Is your business doing enough to limit its exposure to crime losses?

An unfortunate reality facing business owners and executives is that nearly every business has an exposure to crime losses from either internal or external sources. 

With the advent of cyber/electronic crime, the level of coverage as well as the method of how insurance policies address these exposures can vary greatly, depending on the insurance carrier and how the agent or broker structured the coverage.

The Association of Certified Fraud Examiners (ACFE) estimates that organizations lose 5 percent of their annual revenue to fraud, says Chris Zito, managing director of Zito Insurance Agency. And, employers with fewer than 100 employees lose almost twice as much as large businesses per scheme to occupational fraud, according to an ACFE 2018 Report to the Nations. 

“Along with the proper implementation of crime coverage, these sobering statistics reflect the need for employers to ensure they have adequate internal controls in place to limit exposure,” he says.

Smart Business spoke with Zito about crime insurance and other mitigation that can help lower this risk.

Why should companies consider getting crime insurance?

Crime insurance can provide coverage benefits when other commercial insurance policies do not. 

Some examples include coverage for:

  •   Fraudulent transfer of funds
  •   Telecommunications fraud
  •   Cyber extortion (also known as ransomware)
  •   Employee dishonesty, such as embezzlement of funds or theft of tangible property
  •   Forgery and alteration of checks or documents
  •   Social engineering fraud (also known as impersonation fraud)
  •   Computer fraud
  •   Counterfeit currency or bank checks

A number of the above coverages can be found in either a crime or a cyber policy, which may be written through different insurance carriers. Therefore, it is important for business owners and executives to work with an insurance agent who understands how to properly coordinate the various policies to avoid gaps or duplications in coverage.

What else can a business do to deter crime?

Every industry has unique risks and it is important that a crime policy is one of several elements of protection for the business. Prevention and detection are key to reducing the breadth and depth of an incident. 

The organization should assess and potentially update its internal practices not try and limit exposure to fraud. For example, how often does the organization reconcile bank accounts? Who reconciles the accounts? Is software in place to detect fraudulent computer use? Does the company have its financial statements audited by at third party? Is there an active alarm system on premises?

There is a clear correlation between the size of a loss and the duration of the fraud. Having safeguards in place to actively prevent and detect fraud is critical.

How are crimes detected?

The most common method is through tips — about half of which tend to be provided by employees of the victim organization, according to the 2018 ACFE report. Whistleblowers may fear retaliation so it is important to allow employees to confidentially report fraud or theft, where legally permissible.

Other active detection methods include surveillance, audits, management review and technology controls.

Maintaining strong internal controls should be a priority for any organization. But even with precautions in place, no organization is immune to crime and fraud. Crime insurance provides protection from many types of wrongdoing.

Insights Business Insurance is brought to you by Zito Insurance Agency Inc.

Individual life insurance offers added protection — at no cost to the employer

As an employer, you likely provide employees with a group life insurance benefit. So they’ve got coverage, right?

Not so fast. If they leave their job for any reason — a layoff, a new job, retirement, or a terminal illness — a time when they need it most — their policy terminates on their last day of employment, leaving them without coverage.

And 99.9 percent of group life benefits are never paid out to beneficiaries, because people rarely die while employed, says Greg Zito, producer, at Zito Insurance Agency a division of Risk Strategies.

“Employers need to go beyond offering group life insurance benefits and provide another opportunity for their employees, something that extends beyond their term of employment,” says Zito. “Employers who truly care about their people offer individually owned life insurance policies that, when employees leave, they can take with them.”

Smart Business spoke with Zito about the benefits of individual policies and how offering them can help you attract and retain employees.

What is the difference between a group policy and an individual policy?

A group policy is provided by an employer, often as part of a benefits package. It has a limited benefit, although some employers offer the option for employees to increase the coverage.

Seventy-five percent of employees don’t have their own individual life insurance policies, believing it is taken care of through work. But they don’t realize that once they leave employment, they leave that policy behind. And if you leave because of retirement or a terminal illness, at that point it is very expensive, if not impossible, to get a private policy.

Group life insurance policies are like a placebo. People have a policy through work and think they are covered and in great shape, but they are not. Another issue is that the program can be discontinued at any time, leaving people without coverage.

Smart employers offer employees the option of individually owned policies. The benefit comes at no cost to the employer but provides employees with the option of purchasing coverage at varying amounts. These policies are designed to cover the individual — and, if they choose, their spouse and children — with a guaranteed death benefit.

And if they leave employment, the policy goes with them, transferring billing to them directly with no change in cost or benefit.

What are the downsides of individual policies?

There are no downsides to an employer offering a voluntary life insurance program. These policies help attract and retain employees at no cost to the employer. It’s simple, doesn’t take much time and your agent will do all the work. The only responsibility of the employer is to make payroll deductions to cover premiums.

Some employers believe if employees aren’t in the office, they can’t sign up for these policies. However, even if employees never come in to the office, they can enroll remotely. There is no employer that is not a candidate for offering this benefit.

What are other benefits of an individual policy?

One of the products we offer features immediate benefits, a guaranteed tax-free payout upon death, and even an option for living expenses. As soon as an employee enrolls, the policy is in effect, even if that person passes away before making a single premium payment through payroll deduction.

And, in addition to a guaranteed tax-free payout upon death, if the covered person is diagnosed with a grave illness or is confined to a nursing home, they can withdraw 50 percent of the death benefit to help them with living expenses. That’s an amount that doesn’t have to be paid back, and the remaining 50 percent of the policy is paid out upon death.

INSIGHTS Business Insurance is brought to you by Zito Insurance Agency a Division of Risk Strategies.

Protect your company with written telecommuting guidelines

Telecommuting and working remotely have both advantages and disadvantages. Traditionally telecommuting refers to employees working from their residence. These types of programs are becoming increasingly popular due to advances in technology and flexibility demanded by today’s workforce.

In fact, the Bureau of Labor Statistics found that, on an average day in 2019, over 20 percent of full-time employed workers spent some time working while at home. And, more employees have switched to remote work since the start of the COVID-19 pandemic.

Smart Business spoke with Chris Zito, Managing Director of Zito Insurance Agency a Division of Risk Strategies, about the variables an employer needs to consider, including the business risk, before deciding whether or not to implement a telecommuting program.

What are the benefits and risks of allowing employees to telecommute?

There are benefits to telecommuting for both employees and employers. Some of these benefits are:

  • Reduction of brick and mortar expenses.
  • Aids in employee attraction and retention.
  • Flexibility.
  • Eliminates the stress of commuting.
  • Fewer sick days.

On the other hand, some challenges are:

  • A lack of collaboration.
  • Technology and/or security concerns.
  • Limited face-to-face time.
  • Equipment costs.

The extent to which a business experiences these pros and cons depends upon the industry, organizational structure and location, as well as how the telecommuting program is introduced and designed.

Before telecommuting is implemented, what factors need to be addressed?

The employer will need to determine which employees are permitted (or possibly required) to work remotely. Consideration must be given to the role, hours worked and equipment required. Allowing some employees to telecommute but not others in the same or similar positions could create the impression of being discriminatory or giving preferential treatment.

Compliance with the Fair Labor Standards Act (FLSA) is extremely important. Allowing employees not covered by an FLSA exemption to work remotely outside of normal work hours could result in overtime wage issues. When an employer offers an option to work remotely, several issues must be addressed through written guidelines.

One area of concern is cyber liability and confidentiality. Because equipment is out and about, and not contained in an office, there is potential for non-authorized users to access the devices. Measures should be in place to protect equipment, secure internet connections, back up data and protect files. A computer and cellphone care policy ought to be created to outline how employees should care for both hardware and software.

The beauty of allowing telecommuting is that employees can work almost anywhere. The problem is this could be a vehicle. A driver safety policy should be enacted for any employees who work on the road or telecommute. Guidelines to reduce distracted driving should be incorporated into this policy.

Workers’ compensation and employers’ liability also remain a concern for telecommuting employees. Although the location the employee is working in may be personal, the employee working remotely is still acting in the scope of employment. Because of the lack of supervision and variance in environments, it is especially critical that preventative measures and adequate training is in place. Some telecommuting policies incorporate clauses allowing the employer to reserve the right to inspect off-site locations for safety concerns. When an injury occurs at home, for example, it is more difficult to determine if that injury was suffered in the scope of employment.

Before your company offers telecommuting, be sure to analyze if the duties of the position can be successfully fulfilled through telecommuting, while also considering the costs and risks involved. It is very important to have a telecommuting policy to ensure the employee and employer understand the expectations, requirements and responsibilities.

Insights Business Insurance is brought to you by Zito Insurance Agency a Division of Risk Strategies

Online enrollment processes reduce errors, provide transparency

With so many employees now working remotely, it can be difficult to communicate with them about benefits during the open enrollment period, and even more difficult to communicate benefits offerings to new employees.

“The pandemic has really changed companies’ approach to benefits, and it’s more important than ever to have a structured onboarding process for benefits enrollment and the open enrollment period,” says Michele Hanzak, Employee Benefits Team Leader at Zito Insurance Agency a Division of Risk Strategies. “To communicate the plan to all employees, you need to plan ahead, especially if enrollment will be handled virtually.”

Smart Business spoke with Hanzak about how employers can assist new employees with initial benefits enrollments and how to handle the open enrollment process when you can’t meet in person.

How has the enrollment process changed in the era of COVID-19?

In the past, enrollment was done on site with the broker and an insurance carrier representative available to present information and answer questions. Now, those meetings are done virtually, if at all.

Some employers are opting out of formal meetings to instead provide memos of benefits changes and other information for HR to distribute. This has created new challenges for HR to get paperwork into the hands of employees, answer questions for both new and existing employees and review available offerings. As a result, it is critical for employers to reach out to their benefits provider for assistance.

What steps can employers take to help the process move more smoothly?

Set aside a day to review available benefits, and involve your benefits adviser. Also, provide all benefits-related documents to employees ahead of time — at least 30 days — to give them adequate time to review, discuss with family and formulate questions.

With face-to-face interactions, there have always been a lot of questions, but that hasn’t been the case with virtual meetings. HR managers, when scheduling these virtual meetings, should make sure that employees understand this is their time to ask questions and delve into the offered benefits. And make it mandatory for employees to attend these virtual sessions to ensure they understand their benefits.

Post all benefits documents on your company’s intranet — benefit summaries, payroll contribution information, enrollment forms — so employees can review materials when they have questions and they know who to contact for additional information. In addition, including videos online allows employees to review benefits programs and access information at any time without having to request assistance from HR.

Using an electronic enrollment administration system allows employees to complete multiple forms at one time, entering their personal details just once. These programs help reduce the errors that can occur when employees are completing multiple forms, then submitting them to carriers, which are retyping the information. Digital enrollment allows you to improve accuracy, efficiency and uniformity. This decreases the chance for claim denials due to data entry errors.

How can a benefits adviser help employers guide employees through the enrollment process?

Advisers have access to tools with an enormous amount of information regarding benefits, HR and compliance. They can customize documents to your company’s unique situation and assist with enrollment meetings.

Rely on your benefits adviser to walk employees through benefits available to them. Your HR person wears so many hats and can’t be expected to be an expert in benefits, too. An adviser is available throughout the year to help employees not only understand the benefits available to them but also how to use those benefits to help be a better consumer and use the plan more effectively. That can help lower claims costs and yearly plan increases, keeping costs down for both the employer and employee.

Insights Business Insurance is brought to you by Zito Insurance Agency a Division of Risk Strategies

Business interruption coverage can help pay expenses while rebuilding

Your business is housed in a solid building. You have a sprinkler system. Your property is insured. If something happens to your location, it’s just matter of cleaning up and carrying on, right?

Unfortunately, too many business owners think this is true and fail to have adequate business interruption coverage to pay for their expenses while they are rebuilding and unable to operate, says Nate Bell, CIC, producer at Zito Insurance Agency.

“If your physical space is damaged by a Covered Cause of Loss, such as a fire or wind or hail, business interruption insurance will pay your lost net income, along with ongoing expenses, until you can get up and running again,” he says.

Smart Business spoke with Bell about how business interruption coverage could make the difference between a full recovery and going out of business.

What is business interruption coverage?

Business interruption coverage is insurance that replaces business income lost as a result of a covered claim that causes physical damage to your property that prohibits you from operating your business from your physical location.

For the time that you are unable to conduct business, it provides income to cover ongoing expenses such as payroll and taxes. It can also cover extra expenses that help you get up and running as quickly as possible, costs that you otherwise wouldn’t have incurred. For example, while your property insurance would cover the replacement costs of building and equipment damaged, business interruption insurance can cover the additional expense for leasing building space down the road to get up and running as quickly as possible.

However, most policies do not cover losses due to a pandemic, because it isn’t included as ‘covered cause of loss’ in a standard property policy. Some policies have specific exclusions for losses due to a virus. Unfortunately many insureds were hopeful that Business Interruption would help offset losses due to government shutdown of businesses, but COVID-19 has made more business owners aware of what can happen if they can no longer use their facility, highlighting how much business interruption insurance is needed.

How can owners determine how much coverage they need?

Your trusted adviser can walk you through the process. Using an industry-specific BI spreadsheet, you determine what you would do if your business had to shut down and what funds you would need to remain viable.

There are several factors to consider. A business in the service industry may be able to operate from home, so it doesn’t have as much exposure and may be able to continue to operate if its physical space is unusable. A manufacturer, requires a physical location to continue to operate, and there would need to be more coverage than other industries.

Another variable is whether you own the building. If so, you may be more dependent on it than if you lease, depending on your lease agreement. You can typically find another building to lease, but if you own, that building is critical to your operations.

A business owner can opt for coverage that includes payroll expenses, allowing it to continue paying employees while repairs are made to the building. Depending on your industry, you may choose to forgo this, letting your employees seek other jobs, but most businesses choose this coverage so they don’t lose good employees to competitors.

It is crucial to ensure you have adequate coverage limits, so don’t guess. Sit down with an agent and go over a business interruption worksheet to identify the level of coverage you need. Then review your needs annually, if not more often, to ensure your levels of coverage remain adequate.

What would you say to owners who think they aren’t at risk?

Many companies, even those with covered losses, have gone out of business because their limits weren’t adequate to recover. It always takes longer than estimated to rebuild after a loss. If you think it will take 12 months, it will typically take 16 to 18.

Too many owners think, ‘It’s never going to happen to me. I’m never going to lose the building and be shut down for months.’ But it does happen, and your expenses aren’t going away because you aren’t operating — and if that period goes on longer than anticipated, you could be out of business.

Insights Business Insurance is brought to you by Zito Insurance Agency

Hard times ahead for the insurance market

Many business owners are anticipating a reduction in insurance rates as a result of a slowdown in business brought on by COVID-19. However, rates are actually increasing across the board.

“Current events have certainly exacerbated the problem, but this trend started prior to the pandemic,” says Chas Lowe, Commercial Insurance Specialist at Zito Insurance Agency. “Rates are going up indiscriminately, and that extends to nearly every line of business.”

Smart Business spoke with Lowe about why rates are increasing and how to gain a cost-of-risk advantage.

Why are premiums increasing?

On a macro level, one of the biggest factors is the current low-interest rate environment. Insurance companies invest a portion of the premiums they receive into interest-sensitive assets — bonds, CDs, Treasury bills — to gain a return. As the interest earned declines, it has a direct effect on the carriers’ profitability and forces them to look for ways to increase revenue (i.e. increase rates).

Also contributing to these increases is the proliferation of the so-called ‘nuclear verdict,’ in which juries award massive amounts to a plaintiff. This phenomenon emerged from years of corporate mistrust, significant growth in litigation financing and a shift in jury sentiment favoring plaintiffs. These disproportionate settlements are threatening the financial viability of insurance companies and will put pressure on rates for years to come.

What is the impact of rising rates on businesses?

Due to the current operating environment, insurance companies are narrowing their appetite for the types of businesses they’ll insure, along with which industries they’ll cater to moving forward.

Companies with large fleets of vehicles are being hit the hardest, as insurers are incurring huge losses due to distracted driving, higher vehicle repair costs and the skyrocketing cost of medical care. According to the Insurance Information Institute, this had led to the average accident more than quadrupling in costs over the past 10 years, naturally leading to an increase in premiums.

Is there anything a company can do to help stem increases in its insurance premium?

Becoming best in class within your industry by proactively implementing loss control and risk management resources will help to set your organization apart from your competitors and allow your broker to negotiate the best possible pricing on your behalf. To become a better insurance risk in the eyes of an underwriter:

  • Provide management training on employment related matters to decrease the likelihood of a lawsuit.
  • Review contracts to ensure you aren’t being held to undue liability your organization may not be aware of.
  • Upgrade your IT systems, reinforce your firewall and have IT stay on top of the latest safeguards. Train employees on the basics, such as not clicking on phishing links and securing laptops and smart devices.
  • Train employees on safe driving and install telematic devices in vehicles to identify irregular driving behavior.

Work with your broker to see what other resources/tools may be available that can be used to help make your workplace a safer environment for all those involved.

Are there alternatives for businesses to traditional insurance?

There is no right or wrong way to buy insurance and, depending on your organization’s risk tolerance, there are alternative ways to finance risk. A safety dividend program has more risk up front, but if other companies in that program perform well, you get premiums returned to you in the form of ‘safety dividends.’ You can also set up a captive insurance company, which you own and control. Or, depending on the size of your organization, you can self-insure a portion of risk, setting aside funds to pay any claims incurred.

With rate increases across the board, partner with an insurance adviser to identify areas where higher deductibles make sense and customize your policy to meet your organization’s business profile. An independent broker can help you find the right solution for your business’s unique needs.

Insights Business Insurance is brought to you by Zito Insurance Agency

Is your organization overlooking your risk for an insurance claim?

When many people think of pollution insurance, they picture large factories or chemical companies that pollute the environment, such as has the historic Love Canal litigation years ago. But that’s not the whole story — or the entire picture of who could face pollution risks.

Smart Business spoke with Chris Zito, managing director of Zito Insurance Agency, about environmental risks and coverage that is available as protection.

What are the risks of pollution exposure?

Most companies in the environmental remediation or consulting business recognize their exposure to pollution claims and insure them accordingly. There are also a large number of companies not in the environmental business that have significant exposure to pollution-related claims, which in many cases have been overlooked. These risks can include Environmental Protection Agency (EPA) mandated cleanup costs as well as third-party claims alleging sickness, disease or property damage.

The financial impact to your company can be devastating if you encounter a legitimate pollution incident. If you are ultimately found to have no liability, you can still go broke proving it if you’re self-insuring this risk.

When considering the extent of your individual risk, it is important to remember that you can be held responsible for pollution incidents caused by others with whom you have contracted or are working on your behalf.

What types of companies are at risk for environmental exposures that might be surprising?

To some degree, hazardous materials, as defined by the EPA, can be found in almost any business — even something as innocuous as cleaning supplies. Significant environmental exposures exist in a number of industries that most would not consider at risk, such as:

  • Contractors — pollutants that are brought to a job site (sealants, adhesives, fuel for equipment, etc.) or actions that result in the release of pollutants into the air, land or water, including mold, lead paint and asbestos.
  • Manufacturers — cutting oils, solvents, paints utilized during the manufacturing process that may create an environmental hazard.
  • Real estate owners — claims generated by property transfers (exposures created by prior owners), mold, lead paint, current tenants or ‘midnight dumping’ by unknown third parties.
  • Service industries that utilize environmental unsafe chemicals, such as beauty salons, dry cleaners, auto repair, service stations or junkyards.

How can employers insure against these risks?

As a means to stay competitive in the market, most commercial insurance carriers have broadened the coverage included in the various policies they offer.

One exception to that statement is pollution liability coverage, which has been greatly restricted or excluded entirely from most policies since the 1970s when asbestos, lead and other environmental claims bankrupted many well-known companies.

While limited pollution coverage may be available by endorsement to general liability, the most comprehensive coverage is typically written on separate policies through companies that specialize in environmental coverage.

Pollution coverage is available for most industries and typically is categorized to address environmental risk in three basic areas:

  • Job site.
  • Site specific (i.e. owned premises).
  • In transit.

An evaluation of your exposure to environmental claims should be included as part of your risk management program. A qualified agent or broker will be able to assist with this process and provide the appropriate solutions in cases where environmental risks are identified in your operations.

Insights Business Insurance is brought to you by Zito Insurance Agency

Risk identification is the most important part of risk management

With all of the unknowns in the world today, companies need to continually scan the horizon for emerging threats and opportunities. This will better prepare their business to manage the downside of risk while positioning themselves to capitalize on opportunities that may be presented. It requires both an internal and external focus, a sense of the micro and macro, and an honest assessment of their strengths and weaknesses.

To that end, organizations are using Enterprises Risk Management Programs to establish a framework for addressing the ever-changing risk landscape their organization may face. These programs focus on an entitywide view of risk, require the input of cross-functional committees and leverage external help from the company’s board of directors, its attorney, CPA, banker and insurance agent. Together, they allow a company to truly determine its risk appetite and ability.

Smart Business spoke with Chas Lowe, a commercial insurance specialist at Zito Insurance Agency, about the process a business can use to identify threats and opportunities to help support its strategic objectives and goals.

Why should companies include an array of experts in a risk management assessment?

Organizations have a general perception of what risks are out there and what could possibly happen to their business, but there’s a tendency to focus on risks that are physical in nature — their building catching on fire or one of the vehicles in their fleet getting in an accident. While those risks absolutely exist, and it’s important to acknowledge them, these types of hazards are easier to plan for and insure against. Typically, it’s a previously unknown, or emerging risk that brings a company down.

To get a broad perspective into what risks exist in the market, it’s a good idea to gather an array of experts and lean on them to find ways to limit the organization’s risk exposure. This can be done by having them perform a SWOT analysis — identifying an organization’s strengths, weaknesses, opportunities and threats — for individual internal departments, their supply chain, IT infrastructure and more. This will more clearly identify the organization’s position in the market.

Once risks are identified, a company can then begin to plan for them, setting the foundation for comprehensive solutions to support the organization’s underlying strategic goals. For example, a company can purchase insurance to insulate or hedge against certain threats, put controls in place to help reduce any exposure to that risk, or avoid other activities altogether. How exactly the company decides to approach risk depends on its risk tolerance in specific areas, something else that can be determined throughout the analysis.

How often should assessments be conducted?

The ever-changing macro landscape drives the need to conduct an analysis as frequently as possible. It’s like sonar, sending out a signal to get an idea of where the company currently stands in the marketplace.

At a minimum, assessments should take place on an annual basis, coinciding perhaps with a board of directors meeting to bring in those outside subject-level experts. Annual reviews are practical because it will also help the organization keep up with new technologies, which evolve quickly. However, because a comprehensive risk management program should continually evolve with the business, the more frequent these assessments can be performed the better.

How can insurance brokers and agencies help?

Brokers deal with multiple clients across multiple industries, meaning they come across examples of how other companies have dealt with similar issues. Companies should get their insurance broker involved in the process as soon as possible. A lot of agencies make resources available to their clients at no cost — disaster/continuity plans, vehicle use agreements, subcontractor agreements, OSHA inspections, etc. Those plans can help companies determine viable options for getting the business back up and running as quickly as possible in the event of a significant business disruption. Brokers, an agency or even a carrier can help provide companies with tools and resources to help them weather just about any storm.

Insights Business Insurance is brought to you by Zito Insurance Agency

Don’t stick your head in the sand. Transfer your risk.

Transferring risk through the use of indemnity or hold harmless clauses in a contract is common for large corporations with attorneys on staff, but owners of small and midsize businesses need to spend time on this, too.

“It’s become a much larger topic, both from an underwriting and risk management standpoint. People don’t always understand the importance of risk transfer. But there’s a greater emphasis being placed on it by the insurance companies. Taking the approach, ‘that’s why I have insurance’ is not something insurance companies want to hear,” says Chris Zito, president of Zito Insurance Agency Inc.

Because there is no direct revenue tied to it, business leaders tend to view risk transfer as an administrative burden. What they don’t realize is it reduces their overall cost of risk.

“Every day we see companies executing contracts that have not been read thoroughly,” Zito says. “This results in the unintentional assumption of risk.”

Smart Business spoke with Zito about the importance of risk transfer in business contracts.

How does risk transfer work? What are some examples?

When it comes to risk transfer, construction companies are an easy example. General contractors hire subcontractors and pass the risk down; a lower tier of subcontractor indemnifies the tier above it. The intent is that the party responsible for any damage or injury is held accountable for its actions, while protecting the people it is working on behalf of. A company takes the risk and pushes it back to the people who created it. 

A retail store, distributor, wholesaler or a manufacturer’s rep might sell a product made by somebody else. If that product causes injury or damage, the way the legal system works, everyone in the supply chain can be named in the litigation — from the end seller to the manufacturer, even if they had nothing to do with the product’s design, manufacturing or packaging.

Say for example, a manufacturer outsources a portion of its manufacturing process, such as plating, grinding, heat- treating, etc., to a third party. If the work wasn’t done properly or to the specification required, it might have an adverse impact on the end product. As a part of its risk transfer process, the manufacturer should ensure the proper insurance and indemnity provisions are in place.

Ideally, how do companies use contracts to move risk away?

In a perfect world, the company has contractual hold harmless language in place, along with the proper insurance for the people who supply it goods and/or services. In some cases, a buyer of a product might be named as an additional insured. The ability to do that varies based upon the industry and type of services being provided.

The hold harmless or indemnity clauses range in length. If you’re trying to transfer the risk, you want the scope of that indemnity language to be as broad as possible. If you’re the entity assuming the risk, you want the language to be narrow. Like anything else in business, it becomes a negotiation.

In addition, risk transfer is a negotiating tool for purchasing insurance. Companies that demonstrate the best risk transfer practices are more attractive to insurance companies. The best businesses spend time on risk transfer practices, which helps their rates and lowers their risk profile.

What role does an insurance agent play?

Your insurance agent can educate you about risk transfer tools, and possibly help facilitate the process — becoming your back room, so to speak. If your insurance agent reviews contracts before you execute them, he or she can alert you to red flags or help you push the risk back to the people who ultimately create it.

Prudent businesses have a system in place where they make sure they’ve got current information on all vendors, suppliers and subcontractors, because those relationships have the ability to create and pass down risk to the people who are purchasing their goods and services.

In some cases — particularly when doing business with large corporations — implementing risk transfer can be difficult. However, at the very least, companies can quantify the risk they are assuming at the time of the transaction.

Insights Business Insurance is brought to you by Zito Insurance Agency Inc. 

The ins and outs of your fiduciary exposure and what you can do about it

Employers who maintain qualified benefits plans that are subject to the Employee Retirement Income Security Act (ERISA) assume a fiduciary responsibility for the participants of those plans. More importantly, one of the caveats of ERISA is it allows participants to pursue personal liability for individuals that were involved in the sponsorship or administration of those qualified plans.

So, in theory, the HR administrator, CFO, CEO, owner/shareholder — potentially anyone who played a role in the selection and administration of those qualified plans — can be held personally liable, says Chris Zito, president of Zito Insurance Agency, Inc.

The greater degree they are involved in those decisions, the greater the level of fiduciary exposure.

“Fiduciary claims aren’t as frequent as other types of claims that may be filed against your organization. But unlike the claims that are protected under the corporate shield, fiduciary liability is one area where participants may pierce the corporate shield and go after personal assets,” Zito says.

“Not that protecting the corporation’s assets isn’t important, but if your house could be at risk you should at least be aware of that.”

Smart Business spoke with Zito about misconceptions employers have about fiduciary liability and how you can protect yourself — and your personal assets.

What misconceptions do you see from plan trustees?

Most commonly, plan sponsors confuse their fiduciary exposure with the ERISA bond. They are entirely different — one is a form of employee dishonesty coverage and one is liability coverage. The ERISA bond protects employee investment assets from theft of their retirement funds by trustees. It’s not liability coverage; it’s a requirement the IRS imposes on qualified plans.

In addition, some retirement plans aren’t subject to ERISA. People generally lump retirement plans into one bucket, but they are different, in terms of their legal and compliance requirements.

Do plan sponsors only need to worry about their fiduciary liability for retirement plans?

Traditionally retirement plans are the largest driver of these types of claims because they’re the most visible. But legally, any qualified benefit plan — all of which are subject to the ERISA law — could trigger a fiduciary claim.

How can plan trustees best mitigate their fiduciary liability exposure?

Quantity and diversity of investment selection, along with plan education, are key to minimizing the exposure of retirement plan-related liability.

Defined benefit plans used to impose a significant fiduciary responsibility on employers because they had the actuarial responsibility of making sure the plan was funded properly. Today’s 401(k)s and profit-sharing plans have migrated to a self-directed model, where employees choose from different mutual funds, varying from low risk to high risk. The more control and direction the employees have, the lower the fiduciary exposure, but it doesn’t eliminate it entirely.

Plan trustees want to make sure they’re providing ample education about how any qualified benefit plan works — retirement or otherwise. Education is a requirement under ERISA.

You also can buy trustee and fiduciary liability (TFL) coverage. A key consideration in buying a TFL policy is coverage for defense costs, regardless of whether negligence exists.

Fiduciary liability is fairly generic in terms of what the coverage does, but the breadth of the policy varies by company. You can get pricing from multiple companies, and the coverage limits and deductibles may be identical but that doesn’t mean you’re getting the same policy. It is important to review the policy language to determine how or if coverage applies to Affordable Care Act compliance.

The right agent will be familiar with the policy language in terms of what types of fiduciary claims and allegations it will cover and defend, like regulatory expenses.

Insights Business Insurance is brought to you by Zito Insurance Agency, Inc.