Smart employers are looking at all of their options to hold the line on health care costs. Some companies are reducing benefits, or asking their employees to contribute more to the cost of health care coverage. However, there is a solution that doesn’t typically result in increased costs for either the employee or employer it’s called self-funding, and for employers that can afford to take on risk, it’s an attractive alternative to paying fixed premiums for group health insurance.
Employers also purchase stop-loss insurance coverage, which is designed to protect against medical expenses above a certain limit. The stop-loss insurance carrier reimburses the employer for claims above their liability. If expenses do not exceed budgeted expenses within a plan year, the employer retains the savings. These funds can be used to pay future expenses or transferred to a 501(c)(9) trust account, which allows employers to earn tax-free interest on employee benefits.
- Cash flow benefits. The employer’s cash flow is improved when money formerly held by insurance carriers (reserves to cover health-care costs) remains under the employer’s control and can be invested.
- Premium taxes are eliminated. These taxes vary by state, but range from 1 percent to 3.5 percent. In most states, including Michigan, there is no premium tax on the self-funded claim fund.
- Mandatory benefits are exempt. Self-funded plans are subject to the Employer Retirement Security Act of 1974 (ERISA), a federal law. Under ERISA, self-funded plans are exempt from state laws and regulations, so employers can decide whether to offer state-mandated benefits that are required for fully insured plans.
- Employer control. Self-funded plans may be tailored to fit the needs of the group. This means the employer has complete flexibility to develop a benefit plan that will be cost-effective and valuable to their employees.
- Claim cost containment and utilization controls. A wide variety of care-management programs are available for purchase on an a-la-carte basis. These programs help ensure that employees are receiving the appropriate care, at the appropriate level, in the most cost-effective manner, with appropriate outcomes. Some of these programs include utilization management, case management, pre-existing condition review, disease management, pharmacy management and health promotion. When all of these programs are integrated, employees who are at a higher risk to incur medical expenses can be identified for case-management or disease-management programs.
- Effective risk management. Employers may choose the amount of risk to retain and the amount of stop-loss insurance they want to purchase.
- Consumer-directed options. Self-funded plans can also be designed to integrate with health reimbursement arrangements (HRAs) and health savings accounts (HSAs) to promote greater employee responsibility in health care decision-making.
- Have at least 100 or more employees
- Are financially solvent
- Are willing to take on risk
- Want increased cash flow
- Are willing to invest the time to understand the risks and rewards
- Have good claims experience
- Are looking for flexibility in benefit design
Downs had worked at other restaurants in a negative environment, and he wanted his place to be fun.
“The better way is to be friends, have fun and make money,” says Downs. “It all goes together.”
A few years and several restaurants later, Downs knew the time had come to formalize his business strategies and he created his ‘Friends taking care of friends’ motto. The policy is ingrained in every aspect of the company, and employees are trained on what it means from their first day on the job.
This approach keeps both customers and vendors coming back, Downs says. When the company experienced a financial setback after its bank closed, vendors and contractors continued to work with it because they knew bd’s would honor its financial commitments, he says.
Because it can be challenging to find employees who will live by his approach, Downs contracted to develop a questionnaire to use during the hiring process. Downs is looking for people who are outgoing, caring and adventurous, traits common to his earliest star employees.
The chain has 27 locations in 10 states, and in May, opened its first franchise in Mongolia. That non-for-profit location donates some of its proceeds to support The Mongolian Youth Development Foundation.
Smart Business spoke with Downs about how his service-oriented approach gives the company a competitive edge.
How did you develop the ‘Friends taking care of friends’ motto?
We started the company in 1992, and we didn’t really have time to form a written policy. After a few years, we started writing more down, and we realized that ‘Friends taking care of friends’ was really the way we were doing business.
It’s the way we operate every day; our management team takes care of the frontline team, who takes care of the guests. They are all taking care of each other. And the guests are taking care of the servers by tipping them.
It’s a team approach that works together hospitality and service. That is also the way we work with our vendors. The policy gives us our marching orders it’s simply how we do business.
How has the policy benefited the company?
I am a believer that what goes around comes around, and we’ve seen that. Our vendors are much more aggressive in trying to get our business because of how we treat them. For example, if you open a project for bids and you decide to go with Company A’s bid, then Company B decides to get more aggressive and comes back with a lower bid, we still stick with Company A. We hold true to our bidding process and timeframes.
There have been times when we discontinued a process and didn’t require certain inventory anymore. We still bought the remaining inventory that the vendor had left so that vendor wouldn’t get stuck with it.
Shortly after the Sept.11 attacks, our bank went bankrupt. We were doing a big rollout of a number of restaurants. We were short we couldn’t pay our contractors. But our decision was to pay everybody every penny. It took us a year to do that, but our vendors and contractors worked with us because they knew we would keep our word.
How does your ‘Friends’ policy affect your decision-making and planning?
It reminds us that with every decision, we seek to do the right thing for our team, our managers and our guests. You never want to hurt a friend, and our employees are here because they care about people.
Let’s say that we learn that someone didn’t do the right thing on a basic service level. We work with the employee to help him or her learn from the mistake and help him or her to do better. The same is true with vendors. Misshipments do occur. When that happens, we work with the vendor to get the right product in the door.
We don’t spend time pointing fingers. Instead, we work with the vendor to figure out how to make it right. It’s very positive and it blends into our environment. We don’t dwell on negativity.
How is this policy different from that of your competitors,’ and how is it executed?
I think the one thing about us that is different is that we genuinely do care. We are trying to always hire people who care. You spend a lot of hours working, so you might as well have fun while you’re there.
We look for people who care, who are outgoing and hospitality-oriented. We recruit most of our new employees through existing employees, through word of mouth. We have a reputation of being a cool, fun place to work.
We also live our policy every day. It’s not up on a wall where it is ignored. It’s not just words. We practice the policy every day in everything we do. Our employees and guests can feel that we’re not just about the numbers. We’re about people.
It is really in the fold of the company it’s part of our everyday makeup. From Day One, employees are oriented to the policy, and it is interwoven into how we do business. I have heard one employee say to another, ‘Now that’s not taking care of your friend.’
Our people not only believe it but address it with those who may not be taking care of those around them. I’ve worked in environments that were negative, where no one was taken care of. I know how important it is to have a positive environment.
What characteristics do you look for in employees?
We have a proprietary model that we use during the recruitment and hiring process that is designed to find out who is introverted and who is extroverted and likes to enjoy live, experienced-based activities like rock climbing and more adventurous hobbies.
We’ve found that that type of person best fits our profile and is also hospitality-oriented, although we can teach that but we are looking for caring people. There is a difference between service and hospitality.
We went through a process of identifying common characteristics of our best teammates and developed a process to find those same characteristics in our new hires. Now those characteristics do change slightly we do tweak the model over time.
As we look for managers, we try to recruit internally. Five years ago, we made an effort to move a lot of employees upward, and it helped our retention rates. We have so many college kids, we thought if we could get to a 100 percent turnover rate we would be happy. For our industry, that would be a great goal. Our turnover rate was 150 percent, now it is 120 percent.
We’ve found our best employees are college students, but that means built-in turnover. We also seek sophomores rather than freshmen, because they have had a year of college under their belts and are realistic about the time commitment of work and going to school. But for those who decide they want to stay with the company, we offer Career Quest, a program that, from Day One, plots out the person’s career path.
For some, the goal is to make as much money as they can while in college, but others want to grow as a supervisor or manager, and the key to those positions is communication. What we’ve found is that if we don’t offer people opportunities for growth, they’ll leave. If we give them more responsibilities, they’ll stay.
How do you train employees to keep the service policy in mind?
Every part of our training is written and conducted with the policy in mind. It’s interwoven into everything we do. It’s written in the training manual and then supported the rest of the time the person is employed with us.
It’s more of an internal reminder than external, although some of the managers and franchisors had the policy painted on their front doors. But if you take care of your people, they stay and they take care of the guests.
What are your biggest challenges in keeping a high-quality service environment?
There are a number of challenges, but I think the biggest is in hiring new teammates. Finding the right people and training them correctly are big challenges, especially with Generation Y. They are used to swiftly moving through Web sites for information and getting instant feedback and responses. These people haven’t always experienced service. And today’s service standards are a lot lower than they were 10 to 15 years ago. People are accustomed to average service.
To make sure our people are trained correctly, we monitor our results on a daily basis. We conduct surveys. In Detroit, there are computerized surveys at the tables, and we find out right then and there if something wasn’t satisfactory.
One of the questions is, ‘Would you come back?’ If the person answers no, the manager is automatically paged to the table. This immediate feedback is important with Generation Y people. They love it.
HOW TO REACH: bd’s mongolian barbecue, (248) 398-2560 or http://www.bdsmongolianbarbecue.com
The R&D credit was enacted to encourage companies to seek out and develop new products. Its purpose was to help defray the cost of research and level the playing field between U.S. business and foreign competition, particularly in technology-related industries such as chemicals, pharmaceuticals, electronics, and other industrial and manufacturing areas.
Despite the fact that approximately 18,000 taxpayers claim more than $7 billion in R&D credits each year, many smaller companies are not aware that the activities they perform to develop new products, enhance existing products or improve their manufacturing processes may qualify for R&D credits. Additionally, many are not aware that recent changes have made the R&D credit easier to claim and applicable to more activities performed by the company.
Calculating the credit
The first component of the R&D tax credit involves calculating the credit, which means knowing which expenses fall within the IRS’ definition of qualified research expenses. These qualified expenses are broad in scope.
- Wages the wages of employees who work on or supervise the development of projects, or manufacturing staff who support the experimentation process
- Supplies the supplies used in the research or experimentation process, including raw materials, jigs, fixtures, prototypes, test beds, tooling, etc.
- Consultants contract research expenses paid to outside consultants to help develop or test new products or improvements
For the expenses listed above to qualify for the R&D credit, they must also comply with a four-part test, which essentially states that the activities by employees and expenses related to the R&D process must meet the following requirements.
- Technological in nature. The activity performed must fundamentally rely on the principles of physical science, biological science, engineering or computer science
- Permitted purpose. The activity must relate to a new or improved business component’s function, performance, reliability, quality or price
- Process of experimentation. Many of the activities must be elements of a process of experimentation involving evaluation of alternatives, confirmation of hypotheses through evaluation, testing and/or modeling, or refining or discarding of the hypotheses
- Uncertain. Uncertainty must exist concerning the best technical path to achieve the desired objective
Documenting qualifying activities
The other component of the R&D credit involves keeping proper records and documentation to prove that your company was actually trying to develop a new product or improve an existing product or manufacturing process. If examined, the IRS will look to see if:
- There is supporting documentation. This must relate in a meaningful way to the course of the experimental development work performed. This requirement can be filled in a variety of ways, including, but not limited to, notes, test results, CAD or paper drawings.
- There is meaningful documentation. This relates to the costs incurred. W-2 information on salaries will be examined. Also helpful, but not essential, are time cards that may identify hours, days, weeks or months spent solving problems.
The R&D tax credit is not new; however, the rules regarding what qualifies as research and development and how the credit is calculated have changed considerably over the past 20 years. Small- and mid-sized firms should not underestimate or trivialize the product or process improvements they make each year.
While the calculation required in claiming the credit can be complicated, a tax professional that is familiar with the nuances of the credit can help identify hidden costs, which could yield surprising credits and possible tax refunds.
Joseph C. DeGennaro is a Certified Public Accountant and director of taxation at Doeren Mayhew, a regional accounting firm in Troy, Michigan. Doeren Mayhew provides a wide range of professional services to middle-market companies. Contact DeGennaro at email@example.com or (248) 244-3033.
Previously, Miller was the nonexecutive chairman of Federal-Mogul, as well as director of public companies including Waste Management, Symantec, United Airlines and Reynolds American.
In 1968, Miller began his career at Ford Motor Co., where he stayed for 11 years before joining the Chrysler Corp. In 1992, he became a partner in an investment banking firm, and in 1993, he embarked on a career as a professional corporate director.
Miller earned a degree in economics from Stanford University, a law degree from Harvard Law School and an MBA in finance from Stanford Business School.
MICHIGAN ECONOMIC DEVELOPMENT CORP.
The Michigan Economic Development Corp. named James Epolito president and CEO. Epolito turned the Accident Fund into an industry leader as its president and CEO from 1995 to 2005. During that time, he grew the business from a $117 million single-state insurance provider to one serving businesses in 40 states and generating more than $500 million annually. Last year, it was the 15th largest workers compensation insurance company and the ninth most profitable of all insurance companies.
AMERICAN COMMUNITY MUTUAL INSURANCE CO.
American Community Mutual Insurance Co. appointed Scott R. Reed senior vice president, group insurance.
Reed was previously executive vice president of the Nevada Consumer Directed Health Plan, where his responsibilities included strategic planning, product development, agent services and business development.
Reed has also served as director of sales and marketing at St. Mary’s Health Plan in Nevada, national sales director for Insurdata/UICI Administrators in Texas, and sales management positions with Intracorp and Equicor in California.
“Scott is managing and leading all aspects of our group health care plan offering, from product development to underwriting and marketing,” says Gerald Meach, president and CEO. “This is a key role because our services are evolving quickly in this very dynamic marketplace.”
American Community Mutual Insurance Co. also added L. Craig Shelley to the company’s senior management team. As senior vice president, consumer choice division, Shelley leads the development of consumer choice healthcare products and services.
He was most recently vice president, sales and marketing, for HealthEquity Inc., where he directed sales efforts in Midwest states from the company’s Michigan office.
He previously was vice president of RE/MAX International, where he developed and managed the Affinity Marketing Division, as well as initiatives including the company’s Total Quality Management system and the RE/MAX-Latin America franchise marketing program. He is also past president and founding officer of Great American Financial Services Corp., a wholly owned subsidiary of Great American Bank. He holds an MBA in international business from The American Graduate School of International Business and a bachelor of arts degree from Arizona State University.
DETROIT ZOOLOGICAL SOCIETY
Detroit Zoological Society appointed Greg Harris senior vice president. Harris will manage the marketing, membership, development and public relations departments.
He comes to the society from The Florida Aquarium, where he was executive vice president of external affairs for four years, leading external affairs, government relations, development, membership, marketing, public relations, sales, events, education, exhibit design and graphics.
In 1987, Harris began work in Baton Rouge as director of urban planning and cultural tourism development for the southwestern region of Louisiana. In 1994, he accepted a position as director of corporate relations and development services at Berry College in Rome, Ga., followed by a position as senior vice president of development at Zoo Atlanta. In his seven years at the zoo, he raised approximately $25 million.
Under Harris’s leadership, the zoo’s black tie gala, Beastly Feast, netted more than $1 million for four consecutive years, making it the No. 1 gala in Georgia and in the zoo and aquarium industry at the time.
“It’s absolutely critical to innovate,” says Desai. “In the information technology industry, things are changing and evolving all the time. We see our role as helping clients figure out how they can use innovative technologies to create a competitive advantage in their business. That is a continually ongoing process.”
Accordingly, Desai, who launched the company in 1980 with $2,000 and an MBA from the University of Michigan, has been among the most daring in his industry. In 1992, when competitors were focused on delivering on-site services, Desai was spearheading offshore operations in Mumbai, India. Today, he’s put the emphasis on using his company’s own products and services to create better efficiencies within Syntel’s operations before offering them to the public.
“We thought that we first had to make our own example,” he says. “And only after we drive our own example home can we really take our message to our clients.”
Smart Business spoke with Desai about the importance of innovation and how the prevalence of outsourcing has changed the IT industry landscape and Syntel.
What is your philosophy for fostering innovation?
I emphasize the importance of innovation across the whole organization through constant communication. The best ideas come from people closest to our clients’ businesses.
We encourage people to innovate and take risks in delivering superior value to clients. We recognize people who take risks and come up with new ideas to push the envelope on how we can bring additional value to customers.
Let me give you a few examples. We launched two new service offerings in the last couple of quarters SSN Secure and Synapp Test. SSN Secure was in response to clients’ escalating need for security of information.
The Social Security number is used extensively in financial services and health care applications. And yet, there is heightened need for security. Syntel came up with an offering that would help these clients create a security blanket around Social Security numbers.
The other one is Synapp Test. As more software is developed, there is an explosion in the use worldwide. There is also an increased need to ensure that software is really well field-tested so that people don’t encounter bugs once it is in use. We created this offering which allows clients to field-test software.
We applied various sophisticated tools and techniques to ensure that when software comes out, it is very well tested and there is a high degree of confidence in its robustness.
How do you solicit input from clients to address their escalating needs?
Through constant communication. The best way to understand customers’ needs is to be very close to them and learn more about their business. One of the initiatives we have taken is that even though we are a technology company, we’ve increased recruitment of people that understand specific industries and specific industry domains well.
It is these people (who are) communicating with clients, understanding their challenges and opportunities, then coming up with solutions proactively that we believe will help solve those problems or help them take advantage of opportunities.
What steps do you take to communicate the message that you’re encouraging employees to take risks?
We publicize new ideas internally. We have several publications, and one of the things they [feature] are great ideas that were presented and how an idea helped deliver value to a given client.
We recognize people who go out of their way in driving innovation. We also have rewards for people who have really strong performance financial incentives. And then, for people who have really superior performance, they get nominated for our annual president’s award program. This is a program where roughly a dozen (out of 5,000 employees) of the top performers worldwide are invited on a cruise that my wife and I host.
It puts them in very elite company. Anyone can nominate someone. Typically, people nominate people who have shown exemplary performance in their group or in their interactions with them. We used to get 50 to 70 nominations. Last year, we put it on the intranet and got over 200 nominations.
How do you recruit these top-notch people?
You have to define the profiles of people who you think will be successful in your industry and who are aligned with your culture. Our culture is to be very customer-driven. We want people who are customer-driven, who are responsive to the needs of customers and who are motivated by growth and innovation.
We look for those attributes in people because those are the people who we know will be successful in our company and will have a multiplied effect on the innovation at Syntel.
How does your Indian operation create a competitive advantage for you and your clients?
There are several key benefits. First, availability to a highly talented work force. India has 500 million people under the age of 25, and there is a huge focus on education. Access to this very vast, very deep talent pool is No. 1.
Two, because the talent pool is so large, it allows clients to take on large projects. By outsourcing to us, they can ramp up or ramp down very quickly.
If they had to do that project in-house, to staff up 200, 300 or 400 people would be very difficult. But they can come to us and say, ‘We have this project that needs to be delivered in 15 months. We looked at the staffing profile, and it looks like we may need 50 people for the first six months, then 300 for the next nine and then 50 for the next three.’
We can quite easily manage that. So the second is scalability.
Third, because of the first two, it allows them (clients) to get a time-to-market advantage over their competition. A development cycle or innovation cycle that normally would have taken 12 to 18 months we can sometimes collapse to three to six months.
Finally, because the wage rate is so attractive there because the cost of living is so much lower, it allows them all of these benefits at a very attractive price point.
How do you identify opportunities without distracting from your core competencies?
By being in the marketplace all the time. My job is to figure out where are the next set of opportunities for Syntel. I do that by communicating with clients, talking to employees, talking to people in the industry and listening to my advisers. I encourage our leaders to do the same thing.
We have a periodic review process to decide which one of the many ideas that we have on the table we want to actually pursue.
Three quarters of your sales are driven from the applications outsourcing division. How do you ensure you’re diversified enough to weather a downturn in the marketplace?
We are actually further segmented by industry. We have penetration into financial services, health care, insurance, automotive, telecommunications, transportation, and logistics, and retail.
We have very specific plans for expansion in each industry. Applications outsourcing is really a service type, and each of these industries has their own drivers. By servicing multiple industries, leading the innovation process and driving the message innovation across the enterprise, we think we can mitigate the risk of a downturn in any one segment.
Do you practice what you preach for your clients within Syntel?
One of the things a leader has to do is drive change. Syntel has reinvented itself multiple times. Twenty-five years ago, when we started the company with $2,000, we were a local IT staffing company.
We grew from a local IT staffing company to a national staffing company that had lots of foreigners in the work force to a solutions company to an offshore outsourcing company. As we made each of those turns, it was very important to drive a message of change across the organization.
Human nature is to resist change. A leader has to successfully communicate where the enterprise is headed and get the organization aligned behind the change. I was lucky to have a team that understood the reason and motivation behind the change.
Therefore, we were able to successfully execute on that change. I firmly believe that you have to practice what you preach.
What lessons did that experience teach you?
As you are transitioning work, you have to recruit top talent that is capable of executing on that work. You have to have a very well-defined process for making the transition work.
And, most importantly, if you are going to transition from one mode of operation to another mode of operation, it is very important that the new mode of operation work so much better than the previous mode that people don’t even question it. They say, ‘Wow. This is so good. Why didn’t we do this before?’
HOW TO REACH: Syntel Inc., (248) 619-2800, http://www.syntelinc.com
A recent report in the Detroit Free Press highlighted some of the risks involved in using PBMs’ full suite of services.
“According to the Henry J. Kaiser Family Foundation, a California organization that studies health care costs, benefit managers boost market share in two major ways: adding drugs to the list of medicines employers pay for and encouraging doctors to use those drugs, even if they are more expensive. The more sales grow, the more drug companies pay the benefit managers.”
This practice results in significantly higher prescription drug costs for employers, because much of the costs associated with pharmacy benefits lie in a company’s formulary.
What is a formulary and how does having one save money?
The Academy of Managed Care Pharmacies describes a formulary as “a continually updated list of medications which represent the current clinical judgment of physicians and other experts in the diagnosis and treatment of disease and preservation of health. The primary purpose of the formulary is to discourage the use of marginally effective drugs and treatments.”
A formulary is more than just a list of drugs. It is instituted and managed by a Pharmacy and Therapeutics (P&T) Committee, often comprised of pharmacists, physicians, benefit plan managers and other allied health professionals in and around the community. The committee has the expertise to help physicians decide which drugs should be utilized while maintaining high-quality patient care.
Some organizations have the resources to analyze their prescription benefit and pull their formulary in-house to have better control over which drugs are available to their employees and physicians. This saves money, but most employers need to rely on someone else to manage their benefits.
There are other options. Many health insurers have the resources and the know-how to institute and manage their own formularies, which results not only in significant cost savings for members but can also help ensure drug safety and efficacy.
Managing a formulary is key because of the continuous influx of new drugs in the market. Each drug must be thoroughly reviewed and clinically proven to be 1) clinically effective; 2) safe; and 3) cost-effective. Many health insurers promote the use of proven generics whenever possible. This reduces costs and promotes safety.
PBMs, on the other hand, can offer services that can be helpful to a health insurer.
- Provide broad access to a national network of pharmacies
- Process claims efficiently and cost-effectively
When used in this capacity, PBMs can help control costs and allow health insurers to concentrate on providing other services to their customers.
If your health insurer uses a PBM, there’s no need to panic you aren’t necessarily at the mercy of secret deals and designer drugs. First, verify that your insurer has its own formulary overseen by an internal P&T committee. Second, ask how your insurer uses its PBM.
Third, a good health insurer is always available to answer your pharmacy questions. Your insurer and PBM may actually be keeping your crew healthy and your cargo light.
Steve Marciniak, R.Ph., is director of pharmacy services at Care Choices, a nonprofit health care organization and a subsidiary of Trinity Health. Care Choices HMO is ranked first in Michigan in clinical excellence in health plans, according to the National Committee for Quality Assurance.
The high cost of insurance and lack of control over claims processing are common frustrations experienced by insurance consumers. A captive insurance company and a segregated-cell captive program are creative approaches to solving insurance-cost and claim-control concerns.
Captives have been a recognized method of providing cost-effective insurance coverage for more than 40 years. These solutions work by primarily insuring the risks of policy owners and related business entities. As a result of the popularity of the captive concept, the number of states adopting captive insurance company legislation has increased dramatically in recent years.
While Vermont continues to be the most popular stateside domicile, many other states and the traditional offshore domiciles of Bermuda and Grand Cayman are creating a very competitive marketplace.
Who should consider captive insurance?
Companies and trade associations with members that historically have excellent claims experience are good candidates for captive insurance. That's because their traditional insurance premiums are funding the claims of customers with poor claims experience, as well as the insurance company's overhead and return-on-investment goals.
Captive programs provide flexibility. Policy owners have some control in determining coverage, who is insured, stabilized pricing over the long term, claims handling and settlement, and selection of defense counsel. Additionally, premiums paid to a captive program are tax-deductible business expenses, just like premiums paid to traditional insurance companies, as long as there has been a shifting of risk and an assumption of risk. These requirements are met when the captive insurance program insures a number of individuals and entities.
However, a captive insurance program isn't the right answer for everyone. Successful captives limit participation to persons and entities that have excellent claims experience and adhere to comprehensive risk-management programs.
Captives formed as offshore entities are subject to United States taxes if the captive is classified as a controlled foreign corporation. If it is not, profits are subject to U.S. taxes only when the profits are distributed to owners in the form of dividends or return of premium, or upon sale of an owner's interest in the captive.
Required capitalization is a function of the premium written, the risks insured, the amount of coverage provided and the actuarially anticipated claims experience. Preferred premium to capital surplus ratios usually range from 3:1 to 5:1.
In all events, minimum capitalization typically starts at $250,000. Capitalization can usually be funded by cash infusions (paid up front or over a reasonable pay-in schedule), irrevocable letters of credit or a combination of both.
Keys to a successful program
A successful captive program is comprised of many elements.
* Long-term commitment to the success of the captive (minimum of five years)
* Design of a sound insurance program with appropriate deductibles, stop-loss levels and reinsurance
* Commitment to sound risk-management programs
* Careful selection of insured parties and insured risks
* Close attention to handling of claims
* Selection of competent advisors and legal counsel
The timeframe for setting up a captive program varies by jurisdiction. As a general rule, once the captive insurance company application is complete (including any required actuarial study and coverage documents), it will take 30 to 60 days to obtain the captive insurance company license from the domicile's regulatory authorities.
A properly formed captive insurance program that is well-capitalized and well-managed will provide its insured with predictable insurance coverage at reasonable, stable rates through insurance market cycles, while providing the insured with a greater voice in the insurance process. The bottom line is that a well-run captive insurance program saves money while increasing control over claims handling.
Robert W. Stocker II is a member in Dickinson Wright's Lansing office. He has practiced law for more than 37 years and specializes in the areas of corporate, gaming, insurance and securities. For additional information, visit www.dickinsonwright.com.
Born: 1960, Toledo
Education: BBA, University of Michigan; CPA
First job: Working for my father, who had a construction company. I was doing the painting.
Career moves: Deloitte Haskins & Sells (Deloitte & Touche); Comerica Bank, controller, 1985-1986. Joined Republic Bank in 1986 as controller, chief financial officer 1987-1992, executive vice president and treasurer 1992-1996, president and chief operating officer 1996-2000, president and CEO 2000 - present
What is the greatest business lesson you've learned?
Everyone needs to have a philosophy. You've got to stand for something or you'll fall for anything, as the country music song says. Do the things that allow you to take pride in your life. If you do that every day, you'll never have to look back.
Whether you're talking business or you're talking personal, that, to me, is the most important thing. What does that mean? Sometimes you've got to do something that's hard, but it's the right thing to do. You've got to be understanding of others. It's a balance in life.
What is the greatest business challenge you've faced, and how did you overcome it?
The biggest business challenge I had was becoming CEO of this company. I was president of the company before, but once you become the CEO, clearly, you have a different responsibility.
I sat down with the people that work with me and put together a strategy of how we were going to work, how we were going to communicate, what our focus was going to be, and we've been able to achieve some great things.
Whom do you admire most in business and why?
That's a tough one. My philosophy on business has been to observe the best in a number of people and capture that. No one individual is perfect, but you can see some very good things that people do. I'm very much a student of business philosophy. I've kind of taken my management style from several and incorporated that, as well as what I believe I need to do.
Commercial banks offer a number of commercial loans, business loans and real estate loans designed to help you and your business grow. When starting or expanding your business, concern and worry are normal. After all, it is your business.
Securing a loan to help it grow may seem intimidating, but it could not be easier.
Credit is the lifeblood of American businesses, especially small and medium-sized businesses. Credit will allow you, the business owner, to build inventory, purchase needed equipment, create new lines of merchandise, purchase real estate and ultimately help your business grow.
Research has shown that aside from personal savings, banks are the next major source of capital for starting new businesses and helping them grow and expand.
Before you go to your bank, prepare the information loan officers are going to be looking for. By arriving prepared, you can speed lender consideration for your application. By presenting your case in the best possible light, you will increase the chances of the bank meeting your financial needs.
For the small and medium-size business owner, enlisting the assistance of your financial counselor (CPA, CFO) is recommended. Below are some general questions to answer that can help simplify the loan-securing process.
* How much money do you need?
* What will the loan be used for, and for how long?
* How are you going to repay the loan, and under what terms?
* Who is applying for the loan? You? Or are other legal entities involved, such as a corporation or a partnership?
* What assets can you pledge to secure the loan?
Develop a written plan
* Write an executive summary of the loan you are applying for.
* Prepare a business plan
* Prepare a marketing plan
* Have two years of financial statements and tax returns for the business and any partners
Finally, you'll want to lay down some groundwork. When seeking a loan for your business, you are essentially asking the bank to become your business partner, with the exception that banks are not as patient as most partners in expecting repayment.
Banks would like to know some additional information about you and your business, to make sure you have the ability to repay the loan. What shape is your business in? Have you been in the red for the last couple years? If so, why do you think that is? Do you have a plan of action in place to get out of the red?
On the reverse side, has your business been doing so well that you can't keep up? How are you going to ensure that quality doesn't suffer?
Small and medium-sized business owners in Southeast Michigan have a significant advantage in seeking a commercial loan. The area has many experienced bankers who understand the local economy and the needs of local businesses.
When shopping for a loan, talk with a number of banks and select one that meets your needs for today and for the future.
Craig Johnson is president and CEO of Franklin Bank, a full-service financial institution that has serviced Southeast Michigan for more than 20 years. Franklin offers its commercial customers many specialized services, including next-day funds availability, low-cost courier service, extended branch hours, Web banking services and a streamlined small business lending program. Reach Johnson or one of Franklin's professional sales associates at (248) 358-4710 or at www.franklinbank.com.
Today, when she's not busy managing WW Group Inc., Mark hosts her own radio show, "Remarkable Woman," and stars in her own television show, "Ask Florine." Mark also authored the self-help book "Talk to the Mirror."
These varied projects all share a common goal -- to inspire women and help them lead healthier lives. And Mark knows all about making healthy changes. Nearly 40 years ago, she transformed her own life by permanently losing 50 pounds, banishing yo-yo dieting from her life.
"When I lost the weight and kept it off, I was full of self-respect and confidence," says Mark, president, chairman and CEO of WW Group Inc.
And she wants all women to feel the same way.
But it isn't just Mark's ability to meet goals and make dreams happen that is inspirational. Her business acumen is impressive, too. At the height of her business, she operated Weight Watchers franchises across more than a dozen Midwest and East Coast states, in addition to franchises in Mexico and Canada, with the help of almost 6,000 employees.
In 2003, Mark struck a deal with Weight Watchers International, selling a majority of her franchises to it for just over $180 million. Even after the sale, she remains the Weight Watchers franchisor with the most franchises, maintaining operations in Michigan and Canada.
Juggling the duties of being a business owner, a public personality and an author might seem daunting, but Mark takes it all in stride.
"I have never encountered anything that I felt was too challenging, with the exception of the decision to sell," she says. "Even when I went to the bank to borrow millions of dollars to buy out Boston, it wasn't a challenge -- it was exciting."
Smart Business spoke with Florine Mark about managing a franchise, moving her business in new directions and finding everyday inspiration.
What led you to start WW Group Inc.?
I was 50 pounds overweight. I had lost that 50 pounds nine times before and gained it back. Each time, I used methods that were detrimental to my health, like taking weight loss pills. The last time, I ended up hospitalized.
The doctor said if I took any more of the pills, he would not be responsible for my life.
I heard about Weight Watchers. At that time, the closest program was in New York. I went to New York and stayed one week, then I went back every month. It was so different. I lost 40 pounds in four months.
The founder of the program asked me if I wanted to buy a franchise and take the system back to Detroit. I did. Well, I had my first Weight Watchers class, and 30 people showed up. The second class, 80 people showed up, and the third class, 150 people showed up. I was happy. I knew I'd found what I wanted to do the rest of my life.
What is your management philosophy?
My goal has been two things -- to focus on the (Weight Watchers) member and to focus on the people who work with me. I never forget the people who work with me. Even when I had 6,000 employees, I sent everyone birthday cards.
At my company, everyone had a weight problem, lost weight, went on our maintenance program and came to work for me. All of them availed themselves of our services. Now, of course, there are times when we get stressed out -- we all do at different times -- and get a little out of control, but we help each other.
No one is perfect.
What is your member service philosophy?
Service to the member is the most important thing to me. I've never had a customer that's been wrong. We treat them as if they are always right. I'd rather lose a few dollars than that good will.
What made WW Group's franchises so successful?
We are very aggressive when it comes to marketing and advertising. I believe in public relations; many other franchisees do not. I have always had between two to five people working with me in that capacity.
I have my own radio show called "Remarkable Woman." Women from all over talk about their own stories, and it inspires the listeners -- they feel if she can do it, so can I. I also have a television show called "Ask Florine," so I am very visible.
And we do a newsletter, which is really a combination of a newspaper and a magazine, and that spreads the word.
How does Weight Watchers fit into your goal of inspiring women?
An independent study was done at the University of Pennsylvania, and the Weight Watchers program was the only one identified as a balanced, healthy system. We are proud of that.
You can lose weight and keep it off if you stick to the directions, eat your greens, fruits and vegetables. In 30 years with Weight Watchers, no one takes a pill. People are expected to take responsibility and change their eating habits.
We do it slowly, so that eventually you'll want that red pepper or apple as a snack instead of a candy bar. We've upgraded the program five or six times. We have a board of doctors and psychiatrists constantly researching weight loss, and we incorporate changes if they are sound. It is the easiest system I've ever used, and it is nutritionally sound.
What sparked the decision to sell so many of your franchises to Weight Watchers International?
My first husband died of cancer. I remarried a man who had lots of outside activities, and he began making noises that he wanted to work less and start to retire. We wanted to go to India, Australia, places like that. Once I sold [my franchises], I would have more time to travel.
And I thought it was a good chance for me to see the kids getting their inheritance in advance and see what they'd do with it. My children already owned 60 percent of the company. I owned 40 percent and had control. So I decided to keep 25 percent -- the franchises in Michigan and parts of Canada -- and sell off the rest. We set up a charitable foundation, and the only change is, we do more philanthropic work and donations.
Two months after I sold the franchises, my husband was diagnosed with Lou Gehrig's disease. Within a year to two years, this active man wasn't able to leave the house. We loved each other dearly. After he passed, I was glad I still had the franchises I'd kept to keep me busy.
Have you ever regretted the decision?
Yes. If I'd known then what I know now, I don't think I would've sold them. I miss the excitement of some of the other markets, like Massachusetts and Mexico.
I signed a 10-year noncompete clause. Two years have passed; in another eight years, watch out.
What is the biggest lesson you've learned in business?
I think I learned the biggest lesson before I started the business, and that is to listen -- really concentrate on what people are saying. That is true whether you are talking to a clerk, the people that clean the building or the president of the bank. All people get equal treatment. I try to be nonjudgmental.
What do you think are the biggest obstacles women leaders face today?
Many of us become entrepreneurs because it is hard for women to climb up the ladder in corporations. You don't see many (women as) CEOs of large corporations, and not many sit on boards. Women haven't formed their Old Girls Club yet. We don't help each other out the way men have in the past, but we're learning, and opportunities are growing.
For me, the most important part of my life were my five children. I think that is true for many women. (That's) why so many companies are creating daycare centers -- so that women don't have to spend hours away from their children. Raising kids is a big, important job. The primary solution is to create better child care. Businesses that have daycare systems on the premises attract quality employees.
What advice would you give other women who are driven to achieve?
Go for it. Take one day at a time. Keep a pencil and notebook with you all the time.
When I wake up in the morning, I make notes about what I want to accomplish for the day and with any person that I am meeting with. Also, it helps to stay organized. When I come into the house, there are hooks for my keys. Everything is in its place at the office and at home.
It is an extremely important skill that we can learn.
How to reach: WW Group Inc., (888) 3-FLORINE or www.888-3-florine.com