SBN Staff

The Pension Protection Act and recently passed pension legislation amounted to hundreds of pages of regulations affecting 401(k)s and other retirement plans. The size and heft of these laws speak volumes about the complexity and difficulty of administering retirement plans.

In addition, the Department of Labor has increased the number of retirement plans that it audits. DOL statistics show an estimated 70 percent of retirement plans audited in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors. During this time period, the DOL collected $1.08 billion in corrections, reinstatements and fines.

“Fortunately, business owners who provide retirement plans for their employees don’t have to digest the Act or become experts in pension administration if they simply consult a local third-party administrator,” says Brian M. Smith, Director of Sales and Consulting with Tegrit Group.

Smart Business spoke with Smith about how to utilize third-party administrators (TPAs) when trying to decide how to structure your company’s retirement plan.

How can a TPA help with retirement plans?

TPAs provide a wide range of retirement plan services for business owners, from consulting on regulatory changes and maximizing retirement plan designs to administering defined contribution and defined benefit plans. Many small and medium-sized employers lack a dedicated, in-house specialist to administer retirement plans. Working with a local TPA fills the need to have a benefits expert close at hand.

TPAs work closely with dozens of business types in a variety of industries. They understand the challenges business owners face such as rising taxes and business expenses, health care reform, retaining talented employees and more. That means your local TPA is well equipped to help you design a retirement program that meets the unique needs of your company, squeezes the most out of your benefit dollars, provides incentives for your employees and helps you accomplish your own retirement goals.

Why is this kind of assistance so important to business owners?

Running a successful business of any kind is more difficult than ever in today’s challenging economic climate. For many business owners, offering a qualified retirement plan is an ideal way to attract and retain key employees, as well as help the owners plan for their own retirement. For example, given the competitive work landscape, employer match programs are becoming more popular as tides are turning.

The issue facing many business owners is determining the type of plan that is best for their employees and themselves. Is it a defined contribution plan like a 401(k) or a defined benefit plan?

Selecting the right plan for your business is a crucial step and a third-party administrator, with expertise in plan design and administration, can help assist you in meeting your fiduciary responsibility to the plan while providing a path for your participants to achieve their retirement goals.

Has it become common for business owners to utilize TPAs  to administer their retirement plans?

When you bring together years of experience implementing and serving plans, the retirement plans can be more specialized. Businesses can think more outside the box with the expertise of TPAs, as there’s no longer a check-the-box, cookie-cutter solution.

What should an employer look for when deciding on a TPA?

Before you team up with a local TPA firm, make sure you do your due diligence, as not every TPA has the same level of expertise. Ask the right questions to make sure you have a good fit, such as:

  • How extensive are the TPA’s services? Does the TPA specialize in a specific niche such as 401(k) plans, or does the firm consult on a broader range of retirement benefits?

  • What is the TPA’s reputation in the marketplace? Check references to determine if the TPA is easy to work with, whether or not it delivers quality service and if it designs effective retirement plans. Ask for specific case studies.

  • How long has the firm been in business? How many plans and participants does it service?

  • Is it willing to propose a retirement plan design for your company, at no cost, that takes into account your employee and business needs?

  • How many employees does it have? Do employees have credentials or receive training from professional organizations such as the American Society of Pension Professionals and Actuaries?

If you are unaware of the TPA firms that are available locally, contact the provider of your retirement or other benefits programs for referrals. Most providers work with a nationwide network of TPAs that most likely includes some in your area.

Is a team approach or one administrator better when using a TPA for your retirement plan?

There is no right or wrong answer as it depends on the needs of the business. However, a larger TPA firm has the ability to fill more needs than one CPA. The large firm can focus on a host of services from actuarial consulting to plan design to document services. A one-person CPA firm that provides TPA work will be limited in what it can do, so these firms often focus on one piece of the business.

Brian M. Smith is the Director of Sales and Consulting for Tegrit Group’s Columbus, Ohio, office. Tegrit Group is a national leader in actuarial consulting, plan administration and technology solutions for public and private retirement plan sponsors. Reach him at (614) 458-2060 or brian.smith@tegritgroup.com.

Insights Retirement Plan Services is brought to you by Tegrit Group

Credit insurance, which has been around for many years, is a custom financial tool that protects a business from losses due to insolvency or past due/slow pay from their customers.

This problem of insolvency or past due/slow pay from customers isn’t expected to stop any time soon, either. U.S. corporate default rates are expected to rise this year, as marginal companies that already refinanced debt in the last few years stumble because they didn’t reduce debt and just pushed out payment schedules, according to a USA Today article.

“This insurance product can be a cost-effective device for transferring risk — premiums are tax deductible while reductions in bad debt reserves are not,” says Cliff Baseler, vice president, Best Hoovler Insurance Services, Inc., a SeibertKeck company.

Smart Business spoke with Baseler about why the value of this insurance is consistently being demonstrated during economic financial crisis time and time again.

How does credit insurance coverage work most effectively?

If your company does business in which it extends a line of credit for merchandise orders or other accounts payable, then this insurance protects you against losses because when you extend credit to a business your own financial solvency gets tied in with that account. Coverage can apply to a single debtor or a greater spread of risk by including all of your unquestioned buyers in excess of a certain dollar amount. Annual sales of at least $1 million can make the program more cost effective.

Why should employers look into buying this type of coverage?

Business owners must be more attentive regarding the management of their accounts receivable in the face of this global economic climate. There are more business failures both domestically and internationally. This was borne out by increased worldwide demand for credit insurance across all geographies in the first quarter of 2012, according to the Global Insurance Market Quarterly Briefing. The United States saw a modest increase in demand of less than 10 percent, with the largest demand increase in Asia.

Credit insurance provides catastrophic loss protection that can be used by businesses of all sizes and by all business sectors. There are many benefits as to why a business owner will purchase this coverage. Some include:

  • Increasing credit to your existing customer base and extending credit to new customers.

  • Improving cash flow.

  • Enhancing bank financing by increasing borrowing capacity. Banks will lend more against insured receivables.

  • Reducing bad debt reserves and freeing up cash.

  • Utilizing it as a risk management tool to improve business planning by elimination of unknown risk.

How does credit insurance protect you better than just looking at a customer’s payment history?

Unfortunately, payment history is not a valid predictor of default. Close to 50 percent of all payment defaults rise from stable and long-term customers. One sudden loss could have a devastating impact on you and your business. Consider that your receivables are a concentration of all your cost and profit, and in many cases, you create them based on a customer’s promise to pay. Therefore, there is a tremendous amount of risk facing your business. Credit insurance is a great tool to remove this disastrous risk from a balance sheet.

What do business owners need to know about purchasing this insurance?

The level of indemnity ranges from 80 to 100 percent depending on your credit management experience, accounts receivable portfolio and premium target. Policies are designed to fit a business owner’s need for coverage. Risk retention comes in the form of co-insurance and deductibles and helps in lowering the premium. Co-insurance is a percentage of the loss you retain on each insured account.

There are only a small handful of carriers that specialize in this type of coverage. Each will have their own risk appetite, underwriting philosophy, and method to how they structure and administer their policies.

Underwriters will research, approve and monitor the accounts you want to insure. They also will approve coverage limits on the customers you want to insure. You will want to provide underwriters with a balanced spread of risk that will offer best pricing and terms. It’s important to clarify with the underwriter your maximum terms of sale, lead times for customer orders and note any special circumstances that might require additional coverage.

You can insure the entire accounts receivable portfolio or a select number of accounts. The premium will be based on your loss history, customer credit quality, spread of risk, and deductible and co-insurance levels in the policy. Usually the premium is less than half of one percent of insured sales.

Your customers’ payment history is not a valid evaluator of their failure to pay. Having a carrier watching over your covered accounts and helping evaluate credit limits is a great advantage to a business owner’s risk management plan. Nonpayment and slow pay by your customers will weaken a company. Credit insurance can help protect a company’s biggest asset — your own business credit.

Cliff Baseler is vice president of Best Hoovler Insurance Services, Inc., a SeibertKeck company. Reach him at (330) 867-3140 or cbaseler@bhmins.com.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

Settlement of a claim and a handicap reimbursement award are two cost containment strategies available to employers to manage claim costs and impact annual premiums. A settlement fixes the claim cost, which then allows the premium to reflect the settlement amount and possibly reduce the employer’s premium. If a handicap award is granted, a portion of the costs of the claim will be charged to the Surplus Fund and not to the employer’s experience.

“By removing costs from an employer’s experience, an employer may be able to lower its annual premium rate calculated by the Ohio Bureau of Workers’ Compensation (BWC), thus reducing its annual spend,” says Lisa O’Brien, director of rates and underwriting services for CompManagement, Inc. “Employers should always review these two very effective cost containment strategies when managing their workers’ compensation claims to make an impact to their bottom line.”

Smart Business spoke with O’Brien about these cost containment options available to employers in Ohio.

What is a settlement?

A settlement is an agreement among the employer, the injured worker and the BWC for a specific amount to settle one or more workers’ compensation claims. All three parties must agree to the settlement amount before a claim can be settled either in full, which settles all allowed conditions and benefits, or a partial settlement, which settles only certain conditions and/or benefits, either medical or indemnity (compensation).

What happens when a claim is settled?

When a claim is settled, the injured worker will receive a lump sum payment from the BWC.  Settlement affords injured workers the freedom to manage their treatment priorities, on their timeline and on their schedule.

If the claim is settled for both the indemnity and medical portions, the injured worker will receive no additional compensation or medical benefits in the settled claim. If the claim is settled for either medical only or indemnity only, the injured worker can no longer receive the benefit type that has been settled (either medical or indemnity).

For employers, settlement can help manage costs and bring closure to a claim for their employee. Settling the claim removes reserves (indemnity, medical or both depending on the type of settlement) associated with the claim from all future rate-making. However, costs already paid out, plus the settlement amount, will continue to be charged to and impact the employer’s premium rate.

When will a settlement impact the employer’s premium?

Settlement of a claim will affect an employer’s premium rate only going forward. In order for a settlement to be included in the employer’s upcoming year’s rate, the fully executed settlement application (signed by both the employer and the injured worker) must be filed by May 15 for public employers or by Oct. 15 for private, state-funded employers.

These deadlines do not apply for settlements that occur through the court of common pleas. Common pleas settlement inclusions in the employer’s experience are based on the date the settlement is paid.

For a court of common pleas settlement to be included in an employer’s upcoming rates, the settlement must be paid to the injured worker before the applicable survey date, June 30 for public employers and Dec. 31 for private employers.

 

What is a handicap reimbursement?

The BWC encourages employers to hire and retain employees with handicapped conditions. To help offset the challenges those with handicaps often experience in the job market, the BWC offers the Handicap Reimbursement program as a means for employers to reduce their claim costs. Ohio law defines a handicapped employee as one who has a physical or mental impairment, whether congenital or due to injury or disease, whose impairment jeopardizes the person’s ability to obtain employment or re-employment. Also, the impairment must be due to one of the 25 eligible diseases or conditions that Ohio law recognizes.

The most commonly recognized conditions are arthritis, ankylosis, diabetes, cardiac disease and epilepsy.

When should an employer file an application for handicap reimbursement?

If an injured worker suffers a lost-time claim (eight or more days away from work) and a handicap condition is met, the employer can file a CHP-4 application with the BWC requesting reimbursement of claim costs charged. The employer must show the handicap is a pre-existing condition (prior to the date of injury) and that it either caused the claim or contributed to increased costs or a delay in recovery. Applications are reviewed and awards are granted by the BWC’s Legal Operations Department. Once awarded, the BWC will apply the handicap reimbursement award to chargeable claim costs, thereby reducing costs and possibly premium rates.

Private, state-funded employers must file handicap reimbursement applications by June 30 of the calendar year no more than six years from the year of the date of injury. Public employers must file handicap reimbursement applications by Dec. 31 of the year no more than five years from the year of the date of injury.

Claims with a handicap reimbursement can be settled and settled claims can continue to be considered for handicap reimbursement.

What is the typical range of handicap reimbursements awarded?

Per BWC public information, handicap reimbursements typically range between 5 and 100 percent, depending on the degree to which the handicap condition impacts the claim. On average, current public information shows a handicap award to be approximately 26.17 percent.

Lisa O'Brien is the director of rates and underwriting services for CompManagement, Inc. Reach her at (800) 825-6755, ext. 65441, or Lisa.Obrien@sedgwickcms.com.

Insights Workers’ Compensation is brought to you by CompManagement

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is one of the largest pieces of legislation in history, and it has complicated the regulatory environment by increasing the government’s oversight, supervision and resolution authority over financial institutions.

“As a result of Dodd-Frank, there are more agencies with oversight over more and different types of institutions, so compliance can be difficult,” says Michael K. O’Connell, managing director and Financial Institutions Practice leader of Aon Risk Solutions. “There are a lot of new agencies and those with redefined roles. There is new regulation of over-the-counter derivatives, a new agency for enforcing compliance with consumer finance rules, reformed credit rating agency regulation, changes to corporate governance and executive compensation, the Volker Rule, new registration requirements for advisers to certain private funds and significant changes in the securitization market.”

Smart Business spoke with O’Connell and John George, account executive at Aon Risk Solutions, about safely navigating this new, stricter regulatory environment.

What are some of the risks for noncompliance that businesses face with Dodd-Frank?

You might immediately think of the obvious financial risks — fines, penalties and injunctions — of not complying with any regulation, including Dodd-Frank. But before you get to that point, your business can incur significant costs responding to a regulatory investigation. On the back end, there also can be reputational harm, which is hard to pre-quantify but can be quite impactful.

These risks are interconnected, increasing the need for financial institutions to maximize the value of their risk transfer spend. Expert help can aid with this process by using robust data and analytic tools that help financial institutions understand their exposure, develop their modeling capabilities and ultimately derive the most value from their investment in insurance and risk mitigation.

How has executive liability changed with Dodd-Frank, and how can companies protect themselves?

There definitely is increased pressure on corporate boards of directors. The provisions of Dodd-Frank create new obligations that will drive shareholder expectations and potentially lead to heightened executive liability exposure. Directors and officers (D&O) liability insurance is designed to protect individual directors and officers, as well as the corporate entity from governmental or shareholder investigations and/or legal proceedings.

It is important to understand the Dodd-Frank provisions of clawback compensation, where boards can force executives to pay back some of their compensation for wrongdoing, corporate governance and whistleblower activity within the context of your company’s D&O liability program. Pay close attention to policies’ definitions and exclusions to understand the extent of coverage available.

In these areas, it’s critical to discuss what you really want to cover and how to achieve that within the context of the policy in the current insurance market. Understanding the scope of coverage is especially important in Side A D&O policies, which can provide dedicated personal asset protection to individual directors and officers when the company is either prohibited from indemnifying or not able to indemnify.

What are the best ways for financial institutions to cover privacy and security liability?

Privacy and security continues to be an area of focus for financial institutions. At the same time that the volume of personally identifiable information is increasing, so is regulatory focus on and awareness of privacy and security risk. With this, it is important for financial institutions and others to really understand and tailor their privacy and security coverage to their exposure.

Base policy forms vary greatly and must be customized to ensure maximum possible coverage. Take a diagnostic approach to privacy and security liability. Review the scope of coverage for first- and third-party exposures in conjunction with your existing insurance program and discuss coverage priorities with experts to fully define what you’re seeking.

The breadth of coverage available has evolved, as have the service offerings that can be bundled with a risk transfer program. An example is with breach management, where insurers offer turnkey solutions that can help financial institutions quickly and effectively recover from a breach. This approach is popular among mid-tier financial institutions that may not have pre-established relationships and resources to quickly handle a breach.

What are some other risks financial institutions are facing with operations and compensation?

Some financial institutions continue to struggle to meet regulatory requirements while maintaining sound compensation strategies. As regulation shifts from being guidance-based to rules-based, for smaller banks the question is when they will have to comply. Regardless of size, all financial institutions are being tasked with balancing risks and results, creating controls to reinforce that balance and ensuring effective management of incentive compensation.  The first step in managing compensation compliance is identifying covered employees. The process, and ultimately the covered population, may vary by firm and is primarily determined by business mix. Often the most effective and well-received approach is to include risk adjustments at the time of award or deferral, with potential future forfeiture, for incentive compensation plans.

With the evolving issues related to compensation, executive liability, privacy and security, and other risks, it’s important for institutions to take an enterprise-wide approach to risk identification, quantification and mitigation. Using experts, many financial institutions accomplish this with the goal of keeping their risk perspectives current in the changing regulatory environment. Risk management professionals can help implement risk frameworks, analyze key risk scenarios and model risk, and then align an institution’s insurance and risk transfer program to their underlying risk profile.

Michael K. O’Connell is a managing director and Financial Institutions Practice leader of Aon Risk Solutions. Reach him at (212) 441-2311 or michael.oconnell@aon.com.

John George is an account executive at Aon Risk Solutions. Reach him at (248) 936-5264.

Insights Risk Management is brought to you by Aon Risk Solutions

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is one of the largest pieces of legislation in history, and it has complicated the regulatory environment by increasing the government’s oversight, supervision and resolution authority over financial institutions.

“As a result of Dodd-Frank, there are more agencies with oversight over more and different types of institutions, so compliance can be difficult,” says Michael K. O’Connell, managing director and Financial Institutions Practice leader at Aon Risk Solutions. “There are a lot of new agencies and those with redefined roles. There is new regulation of over-the-counter derivatives, a new agency for enforcing compliance with consumer finance rules, reformed credit rating agency regulation, changes to corporate governance and executive compensation, the Volker Rule, new registration requirements for advisers to certain private funds and significant changes in the securitization market.”

Smart Business spoke with O’Connell and Jo Ellen Thelen, managing director, Aon Risk Solutions, about safely navigating this new, stricter regulatory environment.

What are some of the risks for noncompliance that businesses face with Dodd-Frank?

You might immediately think of the obvious financial risks — fines, penalties and injunctions — of not complying with any regulation, including Dodd-Frank. But before you get to that point, your business can incur significant costs responding to a regulatory investigation. On the back end, there also can be reputational harm, which is hard to pre-quantify but can be quite impactful.

These risks are interconnected, increasing the need for financial institutions to maximize the value of their risk transfer spend. Experts can aid with this process by using robust data and analytic tools that help financial institutions understand their exposure, develop their modeling capabilities and ultimately derive the most value from their investment in insurance and risk mitigation.

How has executive liability changed with Dodd-Frank, and how can companies protect themselves?

There definitely is increased pressure on corporate boards of directors. The provisions of Dodd-Frank create new obligations that will drive shareholder expectations and potentially lead to heightened executive liability exposure. Directors and officers (D&O) liability insurance is designed to protect individual directors and officers, as well as the corporate entity from governmental or shareholder investigations and/or legal proceedings.

It is important to understand the Dodd-Frank provisions of clawback compensation, where boards can force executives to pay back some of their compensation for wrongdoing, corporate governance and whistleblower activity within the context of your company’s D&O liability program. Pay close attention to policies’ definitions and exclusions to understand the extent of coverage available.

In these areas, it’s critical to discuss what you really want to cover and how to achieve that within the context of the policy in the current insurance market. Understanding the scope of coverage is especially important in Side A D&O policies, which can provide dedicated personal asset protection to individual directors and officers when the company is either prohibited from indemnifying or not able to indemnify.

What are the best ways for financial institutions to cover privacy and security liability?

Privacy and security continues to be an area of focus for financial institutions. At the same time that the volume of personally identifiable information is increasing, so is regulatory focus on and awareness of privacy and security risk. With this, it is important for financial institutions and others to really understand and tailor their privacy and security coverage to their exposure.

Base policy forms vary greatly and must be customized to ensure maximum possible coverage. Take a diagnostic approach to privacy and security liability. Review the scope of coverage for first- and third-party exposures in conjunction with your existing insurance program and discuss coverage priorities with experts to fully define what you’re seeking.

The breadth of coverage available has evolved, as have the service offerings that can be bundled with a risk transfer program. An example is with breach management, where insurers offer turnkey solutions that can help financial institutions quickly and effectively recover from a breach. This approach is popular among mid-tier financial institutions that may not have pre-established relationships and resources to quickly handle a breach.

What are some other risks financial institutions are facing with operations and compensation?

Some financial institutions continue to struggle to meet regulatory requirements while maintaining sound compensation strategies. As regulation shifts from being guidance-based to rules-based, for smaller banks the question is when they will have to comply. Regardless of size, all financial institutions are being tasked with balancing risks and results, creating controls to reinforce that balance and ensuring effective management of incentive compensation.

The first step in managing compensation compliance is identifying covered employees. The process, and ultimately the covered population, may vary by firm and is primarily determined by business mix. Often the most effective and well-received approach is to include risk adjustments at the time of award or deferral, with potential future forfeiture, for incentive compensation plans.

With the evolving issues related to compensation, executive liability, privacy and security, and other risks, it’s important for institutions to take an enterprise-wide approach to risk identification, quantification and mitigation. Using experts, many financial institutions accomplish this with the goal of keeping their risk perspectives current in the changing regulatory environment. Risk management professionals can help implement risk frameworks, analyze key risk scenarios and model risk, and then align an institution’s insurance and risk transfer program to their underlying risk profile.

Michael K. O’Connell is a managing director and Financial Institutions Practice leader at Aon Risk Solutions. Reach him at (212) 441-2311 or michael.oconnell@aon.com.

Jo Ellen Thelen is a managing director at Aon Risk Solutions. Reach her at (314) 854-0710 or joellen.thelen@aon.com.

Insights Risk Management is brought to you by Aon Risk Solutions

While “location, location, location” remains a primary concern for a business choosing new real estate, the criteria used to compare buildings is shifting.

“It’s clear that hyper-connected businesses are increasingly relying on high-performance networks capable of supporting cloud computing, Software-as-a-Service (SaaS), business continuity/disaster recovery and other high-bandwidth applications,” says Mike Maloney, vice president of Comcast Business Services. “This not only makes having a highly reliable network connection essential, it also makes the advanced communications infrastructure of a company’s office space a key part of its IT strategy and daily operations.”

Smart Business spoke with Maloney about the rise of hyper-connected business and how advanced communications services affect commercial real estate.

How are hyper-connected tenants demanding access to advanced communications in commercial real estate?

An online poll of more than 450 building owners and property managers across the country asked respondents about the importance of advanced communications. Ninety percent said that advanced communications services are the fourth most important selling point behind location, price and parking. In high-rise commercial office buildings and with owners/managers of 2 million or more square feet of property, communications capabilities rose to even more importance.

This is as result of a changing workplace. Instead of a business hosting email servers in its office, storing backup files in its IT room and holding team meetings in a conference room, now a company is likely using a cloud service for email, with its storage backed up to a data center across the country and gathering teams via video conference. Public IT cloud services will account for nearly half of new IT spending by 2015, according to IDC research.

Can having advanced telecommunications services in a commercial building create a competitive advantage?

A majority of building owners and property managers view advanced communications services as a competitive advantage, regardless of other traits, according to the poll. A notable undecided group acknowledged a trend in the market but is unsure how it affects them; they may not have received direct feedback from prospective tenants to validate this. As businesses increasingly rely on network connections for day-to-day operations, ensuring those connections are modern and reliable translates into more uptime, revenue and customer satisfaction.

What role do multiple communication service providers play in occupancy rates?

Nearly two-thirds of the owners and managers surveyed said they have multiple providers of fiber-based communications services in their buildings. With a U.S. vacancy rate of 18.1 percent in the second quarter of 2011, a competitive climate has building owners and property managers looking for any advantage to attract and retain tenants. Nearly one out of two respondents said that access to multiple service providers in their buildings positively impacts occupancy rates by up to 19 percent. Warehouses make the most use of multiple providers, likely due to the key role they play in moving inventory, order fulfillment and related logistics that require redundant network connections to maximize uptime.

By having access to multiple service providers in one building, tenants have options for different services, plans, prices and service level agreements, and the flexibility to switch providers in the future. More important, access to multiple service providers provides critical redundancy and load balancing so the company can ensure that it maximizes network uptime and overall performance.

How often is advanced communications service a topic of negotiation with prospective tenants?

More than one-third of respondents say that in 75 percent of negotiations with prospective tenants, the topic of advanced communications is raised. This was even higher for respondents who own or manage suburban office buildings. In today’s competitive real estate market, negotiations are important, as the outcome represents a fixed outcome of revenue and cost for years to come. As lease rates often do not have much room for negotiation, other items grow in importance, including advanced communications services. If managers and owners do not have access to advanced communications services, they should discuss a plan for bringing them into the buildings and be aware of available service providers.

How can property owners and managers highlight their buildings’ communications services?

Once properties have the right communications infrastructure, ensure that marketing and sales materials list the services and providers available so these selling points stand out for prospective tenants. Highlight network access points, data rooms or other onsite communications facilities when giving tours and make sure brokers are knowledgeable about what services are offered in each building.

Do an advanced communications services audit that covers what service providers and associated products, services and prices are available as compared to competitive properties in the area. This will help you validate and communicate your competitive advantage, and identify and fill in any access gaps.

Research local service providers and discuss the requirements for extending providers’ networks, including the construction timeframe and the bandwidth capacity of the network. It’s critical to ensure that buildings have a wide range of bandwidth capacity options delivered over multiple, diverse networks so that if tenants access both, they can still be connected, even if one network goes down.

Don’t wait for tenants to ask about advanced communications infrastructure. Take the time to understand your tenants’ business and potential applications, as well as the services needed to run it. Then proactively discuss how your building’s infrastructure is suited to those needs.

 

Mike Maloney is a vice president of Comcast Business Services. Reach him at michael_maloney@cable.comcast.com.

Insights Telecommunications is brought to you by Comcast Business Class

Today it is standard practice for building owners and developers to require evidence of commercial general liability insurance from contractors that are doing construction work for them. This insurance coverage provides protection for bodily injury claims arising out of injuries at a job site, says Philip Glick, a senior vice president at ECBM Insurance Brokers & Consultants.

“It also covers claims due to physical damage to the construction site or adjacent property that may occur as a result of a negligent act by a contractor or subcontractor,” says Glick.

Smart Business spoke with Glick about how the right insurance can protect you against contractors’ errors and omissions.

Why isn’t general liability insurance coverage enough?

We are seeing an increasing number of claims arising out of negligent work by contractors that are not insured under their general liability policy. Examples include a pure economic loss the owner suffers as a result of negligent acts by the contractor but where the claim does not arise out of bodily injury or property damage liability. Such economic loss could include cost overruns as a result of the general contractor’s or construction manager’s failure to properly bid subcontracted work, or to manage the overall project costs, especially if the project is on a cost-plus basis.

Another example would be a loss suffered by a business owner or tenant as a result of construction delays, or a loss incurred by a retailer that was counting on occupancy prior to the Christmas shopping season but the space is not completed until January.

Almost all contractor’s and construction manager’s general liability policies contain an exclusion of bodily injury and property damage claims arising out of the rendering or failure to render professional services. Examples are negligence in the hiring or supervising of architects or engineers, or preparing or approving maps, shop drawings, surveys or drawings but where the loss is not directly caused by the contractor’s construction work.

How can a building owner or developer cover against these uninsured risks?

The solution is for the building owner to require the general contractor or construction manager to purchase contractor’s/construction manager’s professional liability insurance as a part of the contractor’s insurance. This is specifically designed to provide protection for economic losses incurred by an owner or another third party due to negligent scheduling, purchasing, cost overruns and delay costs described before caused by the construction manager’s or general contractor’s negligent acts. This coverage can also insure property damage and bodily injury liability claims arising out of a contractor’s professional errors.

What major exclusions or coverage gaps may be included in professional liability coverage?

Contractor’s professional liability insurance is not intended to cover contractual guarantees or warrantees made by the general contractor or the construction manager. If a contractor guarantees a project will be completed by a specific date, that the cost of the project will be no more than a specific amount, or that a project will perfectly meet the needs of the owner or tenants and then fails to meet those guarantees, these events will not be covered under the contractor’s professional liability policy. However, if these events were caused by the negligent acts or omissions of the contractor, the insurance would apply.

Contractor’s professional liability insurance typically does not include coverage for claims arising out of professional negligence of employees of the contractor or construction manager who are performing architectural or engineering work. Separate architect’s or engineer’s professional liability insurance is typically needed to cover these professional services. Some contractor’s professional liability policies can, however, be endorsed to cover these additional professional services.

Contractor’s professional liability insurance almost always excludes claims brought by one insured person or entity against another insured person or entity under the policy. An owner may, as an example, request they be added to the contractor’s professional liability policy as an additional insured similar to the requirement to be added to the contractor’s general liability policy. Unfortunately, if the owner is added as an additional insured, there is no coverage for a claim brought against the general contractor or construction manager. A solution may be to amend the insured versus insured exclusion so it does not apply to the owner or developer as an additional insured.

What else does this insurance not cover?

Contractor’s professional liability insurance also does not cover claims arising out of faulty workmanship. This includes the cost to replace faulty materials that have been used.Coverage for faulty workmanship or warranty repairs can be covered under a separate contractor’s performance bond.

General contractor’s and construction manager’s professional liability policies are almost always written on a ‘claims-made’ basis in contrast to the contractor’s general liability policies, which are typically written on an occurrence bases. Under a claims-made professional liability policy, there is only coverage for a lawsuit or claim filed by the owner against a contractor for negligent work if the contractor or construction manager has a policy still in force when the claim is brought, as opposed to when the negligent work was performed or when bodily injury or property damage took place.

One solution is for the owner to require the contractor to continue to renew its professional liability policy for a minimum period in the future after the work is completed, typically two to three years. Another requirement could be to specify that the contractor must purchase a ‘tail’ or extended reporting option that provides a 12- to 24-month extended reporting period for a claim to be filed arising from prior work, if the contractor should nonrenew his policy in the future.

Philip Glick is a senior vice president with ECBM Insurance Brokers & Consultants. Reach him at (610) 668-7100, ext. 1310, or pglick@ecbm.com.

Insights Risk Management is brought to you by ECBM Insurance Brokers & Consultants

Many entrepreneurs devote the vast majority of their time to building their businesses — creating new products or services, building a team and developing new client relationships — often at the expense of ensuring that there is a viable way to monetize that value at some point in the future.

Unfortunately, this often leads to surprises down the line in the form of a delayed exit or a loss of value upon exiting the business, says Christopher F. Meshginpoosh, director, Audit & Accounting, at Kreischer Miller, Horsham, Pa.

Smart Business spoke with Meshginpoosh about the exit planning process and how to begin.

How soon should an entrepreneur start planning an exit strategy?

The reality is that it is never too soon to begin planning. Oftentimes, some of the early decisions, such as the form of the entity or the nature of the equity issued to the owners, end up having a significant impact on the timing or value of an exit.

Sitting down and spending some time early on thinking about long-term personal goals and exit options can help minimize problems down the road.

What are some of the exit options that an entrepreneur should consider?

There are a wide range of potential options that an entrepreneur can consider depending on his or her objectives. For example, there are strategies that an entrepreneur can use to transfer ownership to other owners, to nonowner employees, to family members or to outside investors.

What should an owner think about when contemplating a sale to another owner?

If this is a potential outcome for the business, owners should formalize their agreement about the mechanics and value of the transfer. If owners wait until an exit is imminent, it is often very difficult to get the parties to agree on these types of matters.

By entering into a buy-sell agreement that defines how the transfer will occur, owners can avoid many problems and distractions down the road.

What if the owner would like to keep the business in the family?

We see that quite a bit in our client base, and the good news is that there are several options available, including negotiating buy-sell agreements, transferring through gifts to other family members, establishing grantor retained annuity trusts, or establishing family limited partnerships. However, these options are all dependent upon identifying and grooming specific family members who can lead the business upon the departure of the existing owners.

Can you describe some of the strategies that can be used to transfer the business to existing employees?

First, there is one prerequisite: existing ownership members have to make sure that they have a plan to hire and develop managers who are capable of running the business. Assuming those managers are already in place, owners can provide senior management with equity incentives that reward management for increases in the value of the business.

This not only aligns management interests with those of ownership but also provides a way to gradually transfer ownership interest in the business. Once an owner is ready to transfer the remaining interest, it is often possible for management to obtain sufficient debt financing to purchase the owner’s remaining interest in the business. Other options include the formation of an employee stock ownership plan, or ESOP, to gradually or immediately redeem existing ownership interests and transfer those interests to employees.

What are the options if there are no other owners or employees capable of buying the business?

In those situations, either a partial or complete sale to a third party is necessary. Determining the right party is often a function of the owner’s goals, as well as of the willingness of market participants to purchase the business.

For example, if the owner is willing to continue to work in the business for a period of time, options such as a sale to a private equity firm or a roll up might be good alternatives. The sale of a partial interest to a private equity firm might also provide the owner with some upside potential if the business continues to increase in value.

If the owner plans to cease involvement at the time of a transaction, then other options such as the sale of the entire business to a strategic buyer might be the best alternative. Regardless of the strategy, owners really need to prepare for a transaction well before the planned exit.

In light of the time it takes to prepare, how do you recommend that an owner start the exit planning process?

There are many potential alternatives, and each one has its own unique complexities. Consulting with experienced advisers — including accounting, legal and wealth management professionals — is essential to avoiding obstacles and maximizing value upon an exit.

Christopher F. Meshginpoosh is a director in the Audit & Accounting group at Kreischer Miller, Horsham, Pa. Reach him at (215) 441-4600 or cmeshginpoosh@kmco.com.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Tuesday, 21 August 2012 10:04

Common misconceptions about patents

Patent law is one of the most complicated areas of law. Not only does a patent combine both law and technology, patent laws are also developed from many sources, such as the US Patent and Trademark Office and the federal courts from all over the US. It is only natural that many inventors and entrepreneurs are confused with its nuances and complexities.

Below are some of the common misconceptions about patents:

1. If I obtain a patent, I have a right to use and sell the invention.

A patent provides the right to exclude others from making, using or selling the patented invention. Many companies find this very valuable, as they can expand or preserve their market shares, demand licenses or royalties, and prevent competition. A patent does not provide a license to use, make or sell a product. Having a patent does not guarantee that you will not be exposed to any liability for infringing other peoples’ patents. You do not need a patent to manufacture or sell a product. However, you will not have any exclusivity, and any company can compete with you. Many investors do not like to invest in non-patented ideas or businesses of start ups, as they are afraid that bigger and well established companies can freely compete against them.

2. I must have a prototype before I can apply for a patent.

If you can describe your invention such that a person skilled in the art listening or reading your description can make and use your invention without much experimentation, then you are ready to apply for a patent. Obtaining a prototype may be good in terms of refining the manufacturing process or ironing out any flaws of the concept, but it can be very expensive and can take some time. Many companies that file patent applications do not have working prototypes.

3. I can stop an infringer with a "patent pending."

A patent pending merely means you have a pending patent application that still needs to be examined by a patent examiner. Since your invention has not been proven to be novel and to meet the other requirements to obtain a patent, you really have not perfected or cemented your exclusive rights. Your  patent pending may, however, allow you to seek for retroactive damages if you obtain a judgment for patent infringement against infringers, for instance, all the way back to the time your application was first published.

4. I must have a patent search done prior to filing my patent application.

A patent search is not mandatory. However, it is worthwhile to do, as it may save you time, resources, and money. The patenting process can be expensive and can take over three years. You should try to determine your chances of obtaining a patent. After all, you do not want to spend the time, resources, and money only to find out that your idea has been practiced before.

5. All patents are the same.

Whether you are trying to protect your invention or you are trying to make sure you do not infringe on another’s patent, you need to know what each type of patent means. Design and utility patents protect different aspects of an invention, and they provide different scopes of protection. Design patents only protect the way articles look, their shapes, configurations, or their ornamentations. Utility patents, on the other hand, protect the way articles are used and the way they work. From the standpoint of protecting your invention, design patents may be very easy to be avoided and thus offer very limited protection. From the standpoint of making sure you do not infringe on another’s patent, utility patents may require that you consider various types of infringement. They may require that you review their file histories and consider their related counterparts, such as continuation and divisional applications.

6. If I modify a patented product by 10, 20, or 30 percent, I will be free from patent infringement liability.

There are various ways a patent can be infringed — literally, by equivalents, or by contributory infringement. Literal infringement means the claim language of the patent directly corresponds to the infringing product. Thus, if you do not review the claims of a patent, you may never know whether you infringe it regardless of how much you have modified your product. Even if you have reviewed the claims and believe that there are differences between the claims and your modified product, you may still infringe by the doctrine of equivalents. Under the doctrine of equivalents, if your modified product contains elements identical or equivalent to each claimed element of the patented invention, your product still infringes the patent.

7. As an owner of the company or as a research supervisor, I should always be listed as an inventor to my employees' inventions.

It is crucial to name the right inventors on a patent application. A patent can later be invalidated if it did not include the right inventors. An inventor in the patent sense must have contributed to the conception of the invention. Patent owners and inventors should not be confused. If the idea was conceived by an employee, you should have the employee assign his rights to the company. This is the proper way of making sure that the company will own the rights to the invention, and not by adding yourself as an inventor simply because you own the company. If the idea was conceived by a lower ranking employee, it does not mean that you have to list the employee’s supervisor as the inventor. The key is to determine who contributed to the conception of the invention that is claimed in the patent application.

Because there are many misconceptions about patents, it is important to seek the advice and guidance from a registered patent attorney.

Roland Tong is a Senior Patent Attorney at Brooks Kushman, PC and can be reached by phone at (213) 622-3096 or by email at rtong@brookskushman.com. Brooks Kushman, PC (www.brookskushman.com) is a full service intellectual property law firm in Detroit and in Los Angeles with attorneys having advanced degrees in various technical fields.

Credit insurance, which has been around for many years, is a custom financial tool that protects a business from losses due to insolvency or past due/slow pay from their customers.

This problem of insolvency or past due/slow pay from customers isn’t expected to stop any time soon, either. U.S. corporate default rates are expected to rise this year, as marginal companies that already refinanced debt in the last few years stumble because they didn’t reduce debt and just pushed out payment schedules, according to a USA Today article.

“This insurance product can be a cost-effective device for transferring risk — premiums are tax deductible while reductions in bad debt reserves are not,” says Shelley C. White, assistant vice president with SeibertKeck.

Smart Business spoke with White about why the value of this insurance is consistently being demonstrated during economic financial crisis time and time again.

How does credit insurance coverage work most effectively?

If your company does business in which it extends a line of credit for merchandise orders or other accounts payable, then this insurance protects you against losses because when you extend credit to a business, your own financial solvency gets tied in with that account. Coverage can apply to a single debtor or a greater spread of risk by including all of your unquestioned buyers in excess of a certain dollar amount. Annual sales of at least $1 million can make the program more cost effective.

Why should employers look into buying this type of coverage?

Business owners must be more attentive regarding the management of their accounts receivable in the face of this global economic climate. There are more business failures both domestically and internationally. This was borne out by increased worldwide demand for credit insurance across all geographies in the first quarter of 2012, according to the Global Insurance Market Quarterly Briefing. The United States saw a modest increase in demand of less than 10 percent, with the largest demand increase in Asia.

Credit insurance provides catastrophic loss protection that can be used by businesses of all sizes and by all business sectors. There are many benefits as to why a business owner will purchase this coverage. Some include:

  • Increasing credit to your existing customer base and extending credit to new customers.

  • Improving cash flow.

  • Enhancing bank financing by increasing borrowing capacity. Banks will lend more against insured receivables.

  • Reducing bad debt reserves and freeing up cash.

  • Utilizing it as a risk management tool to improve business planning by elimination of unknown risk.

How does credit insurance protect you better than just looking at a customer’s payment history?

Unfortunately, payment history is not a valid predictor of default. Close to 50 percent of all payment defaults rise from stable and long-term customers. One sudden loss could have a devastating impact on you and your business. Consider that your receivables are a concentration of all your cost and profit, and in many cases, you create them based on a customer’s promise to pay. Therefore, there is a tremendous amount of risk facing your business. Credit insurance is a great tool to remove this disastrous risk from a balance sheet.

What do business owners need to know about purchasing this insurance?

The level of indemnity ranges from 80 to 100 percent depending on your credit management experience, accounts receivable portfolio and premium target. Policies are designed to fit a business owner’s need for coverage. Risk retention comes in the form of co-insurance and deductibles and helps in lowering the premium. Co-insurance is a percentage of the loss you retain on each insured account.

There are only a small handful of carriers that specialize in this type of coverage. Each will have their own risk appetite, underwriting philosophy, and method to how they structure and administer their policies.

Underwriters will research, approve and monitor the accounts you want to insure. They also will approve coverage limits on the customers you want to insure. You will want to provide underwriters with a balanced spread of risk that will offer best pricing and terms. It’s important to clarify with the underwriter your maximum terms of sale, lead times for customer orders and note any special circumstances that might require additional coverage.

You can insure the entire accounts receivable portfolio or a select number of accounts. The premium will be based on your loss history, customer credit quality, spread of risk, and deductible and co-insurance levels in the policy. Usually the premium is less than half of one percent of insured sales.

Your customers’ payment history is not a valid evaluator of their failure to pay. Having a carrier watching over your covered accounts and helping evaluate credit limits is a great advantage to a business owner’s risk management plan. Nonpayment and slow pay by your customers will weaken a company. Credit insurance can help protect a company’s biggest asset — your own business credit.

Shelley C. White is an assistant vice president with SeibertKeck. Reach her at (330) 867-3140 or swhite@seibertkeck.com.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency