Culture is far reaching

“Culture is something that can be influenced by leadership. The extra things we do for our employees are far reaching,” says Danone Simpson, CEO of Montage Insurance Solutions. “Reaching beyond the normal sets you apart.”

Smart Business spoke with Simpson about her company’s culture and what she’s doing to improve it.

Can you provide an example of how leadership can improve a company’s culture?

Spending time at my niece’s home last May while her three month old had a major surgery inspired a kid’s camp in our office, which included the employee’s children.

I witnessed two young parents juggling their schedules so they could be home with the children as often as they could. The surgery allowed both the baby and her three-year-old, older brother to be at home for the week. As the time grew closer for me to leave and the children to go back to day care I saw the pain in my niece’s face.

On the flight home my thoughts shifted to my employees and their children. It was on that trip that I decided to have a kid’s summer camp at the office.

The first young lady we hired decided at the last minute to take another job, putting us in a bit of a bind. Luckily, another employee spoke up, ‘I have a friend whose sister may love a job like this.’

We asked the young lady to come in the next morning. She appeared at first glance a serious girl. I was a bit concerned since camp was starting the next day.

Taking a leap of faith like this drew a few internal questions; however I had committed to the employees and after reading “Lean In” by Sheryl Sandberg I knew this was a step in the right direction.

As it turned out the young lady’s first sentence to me during the interview was, “I was working on science projects last night and the play dough came out really good.” I hired her immediately.

How did Sheryl Sandberg’s book weigh into your decision?

In the story she wrote about being pregnant and running to the door for a meeting after parking far away. She was out of breath, and when she sat down Mark Zuckerberg asked her why they did not have closer parking for pregnant women.

She paused and realized that leadership needed to get back to thinking about some of the unique differences we enjoy as women and men.

We push to be the same, but the truth is in some ways we are not.

Today, parents equally share in caring for their children and I see in both our young fathers and mothers the gratitude in having their children experience their workplace if even for a day.

What was the result of your summer camp?

It was a fun-filled summer for the children. They spoke about what they had learned about their mother’s and father’s heritage, presenting boards filled with family photos to our employees.

Recently, we moved our offices and it was important to me that our culture remained intact as we transitioned from a homey office environment to a more modern one.

So, during the spring break we invited the employees’ kids (ages 6-11) to return once more.

This time they presented what they wanted to be when they grew up. I asked them to think beyond sports, art, singing and dancing and to think about these important talents along with a second career to take them even further out. Daniel wants to be a football player and a Paleontologist, studying fossils to determine organisms’ evolution and interactions. His younger brother wants to study the sea as an oceanographer.

They all stood proudly in front of the employees in our conference room presenting to our familiar faces smiling, cheering them on and asking them questions. It was a special bonding time for us all.

We impact our employees in many various ways, and when we include their families it leads to growing strong commitments, and less reduction in workforce, which creates a culture that lasts.

Insights Business Insurance is brought to you by Montage Insurance Solutions

Think your insurance covers your ATV, golf cart or sports car — think again

Spring is finally here, and you’re cleaning out your garage and getting out of the house as much as you can.

But as you take out your all-terrain vehicles (ATVs), golf carts, boats, recreational vehicles (RVs) and more, grab your insurance policy, dust it off and make sure your summer toys are covered. More than likely, they’re not.

“It’s a common misconception,” says Parker Berry II, CIC, executive vice president at SeibertKeck Insurance Agency. “People think, ‘I have an umbrella; it covers me for everything.’ It’s just an assumption that their personal insurance will take care of it, and it probably won’t.”

Depending on how you utilize these vehicles, your claim will be denied — accidentally exposing your personal assets to lawsuits — unless you schedule them properly or obtain additional coverage, Berry says.

Smart Business spoke with Berry about steps you need to take now to properly insure your toys.

Why aren’t ATVs, golf carts or other off-road vehicles included in the personal insurance you already own?

Your policy covers ATVs or golf carts when you stay on your own property and your family drives or rides on them — that’s it.

As soon as you go on the road, head over to the neighbors, load up the ATV to take it camping or allow someone else on the vehicle, you need to buy and list coverage for that specific unit on your policy.

Not only are you covered if the vehicle is damaged, but you also have bodily injury coverage. This is in case you hit somebody or someone riding on it falls off and hits his or her head, resulting in a lawsuit.

You might also need to buy coverage for your kids’ toys, such as motorized John Deere gators.

If you know your kids’ friends will use it or they are going to drive over to the neighbor’s yard, you should pay a small fee each year to have it covered.

What does it cost to get coverage?

It’s not a huge amount of premium dollars but it can create a world of trouble if you don’t talk to your agent.

He or she can explain the benefits and where a particular item would best be covered, but you’ve got to have the conversation first. For example, a gator licensed for road use, even though it doesn’t go over 25 mph, could be put on either a homeowners or auto policy.

If it’s so simple, how does it get overlooked?

Your agent may have had a good idea of what you owned when they first insured you, but since then you probably have purchased, sold and gotten rid of a variety of things.

It’s time to bring your agent up to speed on the toys you have now, and who plays with them and where.

When are people denied coverage with their sports cars?

Those who own Porsches, Corvettes or Ferraris often drive those cars on racetracks, perhaps on a track at a driving school.

These drivers think they are covered if they wreck their car, but nine out of 10 personal auto policies have a specific exclusion in the language that says, ‘We will not cover anyone who is driving — and they list it out — if they are racing, preparing for a race, practicing, qualifying, doing speed contests or demolition derbies.’

Some policies will go as far as stating that if you’re within a racing facility or compound, you’re excluded.

There are, however, a few insurance companies who cover track driving at a school.

Make sure to discuss this with your agent to confirm if you have coverage or not, prior to attending the driving school.

What’s the necessary coverage for watercraft, motorcycles or RVs?

Watercraft like motorboats, personal watercraft or pontoon boats are placed under a marine liability policy. RVs, motorcycles and summer cars require a separate auto policy specialized for unique autos.

In some cases, these items can be added to your current home policy as an endorsement.

But again, the most important thing is to disclose that you have them.

So, as you’re doing spring-cleaning with your house and cars, look at your policy and look in the garage. What toys do you have out there? ●

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

How transactional risk insurance makes sense for many M&A deals

As merger and acquisition activity has increased recently, it has become in vogue for buyers and sellers alike to secure representations and warranties insurance to cover risks.

“Sales of these policies have gone up exponentially,” says Emily Maier, group leader, transaction services at Woodruff-Sawyer & Co. “About 1,000 reps and warranties policies were sold in the U.S. last year — probably more than the last five years combined.”

This insurance protects against breaches in the reps and warranties made in a sale and purchase agreement. It is especially growing in use by private equity firms, which have been on a buying spree of companies in the past two years.

Smart Business spoke with Maier about what reps and warranties insurance offers.

What is reps and warranties insurance?

Should a loss occur as a result of a misrepresentation or breach in an agreement, this insurance provides protection against the loss.

Buyers in the M&A transaction are the ones who most frequently purchase the insurance, but it is available to either sellers or buyers. If a buyer agrees to purchase a company based on the reps and warranties given, and then those reps and warranties turn out to be false, the buyer has the right to take action against the seller. Similarly, should the seller purchase the insurance and the buyer file a dispute, the seller can expect the insurance to cover the matter.

Is reps and warranties insurance useful in all M&A deals?

It isn’t necessary in all transactions. It mostly works when large differences occur during negotiations between the buyer and seller. For instance, if the buyer and seller differ on the amount of escrow, or if the seller only wants warranties to last for a certain number of months post-transaction and the buyer wants them to last several years, insurance can cover that gap.

What are some of the latest trends?

M&A activity has been so brisk that competitive auction situations may arise. In response, insurance coverage has evolved to include a zero seller indemnity structure, which has enabled private equity firms to use such coverage as an enticement and win auctions.

Under this structure, the seller has an entirely free exit from liability should issues arise with regard to providing true and accurate reps and warranties.

How else has reps and warranties insurance evolved?

Until a couple of years ago, there were certain aspects that underwriters were unwilling to cover, including consequential and multiple damages. With consequential damages, for example, the buyer could claim that a breach of inventory representation meant not only that the inventory promised wasn’t there, but that the buyer lost ongoing operating revenue because it was unable to fulfill a contract.

This type of loss used to be specifically excluded from policies — it no longer is. The purchase price is often based on a multiple of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA). In the event of a breach, the argument could be made that any loss suffered should be subject to the same multiple. In other words, “I paid you 10 times EBITDA for your company so, when a contract you said was valid turned out not to be, I want 10 times the value of that contract as my loss.” Previously, looking at loss in this way was a standard exclusion, but again, underwriters are now willing to offer this form of coverage.

How does a company choose a qualified reps and warranties insurance broker?

An organization that is or may be involved in M&A should find a broker with experience, a long-term view and well-established relationships with the underwriters to get the best results.

A broker without the right experience may likely get in the way, and can potentially create more difficulties. Using a broker who has a proven track record in covering the risks associated with M&As is worth the cost of engagement; you wouldn’t want to entrust an amateur with these risks because the stakes are high — and can be exponentially more costly.

Insights Business Insurance is brought to you by Woodruff-Sawyer & Co.

 

How to negotiate your insurance renewal to get the best value

Business owners purchase insurance based on emotion. Actually, almost all purchases are based on emotion — people think logically but decide emotionally.

For insurance, employers reach out to people they trust — friends, relatives, golf buddies or community and business connections in the insurance industry — to discover where to turn for an insurance relationship. They also typically remain loyal, unless the owner experiences a bad loss or poor service.

As word gets around about the soft insurance market, employers need to guard against getting too price conscious.

“You are buying a service. Not only are you buying insurance to put your mind at ease so you can sleep at night, but you need a partner to work with you proactively to make your risk profile look attractive to the insurance company,” says Kerry K. Gregoire, an assistant vice president at SeibertKeck Insurance Agency.

Smart Business spoke with Gregoire about using the strong bargaining position you have now in the insurance industry to set your company up for the long term.

If business owners constantly shop their insurance, how can it backfire?

Insurance representatives and insurance companies will lose interest in quoting if a business owner shops his or her insurance annually. Most carriers today, although hungry for new business, are seeking long-term relationships and looking for loyalty, including after they’ve paid claims. They look at the whole picture, including how frequently you’ve been shopping your property and casualty insurance.

A business owner needs to be in a position of having an insurance company available and interested to quote when it’s really needed, such as a tough loss history or circumstances that drive premiums up.

Where exactly is the marketplace cycle and what is it doing for premiums?

For the past two years, we’ve been a soft market with 5 to 10 percent increases. That has moved over to flat renewals, and there are reports projecting a 5 to 15 percent decrease for 2015, depending on your risk profile. Cyber insurance, however, continues to increase because it’s new, people are getting hit with cyberattacks and the marketplace is still being tested.

No one has a crystal ball, but a typical soft market tends to hang on one to three years, depending on the outcome of catastrophic losses and market performance. The insurance market is a cycle. Educated buyers understand that eventually everything will go back up, so you don’t want to burn bridges with available insurance companies.

How would you recommend businesses negotiate renewals?

In a soft or hard market, business owners should consider bidding insurance out once every three years, and remember it’s not all about price. Make sure you aren’t losing any coverages if you switch to another insurer. Plan ahead and standardize the process for obtaining all of the necessary documents that pertain to the quoting process.

Also, limit agents who are competing; streamline the process of market selection. If you have more than a couple, agents end up approaching the same markets.

In a soft market, besides reduced or flat pricing, an insurance buyer can request more value-added services from an insurer or its representatives, such as a multiyear rate guarantee program that is contingent upon staying below a loss ratio threshold.

Plus, many insurers have been enhancing their risk management techniques and loss control resources to help customers manage their insurance costs and claim activity. Make sure you express to your agent your company philosophy — you want to self-insure or have higher deductibles for certain coverages. You can take a more proactive approach to try to prevent a claim or lessen its impact. You’ll also want to plan necessary time for loss control visits by insurers.

In the meantime, between shopping your insurance, be involved. Review your claim history so you can implement internal changes, if needed, prior to shopping. You may need to ask for quarterly loss run reports or quarterly claim review — via meetings or conference calls with the insurer — if you have claims activity. Insurers like to see that the business owner is demonstrating good risk management, which in the end controls losses and insurance costs.

Insights Business Insurance is brought to you by SeibertKeck

Why companies should ask the right questions first

Employers can add value to their total benefits package by offering a retirement plan such as a 401(k). High costs and large time requirements, however, prevent many companies — especially emerging entities — from proceeding.

“There are ways to partner with a firm to provide a plan that is easy to implement, low in cost and that can help reduce the administrative burden to the employer,” says Kristina Keck, vice president of retirement plan services for Woodruff-Sawyer & Co.

Smart Business spoke with Keck and 401(k) provider ForUs about how companies can offer an attractive retirement plan for employees.

What are the advantages for the employer to offer a retirement plan?

Employees who are saving competently for retirement feel they are doing the right thing with their retirement and actually function better at work.

It’s a matter of what an organization can do to better prepare employees for retirement and make them more financially fit. It actually comes back to a stronger bottom line for the company because if employees have forced those worries aside, they feel better financially and will therefore be more productive.

What are some of the immediate concerns companies may have about offering a 401(k) plan?

Emerging companies are often concerned about the cost of starting a plan.

The cost of a plan might average 2 percent per year, but that rate won’t last forever. The plan is going to grow over time, and as it grows the average cost will decrease. For employees, an employer-sponsored 401(k) is a better deal than opening an IRA because if a person opens his or her own IRA, there can be a sales charge as well as higher ongoing costs.

When considering a retirement plan option, it is important to ask the right questions. Many of the startup 401(k) providers will bundle the costs and pass them off to employees. The charges could be as high as 2.5 percent for the employee. If the employer knows that it has the option to pay for some of the costs, it can help reduce the overall cost to employees.

Another consideration is to engage a service provider that can accept some of the fiduciary responsibility. A partnership such as this can remove almost all the day-to-day administrative burdens most employers have when operating a retirement plan.

Is an employer match a mandatory matter?

Whether or not an employer can match contributions is one of the challenges facing emerging companies. If the company is in the pre-initial public offering stage or is still seeking investors, more often than not the employer match simply can’t make it to the benefit package.

Retirement plans can have a discretionary plan for matching contributions. Employers can offer matching contributions depending upon the company’s performance. As revenue grows, the contributions may grow as well.

What about the complexity of setting up a retirement plan?

Employers have many resources to tap into. They should talk to a retirement plan consulting firm that specializes in startup plans for guidance to set up a plan that’s right for their organization and budget.

There are many ways for employers to deliver this valuable benefit, including online platforms that make the plan selection and participation process more accessible.

For example, Woodruff-Sawyer leverages its partnership with ForUs, an online 401(k) platform built for small businesses. It includes the award-winning DAVE virtual adviser that walks participants through their options using easy-to-understand language.

‘Small businesses deserve a plan that is hassle-free at a fraction of the typical cost. ForUs has designed a 401(k) that works right out of the box for small employers and our early results show it’s working with more than 95 percent of employees participating when our platform is made available,’ says Shin Inoue, ForUs CEO and co-founder.

Retirement plans and investments are complicated — there are great tools out there now that offer low-cost, high-quality investment options, support to the employer and personalized advice for employees. ●

Insights Business Insurance is brought to you by Woodruff-Sawyer & Co.

What emerging managers need to know about hedge fund management liability insurance

When investment professionals start their own hedge fund, one of the top priorities is to purchase management liability insurance, otherwise known as directors and officers/errors and omission (D&O/E&O) coverage.

“The insurance is used to pay defense costs and any judgment/settlement amounts the hedge fund may incur when responding to litigation,” says James R. Lopiccolo, vice president, alternatives team leader, Woodruff-Sawyer & Co.

Hedge funds have come under increased scrutiny by their investors and regulatory agencies of late, and D&O/E&O coverage is critically important in protecting the personal net worth of the individuals and the assets of the investment funds.

Smart Business spoke with Lopiccolo about what management liability insurance covers, what it costs and how much is needed.

What is covered under D&O/E&O insurance, and who sues?

The insurance is triggered by claims alleging acts, errors or omissions in the performance of investment advisory services or in the management of the advisory business. Insured parties under the policy include the individual directors, officers, partners and employees, as well as the adviser entity and the investment funds themselves.

Protection for the individuals is most critical in circumstances when indemnification from the funds or the adviser entity is unavailable, such as instances when the fund has been wound down and assets have been distributed, or in the case of bankruptcy.

The policy, however, also pays on behalf of the insured entities their indemnification obligations to the individuals, and for costs associated with their own liability.

This last piece is important, since non-buyers often voice objections about the coverage — that they’re relying on the broad indemnification language in the fund to protect them.

That may be the case, but in addition to those circumstances where indemnification is unavailable, any litigation costs paid out of fund assets will directly impact the investment return of the fund — which could be substantial depending on the nature and scope of the claim.

Two additional coverage components that can be included are employment practices liability (EPL) and trade error/cost of corrections coverage.

EPL coverage responds to claims by employees alleging wrongful termination, sexual harassment and discrimination. Trade error/cost of corrections coverage reimburses the fund and/or adviser for costs to proactively correct trade errors that could have otherwise resulted in claims by clients/investors.

The type of claimant and nature of the allegations are dictated primarily by investment strategy.

All strategies are susceptible to claims by investors, regulatory bodies such as the Securities and Exchange Commission and employees. But more complex strategies may lend themselves to claims in other instances.

What does it cost?

The cost is influenced by a variety of factors, but the primary drivers are investment strategy and total assets under management (AUM). Other considerations will include experience/pedigree of the investment managers, prior litigation history, etc.

The annual minimum price per million is about $15,000, but that rate is often discounted when purchasing higher limits.

How much coverage is an adequate amount?

Most startup hedge funds with AUM under $100 million are purchasing $1 million to $2 million in coverage. Bigger launches of $200 million and higher will seek $3 million to $5 million and even higher in some instances.

Once the AUM gets above $1 billion, firms generally purchase limits equating to 1 percent of AUM for straightforward liquid strategies and more for more complex, illiquid or hard-to-value strategies.

Notwithstanding the above, there are generally three types of buyers:

  1. “Check the Box,” those only wanting to satisfy minimum investor requirements.
  2. Coverage for Defense Only, those who realize the nature of today’s litigious environment and that anyone can get sued for anything, but they have a straightforward strategy and won’t do anything wrong.
  3. True Alpha Protection, those that realize that litigation is a reality of their strategy, purchasing enough to fund a vigorous defense, with enough left over to pay judgment/settlement amounts. ●

Insights Business Insurance is brought to you by Woodruff-Sawyer & Co.

What emerging managers need to know about hedge fund management liability insurance

When investment professionals start their own hedge fund, one of the top priorities is to purchase management liability insurance, otherwise known as directors and officers/errors and omission (D&O/E&O) coverage.

“The insurance is used to pay defense costs and any judgment/settlement amounts the hedge fund may incur when responding to litigation,” says James R. Lopiccolo, vice president, alternatives team leader, Woodruff-Sawyer & Co.

Hedge funds have come under increased scrutiny by their investors and regulatory agencies of late, and D&O/E&O coverage is critically important in protecting the personal net worth of the individuals and the assets of the investment funds.

Smart Business spoke with Lopiccolo about what management liability insurance covers, what it costs and how much is needed.

What is covered under D&O/E&O insurance, and who sues?

The insurance is triggered by claims alleging acts, errors or omissions in the performance of investment advisory services or in the management of the advisory business. Insured parties under the policy include the individual directors, officers, partners and employees, as well as the adviser entity and the investment funds themselves.

Protection for the individuals is most critical in circumstances when indemnification from the funds or the adviser entity is unavailable, such as instances when the fund has been wound down and assets have been distributed, or in the case of bankruptcy. However, the policy also pays on behalf of the insured entities their indemnification obligations to the individuals, and for costs associated with their own liability.

This last piece is important, since non-buyers often voice objections about the coverage — that they’re relying on the broad indemnification language in the fund to protect them. That may be the case, but in addition to those circumstances where indemnification is unavailable, any litigation costs paid out of fund assets will directly impact the investment return of the fund — which could be substantial depending on the nature and scope of the claim.

Two additional coverage components that can be included are employment practices liability (EPL) and trade error/cost of corrections coverage. EPL coverage responds to claims by employees alleging wrongful termination, sexual harassment and discrimination. Trade error/cost of corrections coverage reimburses the fund and/or adviser for costs to proactively correct trade errors that could have otherwise resulted in claims by clients/investors.

The type of claimant and nature of the allegations are dictated primarily by investment strategy. All strategies are susceptible to claims by investors, regulatory bodies such as the SEC and employees. However, more complex strategies may lend themselves to claims in other instances.

What does it cost?

The cost is influenced by a variety of factors, but the primary drivers are investment strategy and total assets under management (AUM). Other considerations will include experience/pedigree of the investment managers, prior litigation history, etc.

The annual minimum price per million is about $15,000, but that rate is often discounted when purchasing higher limits.

How much coverage is an adequate amount?

Most start-up hedge funds with AUM under $100 million are purchasing $1 million to $2 million in coverage. Bigger launches of $200 million and higher will seek $3 million to $5 million and even higher in some instances.

Once the AUM gets above $1 billion, firms generally purchase limits equating to 1 percent of AUM for straightforward liquid strategies and more for more complex, illiquid or hard-to-value strategies.

Notwithstanding the above, there are generally three types of buyers: 1) “Check the Box,” those only wanting to satisfy minimum investor requirements; 2) Coverage for Defense Only, those who realize the nature of today’s litigious environment and that anyone can get sued for anything, but they have a straightforward strategy and won’t do anything wrong; 3) True Alpha Protection, those that realize that litigation is a reality of their strategy. They purchase enough to fund a vigorous defense, with enough left over to pay judgment/settlement amounts.

Insights Business Insurance is brought to you by Woodruff-Sawyer & Co.

 

How your business is impacted by new ACA reporting requirements

The Affordable Care Act (ACA) has created a few new reporting requirements, and many employers have questions. They want to know what reporting they need to do, when it has to be done and whether fees are involved.

“Companies need to be sure their team understands what is required to satisfy these new ACA regulations,” says Tobias Kennedy, executive vice president at Montage Insurance Solutions.

Smart Business spoke with Kennedy so he could clear up the overwhelming amount of disparate information on ACA reporting and its related fees.

What are Patient Centered Outcomes Research Institute fees?

Patient Centered Outcomes Research Institute fees are also known as PCOR, PICORI, PCORI or CERF fees. This is a relatively small fee that fully insured companies don’t need to worry about — their carrier handles it automatically. But companies who are self-funded and companies who have a Health Reimbursement Account (HRA) are responsible for it themselves.

If your company is self-funded, has an HRA or is unsure, ask your broker, other consultant or CPA about the second quarter Form 720, which is due by July 31.

Depending on the plan anniversary, the fee is either $1 per year per covered life or $2 per year per covered life with most companies using a ‘snapshot average’ method of calculating the figure of lives covered in the fee — although there are a few different safe harbors.

How does the reinsurance fee work?

The reinsurance fee is also calculated off of the number of covered lives but at a substantially higher amount.

The fee for 2014 was $63 per year per covered life and can be paid in two installments. The first installment of $52.50 was already due by Jan. 15, 2015, and the second installment of $10.50 per covered life will be due no later than Nov. 15, 2015.

The 2015 fee will be $44 and can be paid at once, of course, or you also can pay it in two installments of $33 and $11 respectively.

The proposed amount for 2016 is $27 per member per year.

The calculation for the number of covered lives has to be submitted to the Department of Health and Human Services. Similar to the PCOR fees, fully insured groups will have this done for them by their carriers, whereas self-funded companies need to take action.

Also, similar to the PCOR fees, there are a few different safe harbors. Companies will want to work with their consultants to correctly apply for the one they deem most suitable.

Within 30 days of submitting the count to the department, companies will be notified of the amount they owe, and that payment will be due back within 30 days of the company’s receipt of notice.

What do employers need to know about Forms 6055 and 6056?

Forms 6055 and 6056 are also new reporting measures. The first time this comes into play is in 2016 for the 2015 health plan year, so companies have a little more time on this.

Form 6055 is to be used by insurance carriers and self-funded companies to report all of the people they cover. It deals with the individual mandate. Basically, it is a resource for the government to double check that people who claim to have satisfied the individual mandate are indeed covered.

Form 6056 is a report where companies list the employees that are offered coverage to help the government track subsidies. This is required by all applicable large employers — fully insured or self-funded — because subsidies are only available to people not otherwise offered affordable coverage. Form 6056 also helps to track those who might be applying for subsidies but who are actually ineligible because of their employer’s offering.

Insights Business Insurance is brought to you by Montage Insurance Solutions

How to determine whether to buy extra insurance for a rental car, or not

When you rent a car, you’d better be prepared for the rental insurance offer — where the rental agency wants you to buy supplemental coverage.

But people are generally divided on this issue. The National Association of Insurance Commissioners found that only about 20 percent of all consumers actually purchase rental insurance. The remainder didn’t want added costs or believed their car insurance or credit card would cover any damages.

Smart Business spoke with Ryan Clugston, client advisor for the Select Unit at SeibertKeck Insurance Agency, about what you need to know before you make your decision of whether to buy coverage or not.

Does a personal auto insurance policy provide coverage when you rent a vehicle?

Yes, your personal auto policy provides several coverages needed when you sign the rental agreement, which include:

  • Liability coverage. This is protection for you. If you injure someone or damage their property, your policy extends the same liability protection you have on your owned vehicles to the rental vehicle.
  • Medical payments. This is coverage for you and your family members in the event you are injured operating the rental vehicle.
  • Physical damage. This is coverage for the vehicle you are driving. This will extend from your policy if you have collision and comprehensive coverage on at least one of your vehicles on your policy.

However, all drivers, even if they drive for a short break, must be listed on the rental agreement in order to drive the car. The rental car agreement is considered void if they are not listed upfront.
Also, there is likely to be an additional charge.

When does your credit card provide coverage when you rent a vehicle?

Most major credit cards offer secondary rental car insurance, picking up costs not covered by your personal auto insurance policy, if the rental is wrecked or stolen. But this coverage varies, even among cards within the same network, according to msn.com.

So, call your credit card issuer before you rent the vehicle, and ask if the issuer will cover ‘loss of use.’ This is the cost the rental car company incurs while the vehicle you rented is being repaired or relocated if it’s stolen, according to msn.com.

Generally you’ll need to use the card to book the rental, and you also must decline the collision damage waiver when you rent the car, according to msn.com.
Many cards don’t provide coverage in all overseas countries, so you’ll need to check on that, too.

Why is it often a good idea to buy supplemental rental insurance, even with these other types of coverage?

There are always issues with rental cars, and therefore many insurance professionals recommend that you buy the insurance sold at the rental car agency for both liability and physical damage. There are many reasons for this.

Insurance with many companies follows the driver, not the car. This means that your insurance may or may not be primary for your friend depending on what both of your insurance policies say. It can get messy in a claim.

If there is an accident, most rental car agreements state that they have the right to put the damages on your credit card immediately, and they sort out the loss after all policies are reviewed. That can put you in a bad situation until all is resolved.

If your insurance does respond to a loss, your personal auto policy will be surcharged for a full three years. You can avoid that if the rental car company’s insurance pays.

Rental car companies also can charge you for ‘diminished value’ in the event of a claim. Even after repairs are made, rental companies can state that they can’t get as much money when they later sell a car because it’s been in an accident. Insurance policies exclude this and the rental agreements will hold you responsible.

If you buy the insurance for liability and physical damage through the rental company and keep your insurance out of it, you will face fewer problems if there’s a claim later. It’s always a good idea to review your options and coverage with your trusted insurance provider before taking a chance.

Insights Business Insurance is brought to you by SeibertKeck

How to keep the lights on, even if you must temporarily close your doors

The unexpected happens — there’s a fire, a natural disaster or your machinery breaks down and the new part is weeks away. Sometimes, you don’t have a choice — you must shut down your business.

But if you’re closed, you still have to pay the bills.

“Make sure the policy limits are sufficient to cover your company for more than a few days. After a disaster, it can take more time than anticipated to get back on track,” says Todd Winter, executive vice president at SeibertKeck Insurance Agency.

Smart Business spoke with Winter about what you need to know about business income coverage.

What is business income insurance and what does it cover?

Business income is the net profit or loss that would have been earned or incurred if the suspension of the business had not occurred, plus any normal operating expenses that must continue during the suspension of the business.

With business income insurance, also known as business interruption insurance, you can cover the actual loss of business income sustained because of a necessary suspension of your operation.

The suspension, however, must result from direct physical loss or damage to real or personal property. Coverage is provided against the same causes of loss covered under your property policy.

Most businesses underestimate the amount of time it takes to return to normal operations. It can take one or two months for investigations and debris removal; two to three months to secure permits for repair; and upwards of a year to reconstruct the property and replace machinery and equipment.

What additional coverage does business income insurance provide?

The business income and extra expense form provides the following additional coverages:

  • Extra expenses are any expenses over and above those that would have been incurred during normal operation of the business. They include expenses incurred to avoid or minimize the suspension of operations; to repair or replace property; and pay for overtime work to speed up the restoration of the business.
  • Civil authority is when access to your premises is denied by civil authority as the direct result of damage or destruction of a neighboring or adjacent property belonging to others. If the damage or destruction is caused by a cause of loss covered by the insured’s policy, this coverage applies. Your premises would be covered for the loss of income during the period of suspension, up to two weeks.
  • Alterations/new buildings provides coverage for loss of income resulting from a delay in beginning operations. The delay must be the result of damage to new buildings or structures, either completed or under construction. Damage to additions or alterations to existing buildings also are covered. The damage must be the result of a covered cause of loss.
  • Extended business income provides the time needed for your former customers to return once the business suspension is over by providing coverage for loss of income until sales return to normal, or up to a maximum of 30 days.

What optional coverages may be included to customize the policy to your company?

Business income coverage is not sold separately; rather it is added to a property or package policy and can be adjusted to cater to specific needs. For example, extended period of indemnity is an option that extends the ‘extended business income coverage’ over the standard 30-day period, to 60 days or up to a maximum of 360 days.

The selected time would depend on the time you estimate it would take for revenues to return to normal after a suspension of the business.

Business income coverage increases a business’ ability to survive a substantial loss, because of this, it is important to have the correct coverage in place before a loss. An experienced agent will be able to walk you through calculating the correct coverage limit and options needed for your unique risk.

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