shipping and pulling stock back from its customers. Those expenses would be considered a first-party recall expense; they can be covered under the policy.

The policy also can cover the repairing, replacing or refunding of those products if they can’t be reused.

The flip side of that is the third-party expenses covered by these policies. For example, the insured is making widgets and sends those off to the customer, who comes back to it looking to be reimbursed for its own recall expenses. Depending on the actual carrier, third-party coverage can include third-party recall expenses. The same types of expenses are covered as for first-party expenses, and they are also extended to various other elements of third-party financial loss, such as loss of profits, extra expense or rehabilitation expense, again, depending on the carrier.

One other aspect that these policies provide is defense costs. So if the insured doesn’t believe that it is at fault for the problem, the policy will defend it against its customer.

If moving forward with a product recall, what can a company do to ensure it is getting the right amount of coverage for its needs?

The No. 1 thing to do is make sure you’re working with a broker that is familiar with the marketplace. It is a very specialized coverage, and a specialized number of carriers provide this coverage. It’s important that insureds are working with brokerage companies that have the expertise globally and have access to the various markets that can put these programs together.

Bernie Steves is managing director of Aon Risk Solutions Crisis Management Practice. Reach him at or (312) 381-4145. In Detroit, contact managing director Mike Stankard at (248) 936-5353.

Tuesday, 26 October 2010 20:00

The Cape file

Written by

Born: Traverse City, Mich.

Education: Bachelor’s degree, Michigan Technological University; MBA, University of Detroit Mercy

First job: Working for a local contractor in high school and college

More from Cape on the benefits of close-radius marketing: You’re reaching out to consumers who have a higher likelihood of going to that location because they reside nearby. One of the attributes of this customer is they only are going to travel short distances for errands, so convenience is a priority to them. So the attribute of this strategy is we are targeting customers where they live. We are getting right down to the customers that each location is trying to touch.

Cape on Quick Lane’s recent growth strategy: As you know, in these tough economic times, the automotive and dealership industry was really kind of turned upside down in 2008 and 2009 with the economy and the overall vehicle sales dip really made it very challenging. So those dealerships where we were having Quick Lane facilities and projects, that became a challenge because some of them went soft and put them on hold as capital dried up. But in the pipeline of active projects, we have over 100 dealers in the process of opening a Quick Lane, and last year we opened 100 centers, so even in a tough economy, we have been able to keep pace.

As companies approach their open enrollment period, many are facing questions about the new rules under the health care reform act.

One of the biggest decisions they will initially need to make is whether they want their current plan to be grandfathered under the former rules, exempting them from some of the new mandates but locking them into the terms of their current plan, says Toni Pilzner, a member at McDonald Hopkins PLC.

“Employers should evaluate their plans and determine whether they want them to remain grandfathered,” says Pilzner. “It is a balancing act between the constraints of being grandfathered versus the cost of losing that status.”

Smart Business spoke with Pilzner about the benefits and pitfalls of retaining grandfathered status, and about how to determine which option is right for your company.

What does a company need to consider when determining whether it wants its group health plan to remain grandfathered?

If your plan remains grandfathered, you essentially must keep your coverage and your plan exactly as they were on March 23, 2010. You cannot change your insurance company or increase any of your co-insurance percentages. You are limited on how much you can increase co-pays and deductibles and in how much you can decrease the employer contribution and increase the employee contribution. Keeping a plan grandfathered may not make sense from a flexibility and financial management stance.

If your plan is not grandfathered, the plan will have to provide first-dollar coverage for preventive benefits and your plan has to pay emergency care both in and out of network at the same level, and cannot require pre-authorization for emergency care. But, you have the freedom to change your insurance company, your coinsurance percentages and your co-pays and deductibles. Thus, it may pay to give up your plan’s grandfathered status for the financial flexibility.

What are the consequences of losing grandfathered status?

If you have a fully insured plan, the plan becomes subject to nondiscrimination rules. If your plan loses its grandfathered status, you must offer coverage to a broader range of employees, not just to your highly compensated employees. Your plan also becomes subject to more of the new mandates, such as having to provide first-dollar coverage for preventive benefits.

Realistically, I do not see any plans remaining grandfathered after 2014. And companies may end up providing the additional mandated benefits in their plans, whether they want to or not, because insurance companies have already indicated that they are putting all of the mandated benefits in all policies.

How will the new rules impact employer costs?

If you choose for your plan to not remain grandfathered, the additional mandates will likely increase your costs. If your plan does remain grandfathered, there may not be much impact in the first year. In the second and third year, however, the inability to increase employee contributions or deductibles will begin to increase your costs.

If you have a stated percentage of the premium that employees contribute, say 10 percent, that stays in place. If the premium goes up $100, the employee picks up $10 and the employer picks up $90. You cannot shift any additional costs to employees. It will catch up with you, and those additional costs will get fairly severe.

In addition, there is nothing in the reform bill that limits how much insurers can charge in premiums. If your plan remains grandfathered, the insurer knows you cannot leave because your plan will lose its grandfathered status, so in theory it can charge whatever it wants. Thus, keeping your plan grandfathered could lock you into a structure that is probably unworkable. Employers need flexibility to change elements in their health plan structure in response to competitive pressures and the economic situation.

Companies should shop around to see if they can get a lower rate on their group health insurance. Their plans will lose their grandfathered status if they change insurance companies, but the employers could still come out ahead if the cost for providing the additional mandated benefits is less than the increase in cost for their plans to remain grandfathered.

Also, some companies are already looking ahead to 2014, when the penalties for not offering insurance are scheduled to come into play, and realizing that paying the penalty will cost less than they are paying for benefits now. With a penalty of $2,000 per year, per employee at companies with more than 50 full-time-equivalent employees, it may be cheaper for them to just walk away from providing health coverage.

What should employers be doing now to prepare for the upcoming changes?

Most companies with calendar-year plans are in open enrollment planning now and should be looking at the changes they are going to make as of January 1, 2011. You need to be aware that, should you choose to walk away from grandfathered status, there are additional new benefits that you must begin providing as of that date.

If your plan is fully insured, you also need to consider the nondiscrimination requirements and balance the cost impact of giving up the ability to offer coverage to a limited group of employees against the cost of remaining grandfathered.

The changes are forcing companies to review their benefits structure on an ongoing basis, take a closer look at their benefits structure and do a lot more analysis of the benefits they provide. To do that, employers need the expert help of an actuary or broker to help them compare the costs of maintaining their plan’s grandfathered status versus the net cost of adding additional new mandates as offset with any increases in co-pays and deductibles and employee contributions. There will be a lot of balancing going on.

Toni Pilzner is a member at McDonald Hopkins PLC. Reach her at or (248) 220-1341.

An unfavorable judgment may not be the final word in a lawsuit, as the appellate process allows businesses to redress errors in the trial court. The appellate process is complex and lengthy, but it can help you avoid costly litigation.

“If you receive an unfavorable final judgment, it is imperative to promptly consider your appellate options,” says Sidney Klingler, a partner with Secrest Wardle.

Smart Business spoke with Klingler about how to effectively use the appellate process.

How can a business owner determine whether to use the appellate process?

Whenever an unfavorable judgment or order is entered against your business, you should consider the option of appeal. Unless the judgment is so small that the cost of appeal could not be justified, consultation with an appellate attorney or one specializing in the issues involved in your particular case will be necessary to assess your appeal and determine the likelihood of success.

An appeal entails some cost, although generally much less than protracted litigation. Weighing the likelihood of prevailing on appeal against the cost of the appellate process, you may conclude that an appeal is not worthwhile and that it’s better to pay the judgment and avoid the continued accrual of interest.

Be aware, however, that an appeal may not be used for purpose of hindrance or delay, and must be based on a reasonable belief that there is a meritorious issue to be determined. A party may be assessed attorney fees and punitive damages for filing a ‘vexatious’ appeal.

What should business owners know about the appellate process as it relates to business litigation?

There are two general types of appeals in Michigan courts. When there is a final judgment, a party aggrieved by the decision has the right to appeal to a higher court. An appeal of right to the Michigan Court of Appeals involves a process that is likely to go on for a year or more. A claim of appeal, the initial filing that establishes jurisdiction in the court of appeals, must be filed in a timely manner; if not, your appeal of right is irrevocably lost.

Parties may also seek leave to appeal orders issued in a case prior to trial. This is known as an interlocutory appeal. An interlocutory appeal is discretionary for the Court of Appeals, that is, the court has discretion to decide whether it will take up the appeal. Any order issued prior to trial may be appealed by application to the Court of Appeals. When the Court of Appeals grants an application for leave to appeal, it then considers the interlocutory appeal in the same manner in which it would consider an appeal of right.

While a grant of one’s leave application is encouraging, it is by no means a guarantee of a favorable outcome. Many legal practitioners are unaware that the panel that ultimately considers an appeal after leave is granted will not be the same panel that decided to grant leave and may view the case differently than did the original panel.

Nevertheless, an interlocutory appeal can be an effective tool to avoid costly litigation.

Can parties appeal decisions made by the Court of Appeals?

Once a case is decided by the Court of Appeals, an aggrieved party may seek leave to appeal to the Michigan Supreme Court. While the Supreme Court is not an ‘error correction’ court and generally grants leave with respect to issues that have implications and significance beyond the case in which they are presented, it may nevertheless be worthwhile to bring a simple claim of error, as it may act by peremptory order to correct what it perceives as clear error.

Cases can and often do settle during the appellate process. A plaintiff who has obtained a substantial money judgment may be willing to settle for a lesser amount rather than wait potentially years until the appellate process is exhausted. A prevailing party may also be inclined to settle during appeal if he or she is aware that the victory is subject to serious challenge.

A high-quality appellate brief can aid in this process in several ways. When potential grounds for reversal are effectively presented, the possibility of ultimate loss may become more apparent and a prevailing party thus more inclined to settle. Effective briefing also increases the chances for leave being granted, in the Michigan Court of Appeals as well as in the Michigan Supreme Court. With a grant of leave, a judgment or order becomes that much less secure for the prevailing party, a factor that can again facilitate settlement during the appellate process.

What are the potential benefits and dangers of using the appellate process?

The most immediately ‘appealing’ benefit is the prospect of relief from an unfavorable judgment. However, a favorable outcome relating to an issue that recurs in your business may very well affect the outcome of future litigation and can also serve to deter future litigation.

If the Court of Appeals decides a case in a published decision, that decision becomes binding on all state trial courts. The judiciary is thus capable of making law that is equally as binding as legislation, a fact that might not be generally appreciated.

The more common unpublished decision is not binding on lower courts but may nevertheless be persuasive in future cases, especially those involving similar factual scenarios. The flip side is that an unfavorable decision may equally establish harmful precedent that could affect your business in the future.

This means that it is important to realistically assess the strength of your appellate claims, from both a factual and legal standpoint. This is especially true where your case involves an issue of significance to the body of law as a whole — a few examples being independent contractor liability, agency and vicarious liability issues, and premises liability issues.

There may be more at stake than the cost of the appeal itself.

Sidney Klingler is a partner with Secrest Wardle. Reach her at (248) 539-2836 or

Rex Schlaybaugh says lawyers are skeptics by nature. So when the chairman and CEO of Dykema Gossett PLLC tried to drive a systemwide change in their mindset, he was faced with overcoming a great deal of established inertia in order to make it happen.

“Large law has never been a fast-paced, fast-changing industry,” Schlaybaugh says. “Changes come slowly, are often resisted, and as the economy changes, we have found that we are subject to business cycles just like any other industry. Therefore, the way we’ve been operating for the past 100 years can’t be the way we operate in the future.”

Dykema Gossett is a national law firm with 700 employees that generated $175 million in revenue last year. Schlaybaugh had to figure out a way to overcome the momentum generated by an organization of that size and drive home a message that is simple to state but far more difficult to internalize and implement.

“I needed to drive home the recognition that we are a business,” he says. “Though we are legal professionals, we are a business, and our clients are looking to us like they look at any other business in a supply relationship. Are we efficient? Are we cost-effective? Are we producing value? Do we understand their business? And above all, we needed to realize that we aren’t entitled to any portion of their business, but we have to earn their business every day. It’s really a fundamental change in the way many lawyers approach the profession.”

To get the lawyers and legal staff at Dykema Gossett to think like businesspeople, Schlaybaugh needed to get out of the office, communicate and educate. He needed to make a nationwide force of attorneys aware of the business that makes a large law firm run. He needed to get his employees to think in terms of supply and demand without sacrificing any of the legal specialization and expertise that had built the firm’s reputation over the years.

Start a training program

Schlaybaugh needed to begin drilling his employees on the fundamental economic principles that drive successful law firms, and then link those principles to the demands that purchasers of legal services are making in the marketplace.

With the need identified, Schlaybaugh and his leadership team organized a series of training sessions that dealt with topics such as price, profitability and how a top-line dollar finds its way to bottom-line revenue.

“We significantly invested in our finance area to help our lawyers become better businesspeople,” he says. “We have a lot of partners and lawyers in the business, many of whom have significant client relationships and are involved in taking on work every single day. That is who we needed to take the time to educate on becoming smarter, better businesspeople, because they really become the sales, marketing, pricing and finance department for that piece of business. So the more we can help them understand the economics of a big law firm, the better they’re going to be as businesspeople.”

In addition, Schlaybaugh and his leadership team developed a partnership with the Stephen M. Ross School of Business at the University of Michigan.

“We worked with their business school to develop a proprietary program where we took our young, up-and-coming lawyers, as well as a group of the people who serve our largest clients and run our practice departments, and ran them through a leadership management program,” Schlaybaugh says. “It’s all part of our view that, overall, we need to be more sensitive about what our clients are wanting and more sophisticated in the way we manage our business.”

But training programs are only the beginning. You need to reinforce your focus on foundational business principles through consistent communication that continues to drive home the core message that you want your people to hear.

At Dykema Gossett, Schlaybaugh reinforced the firm’s focus on solid business practices by repeatedly placing emphasis on client services. Schlaybaugh wanted every lawyer and staffer to realize that whatever is good for the client will be good for the firm in the long run.

“It’s about the commitment of the organization on the matter of communication,” he says. “Constantly communicating and sharing information is critical. That means you need to share information from the top. In our case, it all comes back to the fact that these are changes to the historical model of law firm management. We need to understand what our clients want. In the past, law firms didn’t really do that. They’d say ‘We have a real estate department, and if you have a real estate problem, come to us and we’ll take a look at it.’”

Cross-functionality has become an issue of increasing importance in law as it has just about everywhere in the world of business. It is a major aspect to effective client and customer service, and as part of his ongoing communication strategy, Schlaybaugh wanted all of the leaders at the firm to examine the organizational structure for opportunities to provide cross-functional services — and as part of that, to build familiarity among various practices within the firm by developing opportunities for lateral communication and team building.

“We realize that we need to invest in everybody who works on a particular client,” Schlaybaugh says. “We need everyone who works on a particular client to know what is going on in the firm. Who is providing services and what services are we providing? That type of communication, information sharing and knowledge building among the people who are serving a particular client or customer is extremely important if you’re going to be as efficient as possible in providing services and achieving your desired outcome.”

Build for adaptability

If you want your employees to be ready for change, the preparation has to start long before you shift course. You need to build adaptability into how you do business. Your market might not change, depending on your industry. Your philosophy on leadership might not change all that much. But you still want a business and work force that can change with the times, move with shifts in the industry and, perhaps most important, remain able to quickly react to new business opportunities.

As part of thinking like businesspeople, Schlaybaugh wants his attorneys to react like businesspeople. If a potential client presents a new service opportunity that might create the possibility of additional business, Schlaybaugh wants his legal experts to recognize the opportunity and feel empowered to capitalize on it.

The way he makes it happen is by continually driving home the idea that what was good for the firm in decades past isn’t necessarily good now. Momentum should propel you forward, not keep you in a circular flight pattern.

“In today’s environment for leaders, with the challenges that are out there, you need to be able to start out fast and keep picking up speed,” Schlaybaugh says. “We have kept trying to break the rule that says we’ve been doing something a certain way for so long, and we can’t do it any other way. Obviously, you don’t want to just change for change’s sake, but you do want to remain nimble and agile. I don’t think a ponderous organization that is slow to change or afraid to change will necessarily be as successful as organizations that are more nimble.”

In some cases, making a change means making a decision that is unpopular, but the numbers, measurements and insight of your experienced team members have given enough evidence to make you believe it is the right call.

The decisions in which you are cast as the lone wolf awash in a sea of doubters can be difficult to make. Far easier are the decisions over which you can build consensus in advance of pulling the trigger.

There is a time and place for both, but as often as you can, you should try to make the rounds, build your case and cement the idea with your people. Your employees will develop a much stronger tolerance for change if they feel like you are making a good faith effort to solicit, consider and implement their input.

As you keep driving a forward-thinking mindset to your employees, and as the decisions you make begin to deliver positive results, your employees will start to develop more and more confidence in your ability to make a judgment call. If you’ve done your job correctly in the early stages of change management, building a consensus should be a less arduous task over the ensuing months and years.

“In any business, the management team continues to build credibility through the outcomes they have achieved,” Schlaybaugh says. “So we measure ourselves by how we have grown the business, how we have improved earnings, how satisfied our people are with their jobs.”

Dykema Gossett has an internal scoreboard that measures the job that management has done in communicating with employees. Employee confidence is reflected in job satisfaction, workplace satisfaction and the financial success of the business, among other categories.

“Our partners are entitled to expect that our management team will make progress on all fronts every year,” Schlaybaugh says. “We have a number of things that most businesses measure, both on financial and nonfinancial aspects of the operation. Obviously, you’re aware of the financial ones. What is our revenue, our growth rate, our revenue per lawyer, profits per partner? We have a whole series of financial metrics that we measure ourselves against.”

Financial metrics can give you an accurate gauge on how well positioned your business is to grow and change. But it’s the employee feedback that will show you how well your business will be able to capitalize on the opportunities presented to it. It’s your employees who are going to man the throttle and steering wheel.

You need to encourage employee feedback through multiple channels. Feedback channels give employees an ongoing opportunity to interface with management and help retain their involvement and interest once you’ve initially engaged them.

It might be cliché to say that you have an open-door policy, but Schlaybaugh says the concept is still worthwhile. You need to be accessible on a day-to-day basis if you want employees to be engaged and willing to change with the company.

“You have an open door in the sense that you are willing to listen to different opinions and views,” he says. “Even if you do have to make a decision and move on at some point, I think most people appreciate that a decision was made — even if it wasn’t necessarily the one they were advocating — as long as they were provided with the opportunity to be heard, to be able to advance their position. It goes back to the larger communication issue and how important it is within the whole organization.

“When we get a piece of feedback, we hand it to whatever department of the law firm has responsibility for that area. Obviously, not all ideas are adopted. But you go out of your way to thank people for their ideas and time. I think people appreciate the willingness on the part of management to listen, and then they are very happy to see the changes that come from the ideas within the organization.”

How to reach: Dykema Gossett PLLC, (313) 568-6800 or

Editor’s note: This is the first of a two-part series. Next month’s article will look at the use of specialty drugs.

Employers’ health care costs are skyrocketing, and a major reason is employees who rely on expensive brand-name drugs when other effective options are available at a fraction of the price.

But employers can counter that tendency by implementing a well-designed and managed pharmacy plan, which can provide incentives for employees to use lower-cost options instead.

“A managed pharmacy plan takes advantage of multiple levers that are used to manage pharmacy costs, while at the same time delivering a benefit that provides safe and effective medication options for providers and members,” says Steven Marciniak, director of pharmacy for Priority Health.

Smart Business spoke with Marciniak about how a properly designed pharmacy plan can improve your bottom line while keeping your employees healthy and happy.

How does a managed pharmacy plan work?

A managed pharmacy plan breaks down most therapeutic categories and does a comparative analysis of the drugs available in each class, taking into account factors such as the relative effectiveness, side-effect profile, route of administration and cost.

Most plans have a pharmacy and therapeutics committee made up of pharmacists and practicing physicians who do the analysis. The committee starts with a therapeutic category, such as drugs that treat high blood pressure, and lays out the drugs available, including any subgroups. Then the committee analyzes those drugs — do all the drugs do the same thing, do they all have the same side effect profile, are there generic brands available? The therapeutic class is managed based on the committee’s decisions. Management may consist of step therapy, quantity limits, or other utilization management protocols.

What are the benefits of using a managed pharmacy plan?

The benefits are an absolute essential. While many plans are approaching an 80 percent generic use rate, about 80 percent of the cost is still attributable to brand-name drugs. A managed pharmacy plan positions drugs on the formulary in a way that drives utilization to the most cost-effective products.

How do tiered formularies work?

A tiered formulary works by assigning every drug on the formulary to a specific tier, and then creating co-pay or coinsurance levels that align with each tier. The most cost-effective drugs are placed on lower tiers, while more expensive drugs are placed on higher tiers. A typical five-tier formulary designation would be generic, preferred brand, non-preferred brand, preferred specialty and non-preferred specialty. The employees’ out-of-pocket cost would usually increase at each step of the tiered formulary.

For example, within the PPI (proton pump inhibitor) class of drugs, there are brand-name prescription drugs like Nexium and Aciphex. Also, Prilosec is sold over the counter, and Protonix is available generically. Clinically, the drugs all deliver similar results. There is no evidence that shows one is any better and all have a similar side effect profile. So, the company looks at cost and sets up step therapies. In a managed plan, that means you will first have to use an over-the-counter drug, and the company will pay for it.

If that doesn’t work, you move to the next step, to the generic and, if that doesn’t work, to the brand-name drug. But you have to go through these steps so you’re not using the most expensive product right out of the gate.

However, a drug would never be unavailable to a patient if it were better for him or her, even though it is more expensive. That’s why there is such detailed analysis that allows the plan or the employer to make these decisions.

How can using a tiered formulary benefit a company’s bottom line?

Tying higher member cost to higher cost of care often leads to a better-informed consumer. A tiered formulary tends to drive utilization toward lower-cost, just-as-effective medications. Not only do plan sponsors/employers have lower costs as a result, but members spend less, as well. And lower out-of-pocket costs can lead to regular refills and better compliance, resulting in a healthier work force.

For example, with conditions such as high blood pressure or cholesterol, people feel OK and are not as inclined to get a prescription filled, especially if it is $40 a month. But it’s obvious that if they get it filled every month, year after year, that person is going to be healthier, leading to a healthier work force and better productivity. However, if that person is paying $10 for a generic as opposed to $40 for a brand name, it’s easier on the wallet and he or she is more inclined to get that prescription filled every month.

Do tiered formularies work for every company?

There’s no reason a company shouldn’t utilize a tiered formulary, but communication is important to making it work. Showing treatment alternatives for a particular condition can raise employee awareness of those alternatives. Employers have a lot of latitude in establishing member cost share across the tiers. And a tiered formulary allows for more detailed utilization reports that employers can use for trending, forecasting and fine-tuning benefit structure.

Can a company create its own managed pharmacy plan?

Few companies have the expertise to develop their own managed pharmacy plan. Add to that the fact that the pharmacy benefit is very dynamic, with new drugs available every week, patent expirations and what’s around the corner, and employers should look for expertise on these topics with their insurer or pharmacy benefit administrator.

Steven Marciniak is the director of pharmacy for Priority Health. Reach him at (248) 324-2820 or

Many companies have crumbled under the weight of their own infrastructure when their revenue stream slows to a trickle.

But just because your business comes to a halt doesn’t mean your expenses vanish, as well. If your business is interrupted, are you prepared so that interruption doesn’t lead to the demise of your company?

“Business interruption can lead to catastrophic losses,” says Philip Reardon, director of Aon Risk Accounting Management and Administration. “Unless you have adequate insurance that has transferred the risk to insurers, it can leave a heavy impact on the balance sheet and ultimately lead to the failure of an organization.”

Smart Business spoke with Reardon about how business interruption coverage can protect your company in times of crisis.

How does business interruption coverage work?

It’s essential to understand that BI coverage is a component of a property policy, which covers the physical assets of an organization and the business interruption element that goes with it.

In order to have a business interruption claim, your property policy must be triggered by physical damage to an asset. Damage triggers the policy, and as a result of that damage and its impact upon the business, BI coverage comes into play.

There are two components of BI coverage; the first is a loss of gross profits, and the second is an extra expense component. The loss of profits component covers the revenue of the organization, less any variable expenses that may cease during a period of interruption. Its purpose is to protect the bottom line. Gross profits coverage is designed to cover all the fixed costs that continue on in the event of a loss, plus the net profits of an organization. Rather than generate revenue from the sale of products, for example, the insurance company will pay the gross profit element and those costs will be covered.

In addition to that, there is an extra expense element to the policy that covers the additional costs associated with trying to mitigate that loss of revenue.

What are some expenses that occur as a result of business interruption?

There are several fairly common expenses. If your organization recently had a major fire and leased temporary premises, the extra leasing cost is covered under the policy. Also, if an organization has more than one manufacturing site and loses one, there may be the opportunity to increase the production coming out of the remaining sites. You can work around the clock at those remaining sites and ideally maintain the same level of production. Obviously, there is additional cost and labor associated with the increased production, and those costs are covered under the extra expense component.

Some organizations may be faced with the opportunity to contract with a competitor. If competing companies have a fairly amicable relationship, they may have an agreement that if one has a business interruption, the other will help out. This gives a client the opportunity to continue to manufacture its product and maintain its customer base. But certainly the competitor will make hay while the sun shines and charge you a premium to use its facilities and equipment. If it does that, the additional cost of going to a competitor is covered under the extra expense component.

What are some things companies can do to cover extra expenses?

Clients are obliged to mitigate their losses to the best of their ability under the terms of the policy. So more often than not, an organization will have some level of mitigation it can employ in the event of a major interruption.

Insurers actually prefer to spend money on mitigation than to hand out money on a loss of profits claim, because a loss of profits claim will invariably go on a lot longer than an extra expenses claim. Insurers prefer to have that extra expense coverage implied and utilized by the client.

There are two elements of extra expense. The first is expense to reduce loss, which basically means you can spend a dollar in order to avoid losing a dollar. Of that potential lost gross profits, you can spend that amount in order to prevent losing it.

The second element is a separate extra expense clause best defined as a separate sublimit — it’s a separate bucket of cash. If there is anything that falls outside the realm of the expense for reduced loss, then it falls into that extra expense category. It’s a safety net for additional spending that a client may incur trying to mitigate its losses.

Also, a client may potentially elect to insure extra expense only. An organization may be comfortable with its own mitigation options that it elects not to have coverage for gross profits and will only cover extra expenses.

In doing that, an organization must be comfortable with its mitigation options because any loss of revenue is subsequently not covered.

How can companies determine what their plan should be?

It is essential for organizations to regularly review their business interruption coverage because there are changes every day in business, and if you don’t change, you’re going to fall by the wayside.

Many organizations have diversified or made acquisitions, and they must make sure these changes are reflected in the business interruption values provided to insurers. In the current economic climate, if an organization simply provides the same values to the insurer it did the prior year, it may well be missing out on a premium reduction. If revenue and profits have gone down, the values you provide to insurers should go down. All other things being equal, the premium associated with that should also go down.

Friday, 25 June 2010 20:00

A simple decision

Written by
Business Services

Terry Terhark wants to help each of the more than 90 clients who rely on his recruitment process outsourcing business to land the top employees who will be the best fit for each company. He also wants to do the right thing.

After more than seven years as the CEO of The RightThing, Inc., which provides human resources outsourcing for Fortune 1000 businesses in almost every major industry sector and focuses on recruitment, just about everything Terhark represents revolves around the right thing. There is the fact that he wants to provide the right work environment for his employees and allows many of his top employees to work from home as many as three days each week. There is his business philosophy, which is as simple a statement as, “Do the right thing and good things will happen.” And, yes, there is the name of his business.

Terhark is a professional in the human resources outsourcing industry. He has more than two decades of experience in the industry and founded his first business, Selective Staffing, in 1990. That business provided staffing, recruitment and employment outsourcing and was successful so quickly that it was acquired in 1998 by Aon Consulting. Terhark founded The RightThing five years later and now has built another successful business in the industry about which he is so passionate.

The RightThing is the largest privately owned recruitment process outsourcing firm in the nation and the top provider in the region. Terhark plans to continue building the business in 2010 and wants to open at least one office overseas.

Why now? Well, Terhark has always done what he considers to be the right thing, of course, and good things have always happened.

How to reach: The RightThing, Inc., (800) 466-4010 or

Friday, 25 June 2010 20:00

A (fresh) cut above

Written by
Retail & Consumer Services

Matthew Jonna grew up in the market. Oh, yes, we all grew up in the market, so to speak. We all walked with our parents through the aisles of our local grocery store, our hand in theirs, our eyes wandering away from the fruit and vegetables and straight toward the candy. But Jonna grew up in the market literally, not figuratively. His parents founded and owned the Merchant of Vino chain, which stocked wines and specialty foods and stretched to six locations throughout the Detroit area. Where so many of us just salivated over cookies and sugared cereals, Jonna learned how to own and operate a market.

He learned life lessons.

He learned exactly what he — and, in turn, the customer — likes.

And when Whole Food Market IP LP, came calling during the late 1990s, Jonna and his brother realized that the life lessons they had learned during their childhoods were telling them to sell. So they did. After a little more than five years of research, plenty of time to develop new ideas and refine old ones, Jonna jumped back into the industry with Plum Market. He wanted to return to the roots of a market by focusing on smaller stores and natural and organic foods. Granted, he did lay out the store 27 times before finding the floor plan he wanted, but the philosophy and the ideas were there all along.

Now Plum Market is in three locations in the Detroit area. Each location features employees with thorough culinary training — including butchers, a dying breed, according to Jonna — in addition to fresh produce selected each morning and local and organic food from across the state. Trained employees? Fresh produce? Local food? They might seem like novel concepts in the industry, but those are the life lessons Jonna learned so many years ago.

How to reach: Plum Market, (248) 706-1600 or

Friday, 25 June 2010 20:00

Thinking ahead

Written by
Master Entrepreneur of the year

Stephen Polk is always thinking about the next step. It’s that foresight that has helped make R. L. Polk & Co. a place his great-grandfather and company founder Ralph Lane Polk would have been proud of.

Since being named chairman, president and CEO in 1994, Polk has helped the company evolve from its roots as a directory publishing business.

He took the traditional printed catalog business that supported the automotive space and took it online. He spearheaded the purchase of CARFAX Inc. in 1999, an entity that has become a major revenue source for R. L. Polk. And he sold the company’s nonautomotive assets and focused on global expansion to become the pre-eminent source of automotive information and solutions.

“Being an entrepreneur is all about being able to take a gamble,” Polk says. “The whole idea behind taking a risk is the uncertainty about it.”

Polk seeks to recognize when a business has matured and can no longer contribute to growth. Success in business is achieved when you can identify and pursue investment opportunities in complementary businesses that can augment your own strategic vision.

While he accepts this role as his responsibility, he doesn’t set the course for his business alone. Polk believes in a decentralized business model where employees share in the task of understanding customers’ future needs and helping the business evolve to meet those needs.

He values each employee’s opinion and helps foster an environment that promotes a culture where everyone sees him or herself as an important asset to the company. The employees’ knowledge is needed to see how the company can fit into emerging markets and what products and services will be appropriate to make it work.

How to reach: R. L. Polk & Co., (800) 464-7655 or