Sue Ostrowski

Every business, no matter how well it is run, faces the possibility of a lawsuit.

But there are steps you can take before that happens to position your company to prevail, says Thomas M. Hanson, a member of Dykema Gossett PLLC and head of the firm’s Dallas office financial services litigation practice.

“If you’re in business, litigation is not necessarily inevitable, but it is certainly a possibility,” Hanson says. “Every company needs to prepare for it, just as you would prepare for other contingencies that might affect your business.”

Smart Business spoke with Hanson about the policies you need to have in place and if, despite your best efforts, you are sued, the steps to take to lessen the pain.

What everyday practices can help minimize litigation costs and potential liability?

In litigation, documents generally carry the day. Most businesses utilize some type of standard form contract, such as purchase orders, sales orders, or a standard form employee/consultant agreement. Businesses need to review those forms on a regular basis to ensure they clearly lay out the terms of the contract. A manufacturing company might think, for example, that its sales order gives the buyer ten days to inspect the goods. But review the contract from the perspective of a judge who has no understanding of your industry. Will she read it the same way? If not, you should clarify the language and potentially save yourself many thousands of dollars in litigation costs, not to mention potential liability.

Significant litigation expense can also be avoided if you have a standard document retention policy. Every company should have one, particularly given the proliferation of e-mail communication. Whatever your policy — if e-mails are deleted every six months, every five years or never — it should be written down. When you get into litigation, courts are more and more interested in finding out what happened to electronic documents.

If you have a standard policy and can show that a key e-mail in the case was deleted according to a standard policy, you’ll be in much better shape than if you have no policy and it looks like e-mails were deleted haphazardly. Again, this simple practice can not only save you from attorneys’ fees but also from potential liability.

What other steps should businesses take to protect themselves?

Another issue with standard contract terms and conditions is making sure employees are using them. Too often, there is a two-page contract; the first page has a purchase order and page two is the standard terms and conditions. But your employees may not bother to send that second page. Suddenly, the case-winning provision you were relying on may not be part of your contract at all.

Finally, proper insurance coverage can be a lifesaver if your company is sued. If you have coverage, the insurance company is not only obligated to pay damages assessed, but, even more important, it is generally obligated to defend you and pay your lawyers. It makes cases infinitely more resolvable if you have a policy that will cover all or some of the cost.

If, despite its best efforts, a business is sued, how should it approach that suit?

Again, documents are key. In particular, courts are cracking down on what happens to electronic documents after litigation commences. If your servers automatically delete e-mails at a set time period, you need to have your IT personnel stop the automated delete function for any potentially relevant electronic documents.

Take steps to collect documents that might be relevant right at the beginning, and make sure, in writing, to instruct any employee who might have relevant documents not to delete anything — not e-mails, spreadsheets or documents stored on their hard drives. If you don’t, some courts may severely punish even the innocuous destruction or deletion of relevant documents. Real-life horror stories exist of courts ordering monetary sanctions of tens or hundreds of thousands of dollars or (even worse) issuing instructions allowing a jury to infer that the destroyed documents were harmful to the company’s case.

Should companies consider alternatives to fighting in court?

Absolutely. There are many ways of trying to resolve a suit without going through a trial, even without invoking a formal litigation process.

Arbitration, especially for smaller disputes among smaller companies, can be a great forum. You have much more limited discovery and, generally, you’ll have an arbitrator who is much more informal and will allow the parties more flexibility to try to work things out on a reasonable schedule. Also, decisions reached in arbitration can generally not be appealed, which lends more finality to a judgment that might be reached in court.

The downside is that you’ll have to pay for arbitration services, but a case that might be a two-week jury trial may only be three or four days in arbitration due to the informality and the lack of dealing with a jury.

Is settlement sometimes a better option than fighting a lawsuit?

Yes. Businesspeople often take a sound, rational, economic approach to business matters until they get sued, then the gloves are off and they don’t care about the expense and just want to fight it. When passion takes over and you’re lashing out at the other side not because there is any long-term benefit but because you are outraged that you’ve been sued, you have to ask if this is the right business decision for your company. But if the answer is yes, and a principled stance is the best approach for the company’s long-term success, then stick to your guns.

Thomas M. Hanson is a member at Dykema Gossett PLLC. Reach him at (214) 462-6420 or thanson@dykema.com.

Insights Legal Affairs is brought to you by Dykema Gossett PLLC

There has never been a more challenging time for employers dealing with the dual problem of rising health care costs and declining employee health. As such, employers need to be thinking very differently about how they approach health care, says Jim Winkler, a senior vice president and large employer segment leader at Aon Hewitt.

“Employers need to actively, directly and candidly talk with employees about the need to change behaviors for better health,” says Winkler. “You need to build in the right combination of rewards so that employees understand that if they want to spend a large amount of ‘house money’ on health care, they have to follow  ‘house rules’.”

Smart Business spoke with Winkler about the challenges and solutions surrounding health and benefits, and how to address them.

How can employers begin to have a conversation with employees about health care?

You first have to understand how consumers think about health care. Our Consumer Mindset 2011 research tells us that they understand that the system is broken, they understand the political dynamics and they know what they need to do in terms of health. Everyone knows they shouldn’t smoke, they should eat better and they should exercise. However, the messages that employees react best to are those that make navigating health easier and more personal.

Don’t talk to them about the company’s costs. Instead, talk about how a lack of health may be getting in the way of teaching a grandson baseball. You need to make it meaningful to employees so they understand the results of good health.

You also need to deploy more than just one tactic. You can’t just have a great communications strategy, and you can’t just have a plan design or incentive strategy. With consumer-driven health plans, consumers understand that you want them to be better consumers, but if all you give them is that design mechanism, you’re just going to frustrate them because they don’t understand the cost of specific health services. You have to give them the tools and information to navigate a broken system and help them see how their exposure to potentially higher out-of-pocket costs is going to enable them to make healthier decisions. You have to connect those pieces.

For example, if you have a consumer-driven plan, don’t just put employer money in the savings account. Instead, say, ‘If you complete a health risk assessment and you know your biometrics, then we’ll put money into your account.’ Make it very clear that you want employees to be successful under the benefits plan and to have access to more of the employer’s money, but you need them to do something in exchange.

People don’t always like that, but they can see very clearly how the actions they take can lead to good things and how inaction can result in a less satisfactory benefit plan.

How can an employer target better health for employees?

There are two starting points. First, as an employer, you want to have your arms around your data. Maybe you’ve done a health risk questionnaire and you have medical claims data in such a way that you can stratify it to say that, of the eight greatest risk factors (such as smoking, lack of health screenings, poor diet, etc.) and the 15 most prevalent chronic conditions, these are the ones that are most prevalent in your population. From that, you can target those two or three greatest risk factors that will lead to the best improvement in health status and a lessening of the frequency and severity of chronic disease.

If you don’t have that data because you’re a smaller company or you haven’t performed a health improvement strategy yet and have no real insight into company-specific risks, the three areas to target are poor diet, physical inactivity and lack of health screenings.

Your real opportunity for impact is to get after weight, as more than two-thirds of the U.S. population is either overweight or obese, and physical inactivity. With health screenings, you begin to build a baseline, and the more screenings you do, the more you understand risk in your population. And screenings are an early identifier of risk and disease, so you start to put a dent in high-cost conditions. If people wait until they’re diagnosed, then they’re likely to be on medication for life and have a higher cost outcome.

How do you address concerns about employers being involved in employees’ health care?

As an employer, you have to start with the basic premise that your current cost environment, the way you’re running your benefits program today, is not sustainable. If you’re going to change the status quo, can you continue to do the things you’ve been doing, like plan design changes that shift costs to employees and changing your medical vendor? Is it reasonable to assume the same tactics will produce a different outcome?

No, so you have to take a different approach. There are two paths you can take. One is the path of house money, house rules. Be candid with employees and share that the reason you’re talking to them about their health, and their behavior,  is that you’re spending a lot of money on health care, so the organization has a vested interest in managing health care costs more effectively.

Second, in a challenging global economy, you need a healthy, present, high-performing work force. What percentage of your work force is out because of health issues? What if you could cut that number in half? You add nothing to your payroll costs, you spend less on medical coverage, and you get people back to work who are more productive to the business.

It’s in your best interest to drive business results to spend less on health care and have a healthy work force, and the way you’re going to get that is by engaging people around their health.

Jim Winkler is senior vice president at Aon Hewitt, the global human resource solutions business of Aon plc. Reach him at jim.winkler@aonhewitt.com. Linda Van Howe is senior vice president at Aon Hewitt, Detroit practice leader - Health and Benefits. Reach her at (248) 936-5238 or linda.van.howe@aonhewitt.com.

Insights Risk Management is brought to you by Aon Risk Solutions

The ability to attract, hire and retain talent remains a top concern for chief executive officers worldwide. While we experienced significant layoffs and cutbacks during the recession, talent and skill shortages are still very apparent. Companies need to be creative and expeditious in their search for talent. This has increased the prevalence of flexible labor and contingent workers.

Contingent labor is a growing expense on global operating statements. The ability to expertly manage, control and extract maximum value from this expense can be critical to a company’s competitive positioning. Vendor management technology continues to be an effective way to better manage contingent labor. VMS, paired with an outsourcing partner or managed service provider (MSP), enables companies to obtain visibility into this complex spend category, creating a framework to more easily develop, implement and manage a competitive sourcing program. This puts the current supply chain under scrutiny and expands the supply chain to attract and retain best in class suppliers.

“Many companies simply use the same suppliers without ever looking at whether they could do better,” says Laurie Bradley, president of ASG Renaissance. “VMS allows you better data visibility and a standardized service platform to enable controls, checks and balances. Once the data is aggregated and easily accessible customized reports can be generated to better manage budgets and project expenditures through growth periods.”

Smart Business spoke with Bradley about how VMS can help standardize your contingent hiring and potentially lower your costs.

What companies are ideal candidates for VMS?

VMS is software as a service and does not require a huge capital outlay, so it is affordable to even smaller users of contingent labor. It requires time and training to install and deploy, so companies with expenditures in excess of $15 million should consider it. It is ideal for those with multiple locations and can be effective across multiple currencies. It aggregates all spend points and enables users to examine usage, cost, performance and labor trends.

Most companies that undertake this process are surprised at how much they are spending on contingent labor because there is typically not one line item identifying contingency spending. Generally, every office and plant is doing things differently. In times of recession and rapid growth, contingent users can become very creative in how they get the talent they need in spite of a hiring freeze.

How can a company get started on the process?

First, do your homework. Consider skill classifications and the types of contingent expenditures to include. This may cover temporary workers, contract workers, independent contractors and outsourced services. Due diligence should include discussions with human resources, facility managers and executives.

Once you understand what you’re spending, you’ll likely see there are pockets everywhere. Then the question becomes, how efficient is the current state? Are you getting the best value for dollars spent and can you quantify your return on investment to include the quality of your current service providers? Is there consistency and fairness in the pricing model?

Identify your suppliers. Are there benefits to leveraging business with a smaller supply chain? If you have 100 suppliers and can reduce to 50, giving each the opportunity for more business, could you negotiate better pricing? Until you know what you’re spending, it’s hard to have those conversations.

How do you begin to get your arms around it?

Start with line items where it’s clear there are contingent dollars in temporary help. You might have 300 engineers at six facilities, and you’re paying some $36 an hour and others $48 because the company has never put a full service request out for competitive bids. When you put it together, all of those little pockets add up to very significant spending.

Where do you start to standardize spending?

Many times, an MSP is selected by the company to operate and manage the VMS application on behalf of the company. The MSP institutes rate cards for job classifications and selects a supply base. Sometimes agencies that have supplied a company for years don’t make that cut. Most MSPs encourage the customer to onboard all suppliers. Then you can systematically see where you can save money.

It can be a challenge when you start rationalizing the supply base. When tenured suppliers for price or quality reasons no longer fit the contingency staffing model, they may be eliminated. This requires a well-planned communication strategy so hiring managers understand the benefits of the new process. In addition to a learning curve on technology, they now have to deal with changes in their supplier pool.

How can companies present VMS to current suppliers?

Two biggest benefits to the supply chain: access to more orders and faster payment terms. Suppliers compete on a level playing field with access to more orders, and standardized quality and performance metrics help drive out nonperforming participants.

Who should be involved in the process?

It typically starts at the purchasing level with involvement from human resources. IT also plays a critical role as system integration is a key component of success.

How can VMS benefit businesses?

The technology of VMS, with a vendor-neutral MSP, helps companies better manage contingency labor expenditures on a standardized platform. It helps suppliers gain greater access to client requirements and provides an easy way to transmit, record and manage the lifecycle of talent. Vendor neutrality reassures suppliers they are not in competition with the MSP for staffing, breeding trust and fostering a collaborative work environment. This ensures talent requests are broadcast across a diverse supply base and ensures suppliers meet client-specific quality, performance and price guidelines.

Laurie Bradley is president of ASG Renaissance. Reach her at (248) 477-5321 or lbradley@asgren.com.

Insights Staffing is brought to you by ASG Renaissance

When Steve Jones, founder of Homeland HealthCare, was looking for a new home for his rapidly expanding business, he considered many locations around the Dallas/Fort Worth Metroplex.

But although other cities made generous offers to attract the business – a national third-party administrator and managing general agency that specializes in servicing a variety of health and wellness products -- it was Allen, Texas, that easily won the day, says Jones.

“The Allen Economic Development Corporation was very aggressive,” says Jones. “In 2009, we were still at our previous location but we were growing so quickly, we needed a new space. Our previous city wanted us to stay at that location, and two others offered us incentives to move to their cities, but Allen beat them all. They were really aggressive, they offered a lot more, they took the time to come over and meet us and learn about our business, and they were a lot more interested in having us than anyone else.”

Smart Business spoke with Jones about his decision to move his company to Allen and why the city is such a great location for doing business.

What played into your decision to move Homeland HealthCare to a new location?

Although the company was founded in 1997, it wasn’t until 2001 that we started offering discount vision, dental, prescription and medical benefits through employer groups. Then people started asking for more. We had never done major medical, nor did we want to get into it, but we came across a fixed indemnity product that was gaining a lot of acceptance in the marketplace, especially for those who didn’t have major medical available from their employer.

That precipitated our growth until, by 2009, we had a combined 14,000 square feet and 57 employees. As we continued to grow, it was time to find a new location to accommodate that growth.

How did you settle on Allen as the new location for your business?

Once we had outgrown our space, we had a tenant representative go out into the marketplace and give us some options. There was a lot of space and a lot of empty buildings available to us at that time. We looked at locations in several cities but found a really great location in the Watter’s Creek Development in Allen. The development is a multiuse real estate plan that has apartments, retail, restaurants and offices and that looks like a little town. It’s a really great concept, with lots of cool places to eat and lots of retail complexes.

From an employer standpoint, my employees would have places to eat, they would have places to shop and they would have places to live if they wanted to be in this area. And we have covered parking. You’d never have to leave.

Other spots that we looked at just had a building and it was the same dollars for this as compared to buildings on the Dallas Tollway, where there’s no place to eat, no place to shop, there’s nothing. And there was no covered parking. You would walk outside and get into your steaming hot car. It would have been horrible.

It wasn’t a difficult decision to make. As an employer, I need to look for reasons for people to want to come to work at my business, other than just pay and benefits, and it being a great place to work. Our location gives us an advantage in attracting the best employees, I believe.

Since we moved here, our growth has been extraordinary. We built 23,000 square feet initially in 2009, and knowing that our growth was off the charts, since then we’ve built out another 7,000 feet, to reach 30,000 square feet. And in three years in this space, the number of employees has increased from 57 to 160.

What advice would you give to other business owners considering moving their companies to Allen?

If you are considering a move, meet with the people at the Allen Economic Development Corporation and give them an opportunity to show you what Allen has to offer. There is a really good work force around here, a very educated, hardworking work force for companies to draw on, housing is very affordable and the schools are excellent.

I would have no reservations about recommending the people at Allen Economic. They are very easy to work with and they are pretty aggressive. They’re very good at communicating with you, getting you involved in the community and, from an incentive standpoint, they beat everyone else when we were looking at a move. And they are very easy to work with.

There’s a lot of competition for business in the Metroplex, and Allen competes very well. It doesn’t have a big name like some of the other cities in the area, but given the opportunity, I think that any company would be very pleased dealing with the people in Allen. I certainly know that we have been.

Steve Jones is founder of Homeland HealthCare. Reach him at (214) 871-2118 or steve.jones@homelandhealthcare.com. Reach the Allen Economic Development Corporation at (972) 727-0250 or www.allentx.com.

There has never been a more challenging time for employers dealing with the dual problem of rising health care costs and declining employee health. As such, employers need to be thinking very differently about how they approach health care, says Jim Winkler, a senior vice president and large employer segment leader at Aon Hewitt.

“Employers need to actively, directly and candidly talk with employees about the need to change behaviors for better health,” says Winkler. “You need to build in the right combination of rewards so that employees understand that if they want to spend a large amount of ‘house money’ on health care, they have to follow  ‘house rules.’”

Smart Business spoke with Winkler and John T. Vollmer, senior vice president/local practice leader, Aon Hewitt, about the challenges and solutions surrounding health and benefits, and how to address them.

How can employers begin to have a conversation with employees about health care?

You first have to understand how consumers think about health care. Our Consumer Mindset 2011 research tells us that they understand that the system is broken, they understand the political dynamics and they know what they need to do in terms of health. Everyone knows they shouldn’t smoke, they should eat better and they should exercise. However, the messages that employees react best to are those that make navigating health easier and more personal.

Don’t talk to them about the company’s costs. Instead, talk about how a lack of health may be getting in the way of teaching a grandson baseball. You need to make it meaningful to employees so they understand the results of good health.

You also need to deploy more than just one tactic. You can’t just have a great communications strategy, and you can’t just have a plan design or incentive strategy. With consumer-driven health plans, consumers understand that you want them to be better consumers, but if all you give them is that design mechanism, you’re just going to frustrate them because they don’t understand the cost of specific health services. You have to give them the tools and information to navigate a broken system and help them see how their exposure to potentially higher out-of-pocket costs is going to enable them to make healthier decisions. You have to connect those pieces.

For example, if you have a consumer-driven plan, don’t just put employer money in the savings account. Instead, say, ‘If you complete a health risk assessment and you know your biometrics, then we’ll put money into your account.’ Make it very clear that you want employees to be successful under the benefits plan and to have access to more of the employer’s money, but you need them to do something in exchange.

People don’t always like that, but they can see very clearly how the actions they take can lead to good things and how inaction can result in a less satisfactory benefit plan.

How can an employer target better health for employees?

There are two starting points. First, as an employer, you want to have your arms around your data. Maybe you’ve done a health risk questionnaire and you have medical claims data in such a way that you can stratify it to say that, of the eight greatest risk factors (such as smoking, lack of health screenings, poor diet, etc.) and the 15 most prevalent chronic conditions, these are the ones that are most prevalent in your population. From that, you can target those two or three greatest risk factors that will lead to the best improvement in health status and a lessening of the frequency and severity of chronic disease.

If you don’t have that data because you’re a smaller company or you haven’t performed a health improvement strategy yet and have no real insight into company-specific risks, the three areas to target are poor diet, physical inactivity and lack of health screenings.

Your real opportunity for impact is to get after weight, as more than two-thirds of the U.S. population is either overweight or obese, and physical inactivity. With health screenings, you begin to build a baseline, and the more screenings you do, the more you understand risk in your population. And screenings are an early identifier of risk and disease, so you start to put a dent in high-cost conditions. If people wait until they’re diagnosed, then they’re likely to be on medication for life and have a higher cost outcome.

How do you address concerns about employers being involved in employees’ health care?

As an employer, you have to start with the basic premise that your current cost environment, the way you’re running your benefits program today, is not sustainable. If you’re going to change the status quo, can you continue to do the things you’ve been doing, like plan design changes that shift costs to employees and changing your medical vendor? Is it reasonable to assume the same tactics will produce a different outcome?

No, so you have to take a different approach. There are two paths you can take. One is the path of house money, house rules. Be candid with employees and share that the reason you’re talking to them about their health, and their behavior,  is that you’re spending a lot of money on health care, so the organization has a vested interest in managing health care costs more effectively.

Second, in a challenging global economy, you need a healthy, present, high-performing work force. What percentage of your work force is out because of health issues? What if you could cut that number in half? You add nothing to your payroll costs, you spend less on medical coverage, and you get people back to work who are more productive to the business.

It’s in your best interest to drive business results to spend less on health care and have a healthy work force, and the way you’re going to get that is by engaging people around their health.

Jim Winkler is senior vice president at Aon Hewitt, the global human resource solutions business of Aon plc. Reach him at jim.winkler@aonhewitt.com. John T. Vollmer is senior vice president/local practice leader, Aon Hewitt. Reach him at (314) 719-3834 or john.vollmer@aonhewitt.com.

Insights Risk Management is brought to you by Aon Risk Solutions

The cost for work-related injuries in the U.S. in 2011 was $192 billion, with 60 percent of that directly related to medical treatment for injured workers, according to a recent UCLA-Davis study.

As a result, it is paramount that businesses get a handle on their workers’ compensation expenses, says Jeffery Hey, director, Anthem Workers’ Compensation.

“The best way to do that is to work with a managed care organization that has experience with, and knowledge of workers’ compensation and that has relationships with employers in order to mitigate risks for the company and reduce expenses, while ensuring that the injured worker gets quality care,” says Hey.

Smart Business spoke with Hey about how a managed care network can help you save costs, get workers back on the job more quickly and ensure that injured employees are receiving quality care.

What is the current state of the workers’ compensation market?

Workers’ comp is managed by each state’s government. Half the states allow employers, either directly or indirectly, to channel injured workers into networks, while the other half do not. For those employers that have the capability to channel into a network, you have to consider which networks are good, which have experience with workers’ compensation and which have the right mix of providers and facilities. For most companies, workers’ comp premiums are their second-largest operating expenses, so it is critical that employers gain control over how injured workers are treated.

How can employers begin to channel injured employees to a select subset of providers?

It’s essential that the employer knows how to set up a subset of doctors, facilities, hospitals and clinics to treat their injured workers. Unfortunately, most employers don’t have that experience, nor that expertise, to make those determinations.

Partnering with a managed care network can help you navigate the world of workers’ comp. Managed care networks help ensure that the injured worker receives quality care while emphasizing standard treatment protocols, case management and controlled access to medical care. In addition, they can also help manage the cost portion of the equation.

When selecting a managed care network to partner with, be aware that not all networks have experience working with workers’ comp claims. You need to find a network that has longevity, has experience with workers’ comp claims and is familiar with light duty and return-to-work protocols. The network should also be familiar with the paperwork required by the state and the state fee schedule.

Keep in mind that workers’ comp is a much different, proactive paradigm than the health side, and your PPO networks aren’t necessarily going to be the best fit for your workers’ comp needs, which include aggressive intervention for a faster return to the workplace.

A third party administrator, broker, or agent can help you determine whether a managed care network is appropriate for your needs.

Once you’ve identified a potential network, how can you test its capabilities?

Before making a selection, run test bills through the network and do comparison shopping. The managed care network should be willing to take your bills and run tests and show discounts back to the business. Even though the workers’ comp medical side is not all about discounts, discounts will save you money.

If you find a great provider network that can also help you out with medical case management use and fee schedule compliance, all the better. Discounts are very important in terms of the overall equation of determining whether the network is a good fit for your company.

Also consider how big that network needs to be and what types of reports you should be looking at to make sure not only that workers are getting quality care, but that you, as the employer, are getting a good return on your investment.

What else does an employer need to consider when selecting a managed care network?

Make sure that not only is the network strong but that there are specialty firms that can be brought into play to interface with the network to make sure that injured workers get the quality care they need and that the employer has a good handle on the cost of the treatment provided to the injured worker. Get aligned with the right medical case management, if appropriate, to make sure you are managing your costs and getting that injured worker back to work as soon as possible. In addition, you need to know that, within that network, there are physicians specializing in occupational medicine who are skilled in diagnosing and treating work-related injuries and who understand that getting workers back to work is in line with their functional capacity to provide good medicine.

What things should employers be aware of when working within the workers’ comp system?

If the physician places a worker off work and says he or she can’t come back, with no restrictions and no explanation, that should be a red flag to the employer that something is going on. Or if the physician makes an appointment for the worker to return every four to six weeks instead of for more regular review, that’s not good, either. There has to be consistency in terms of treatment and good communication between the physician and employer to make sure that the system is working the way it is supposed to.

It’s also a red flag if a provider is reluctant to refer the injured worker to a specialist, there are very few written notes, the physician provides narcotics for minor injuries or therapy seems never-ending.

There has to be common sense and integrity in the process, otherwise, the business is going to lose on their part of the deal. In the long run, by partnering with a managed care network, you are providing both yourself and your employees and everyone involved benefits.

Jeffery Hey is director for Anthem Workers’ Compensation. Reach him at (314) 925-6038 or jeffery.hey@anthemwc.com.

Insights Health Care is brought to you by HealthLink®

You have insurance on your building and its contents, but is your business covered for larger industrial or commercial risks such as floods and earthquakes, or international exposure?

With difference in conditions insurance, you can bridge those gaps in your coverage to protect your business, says Parker Berry, executive vice president at SeibertKeck.

“DIC policies usually provide catastrophic coverage for perils that present severe property exposures, such as flood and earthquake,” says Berry. “However, DIC policies also can be used to supplement coverage in operations with property in the open, burglary, spoilage and international exposures.”

Smart Business spoke with Berry about DIC insurance, what types of businesses need it and how it can protect your company.

How does DIC coverage work?

The DIC policy is not designed merely to increase property limits, as that can be accomplished through primary insurance. Rather, the DIC policy is designed to broaden coverage by providing additional limits of coverage for specific perils when your primary markets won’t provide adequate limits of coverage for your needs and providing coverage for perils that are excluded. It provides coverage that primary carriers are not willing or able to provide, such as for earthquake or flood.

For example, you may have property in the open and the most coverage your primary insurance company may be able to provide is $250,000. However, you need $2 million in coverage for that property. In this case, you can purchase a DIC policy to pick up the remaining gap of $1.75 million to get to that $2 million in coverage.

These are such broad policies that they should be tailor-made for each individual company’s needs and its individual situation.

How can a company determine if it needs for this insurance?

Determine your needs by doing a routine review with your agent or broker, who will look at your current policy levels and determine whether they are satisfactory for your insurance needs. If they’re not, what would it take to make them satisfactory, and can your primary insurance company handle that. If not, then you can look to a DIC policy for what can’t be covered by your primary carrier.

For example, say you have international exposure, and your primary coverage only provides certain limits in specific areas. With a DIC policy, you can cover the gap between what your primary carrier is able or willing to provide and the amount of coverage that you really need.

If you are a large enough organization and you have multiple locations in various countries, different limits of liability can be provided to you depending on the coverage. You can have your DIC policy drop down to all of those primary limits and add enough coverage to bring you up to $1 million, $2 million or whatever coverage you need.

There is no standard DIC coverage form. Carriers draft their own forms, so language in the policy should be carefully reviewed by you and your agent before agreeing to terms in order to avoid potential holes in coverage.

What kinds of companies need this coverage?

You don’t have to be a Fortune 500 company to take advantage of this sort of policy. You just need to have certain exposures that your primary carrier doesn’t offer. For example, a grocery store or restaurant could use a DIC policy to cover the gap between the spoilage limits its primary carrier provides and the limits it really needs.

The coverage all depends on a company’s exposure, not on its size. It’s like if you’re putting together puzzle and you’re missing one piece; you just don’t have a piece that fits. You can pull in DIC insurance, cut it to fit and finish the puzzle.

Does every company need to consider this type of coverage?

No. It’s not like auto insurance, where everyone needs to have it. DIC policies are too fluid, with the ability to change them and to tailor-make them. They’re the thing your agent should pull out of the bag when you have a problem. If you are saying you need more coverage for property out in the open, for spoilage, for flood or earthquake, than your primary carrier is able to cover, then DIC can be an answer.

It’s not something your agent is going to offer if he or she doesn’t know there is a problem. And you may not need it because you have all the coverage you need through your primary policy.

But if you have coverage needs over and above those that are available through your primary policy, then a DIC policy may be the answer.

Parker Berry is executive vice president at SeibertKeck. Reach him at (330) 865-6583 or pberry@seibertkeck.com.

Insights Business Insurance is brought to you by SeibertKeck Insurance Agency

As healthcare costs continue to rise, many employers are open and anxious to hear ways they might be able to save money while still providing comprehensive medical coverage to their employees. And luckily, many insurance companies have things in place that can do just that.

“While there is no silver bullet in negating health insurance annual increases, there are ways to minimize increases,” says Kevin Cavalier, vice president of sales at SummaCare, Inc. “Plan design is critical in lowering plan premiums, but employee engagement in understanding care options and being a better consumer of healthcare services is imperative. Employee engagement and education should also incorporate wellness initiatives to maximize plan effectiveness.”

There are ways to save money on your health insurance premiums, and your health insurer is on your side. It continually looks for ways to extend cost savings to you, and these savings often come by way of partnership discounts, higher-deductible plan designs, generic drug prescription riders, value-added services and wellness programs.

Smart Business spoke with Cavalier about ways your insurer can help you save on health insurance-related costs.

How can partnerships between your health insurer and a local chamber or consortium save you money on your health insurance premiums?

Choosing an insurer that offers health insurance premium discounts through a chamber or consortium is a great way to save money on the monthly costs associated with offering health insurance to your employees. Chamber members are offered extended discounts on things such as health insurance, office supplies, shipping and transporting, and energy costs because of existing relationships and agreements a chamber has with other companies.

By joining your local chamber, you can save thousands on services and costs you would otherwise have to pay for at full price.

Can staying with a carrier that offers predictable rate increases save you money?

If you have consistently offered health insurance benefits to your employees year after year, you are probably familiar with the annual rate increases that can accompany those benefits. And while some of these increases are unavoidable as medical costs continue to rise, there are ways to help you better anticipate higher costs. Staying with a carrier that offers predictable rate increases can help you better budget for  your anticipated benefits spend while resting assured you are receiving the most value for your dollar.

If you’re thinking about switching carriers due to an extremely low rate, know that, more often than not, these low rates are unsustainable and you may experience an unexpectedly high increase in year two.  Making minor benefit changes can often negate some of the difference in costs between two insurers and saves the time, effort and hassle of changing insurance carriers.

How can offering an HRA/HSA plan save both you and your employees money?

Offering a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA) in conjunction with a high-deductible plan is a great way to lower your premium costs while still offering your employees comprehensive benefits. An HRA essentially gives your employees the opportunity to use tax-free money (provided by you) to pay for qualified medical expenses. An HSA is a tax-free savings account that belongs to your employees, and they can use it to pay for their insurance deductible and out-of-pocket medical expenses.  Both of these arrangements allow you to save money by offering a higher-deductible, lower-premium plan, and they will educate your employees on the costs associated with the services they receive.

Will offering a generic-based prescription plan also save on costs?

One of the best ways to save costs is to offer a generic-based prescription plan. A generic-based prescription drug plan promotes the use of less expensive, generic drugs by filling prescriptions with the generic alternative when available. With this type of prescription plan, a pharmacy will only fill a prescription with the brand name drug if there is not a generic alternative available and/or if the prescribing physician indicates that it must be dispensed as prescribed with the brand name drug.

In addition to the cost savings of prescriptions filled with generic drugs instead of brand name drugs, many Pharmacy Management programs promote the use of generic drugs by offering a 90-day supply at retail pharmacies or mail-order options for a very low copay. These conveniences and low-cost options have proven effective in steering people toward generics. In addition, it encourages people to have their prescriptions filled at network pharmacies using plan coverage, which, in turn, reduces costs.

Can a wellness program save you money?

Yes, implementing a simple wellness program is oftentimes the first step in helping to lower costs, though the financial benefit may not be immediate. Offering things such as smoking cessation, weight management counseling, preventive care incentive programs and onsite health and fitness classes can reap long-term benefits in relation to the health of your employees and the cost of providing health insurance to them. Talk to your insurer to find out what components of a wellness program would benefit your employers and company.

Regardless of what type of benefit plan you choose to offer your employees, it is critical to continually evaluate what plans and services are offered by your insurer to ensure you have chosen the best plan option while containing costs.

Kevin Cavalier is vice president of sales at SummaCare, Inc. Reach him at (330) 996-8650 or cavalierk@summacare.com.

Insights Health Care is brought to you by SummaCare, Inc.

If you’re on the board of a nonprofit, or hold an executive position at one, it is your duty to understand the organization’s finances.

And if you fail to do so, you could be liable for financial mismanagement, says Marie Brilmyer, CPA, M.Acc, an associate director in assurance at SS&G.

“You have a fiduciary obligation to keep an eye on the organization’s finances by ensuring its resources are being spent in accordance with donor restrictions (if any) and are properly accounted for,” says Brilmyer. “You have the responsibility to make sure assets aren’t being misappropriated, because if they are, you could be held liable.”

Smart Business spoke with Brilmyer about why, if you serve at a nonprofit, you need to understand its financial statements and set a budget to increase employee accountability.

 

Why is it important to understand the financial statements of your nonprofit?

At nonprofits, there are a variety of individuals involved, such as members of the board, members of the advisory board or even the executive director, whose first priority may not be to understand the financial statements. However, that is their responsibility because they are charged with ensuring that the organization has adequate resources and protecting its assets. To do that, they need some financial know-how.

If you don’t have even a basic understanding of the financial statements and fraud is occurring, you’ll just be taking everything at face value. However, if you have that knowledge, you could dig a little deeper and know what questions you should be asking.

 

How can you get started?

To begin to understand your organization’s financial statements, sit down with your internal accountant, external auditors or the treasurer of the board, and have that person review the most recent financial statements in detail. You can also take a class or attend a webinar on the subject.

Look at the organization’s statement of financial position or balance sheet, which is a snapshot on a certain day at a certain point in time, typically the last day of the organization’s fiscal year. You need to understand what the assets are (what the organizations owns), how liquid the company is; what the liabilities are (what the company owes and when) and the organization’s net assets. It is also important to understand if there are any temporary or permanent restrictions on those net assets that can significantly limit their use.

Next, gain an understanding of the statement of changes or the income statement, which measures activities over time. What are the revenue and the expenses? What are you spending your resources on? Also take a look at the footnotes, which detail accounting policies, significant transactions and other items that are essential to gaining a complete picture of the organization’s finances. Keep in mind that this information will be tailored specifically year by year, and that what you see this year might change next year, particularly if there are new accounting standards.

Who should review the financial statements beyond the executive director and the board?

Everyone in the organization should be familiar with the financial statements on some level. It comes back to being accountable to the expenses that they are in charge of. If someone doesn’t understand the financial statements, it’s difficult to hold that person accountable.

How can creating a budget help an organization be better managed?

Not every organization has one, but even the smallest organization can benefit by having a budget as an internal guide to help maximize the use of their resources. For instance, an organization may be debating if it should buy a particular piece of equipment versus leasing it, or if it should move into a new building, and having a budget can really help management and the board make those sound decisions.

Besides being a great overall management tool,  the budget can also help hold people accountable by giving them guidelines as far as what an individual or a department can spend on a particular activity. Keep in mind that this only works if the budget is communicated to that individual or department prior to any expenditures. This review can also give them a chance to speak their minds if they feel it is unreasonable.

Where can an organization start if it hasn’t previously done a budget?

Start by looking at the organization’s financial history. What do you anticipate the activities to be moving forward? For next year, what’s going change? Are you giving everyone raises? Are you hiring new staff, or letting people go? Are you holding new events? Look at everything that happened last year and build in provisions for your expectations for the next year.

Often, it’s a guessing game, in which you hope for the best, but you don’t know for sure. Some expenses are easy to anticipate. You know what the rent is going to be and you know what the salaries are, but it’s the revenue that causes the most grief. For example, you may have received a $5,000 donation from a certain donor each of the last five years, but you can’t say for sure whether you are going to get it next year.

As a result, you need to continually revisit that budget. It’s a good idea to take a look at it every month and do a budget-to-actual analysis. See where you’re at, where the money is coming in and what money is going out. If you thought you were getting $5,000 and have been notified that you are not, you have to change the budget accordingly. Your budget can help you make sure your cash flow is in place so that you can adjust for any shortfalls.

Marie Brilmyer, CPA, M.Acc, is an associate director in assurance at SS&G. Reach her at (330) 668-9696 or MBrilmyer@SSandG.com.

Insights Accounting & Consulting is brought to you by SS&G

When family business owners prepare for the next generation to enter into the business, most families initiate discussion of the succession process.

However, for unrelated business partners, this can be an entirely different situation, says Ricci M. Victorio, CSP®, managing partner at Mosaic Family Business Center.

“You need to talk, before it’s time to retire, about how the business is going to continue with or without your presence,” says Victorio. “No matter how young, healthy or determined you are to stay at the helm, if your sudden departure would be devastating to the business, you need a contingency succession plan. And ‘devastating’ is not a word you want as part of your strategic plan.”

Smart Business spoke with Victorio about how to ensure that your business will continue to thrive and grow.

How does succession in professional firms differ from that in family-owned businesses?

In a family business, parents will introduce their children into the business at a fairly early stage in their professional careers. Throughout their maturation, if all is going well, employees, clients and vendors become familiar with the next generation, understanding that at some point in time, there will be a transfer of control and eventually ownership. A parent can start transferring stock to a child or a family trust over many years. It can be purchased out of bonuses, gifted or inherited.

In a professional firm, however, the succession challenge is in buying out retiring partners who are still earning full salaries and stock payouts. Gifting or inheriting is certainly never an option in nonrelated stock transfers.

How do you create a profitable environment to allow younger partners to be able to buy the stock in a shorter period of time when all of the cash is going out to the senior partners?

Founding partners tend to have the most significant clients, and passing them on to junior partners is a complicated process in retaining client confidence and to the firm as it relates to who receives the lion’s share of the billing credit and income.

How can you begin to create a pathway to develop future partners and help them learn to market the firm?

Though the younger associates may have been working under the lead professional handling the task management of serving clients, they probably haven’t learned to market and perform business development. Partners are concerned that new clients may not emerge if they retire, thus creating a potential revenue impact on the firm and in their buyout price. A typical question asked is, ‘If we stop working, who will bring in new clients?’

Business succession is not unlike family succession. Here are some helpful tips to consider:

? As a senior partner, you need to groom younger people by creating opportunities for clients to work with you and your protégé.

? Mentor the younger person by giving him or her more responsibility and allow the client to interact with that person.

? Tell clients that you work in teams because you want to always have someone who understands the project, even if you are unavailable. This is a key point and one that is often overlooked.

? Appoint a young, talented potential successor as the client’s primary contact but continue to work as a team.

? Succession is occurring on multiple levels, including in your clients’ business, so it is important to match younger people with like-minded clients. This will aid professional firms in keeping long-term clients as the business goes through succession.

How can a senior leader transition to a new role before retirement?

This is a delicate conversation because you’re talking about affecting the financial stability of high-powered professionals who wish to maintain their income. You want to increase productivity and profit by using the founders’ expertise and connections to bring in new clients. Founders can explain to clients they are still involved from a strategic or global viewpoint and introduce highly capable, qualified younger associates to handle the actual casework, which will build confidence and new relationships.

As a result, profits and stock value improve, and salaries can be increased for new and existing staff. It is critical that new staff understand that they are progressing and have potential for growth, or they will move on to another firm where those opportunities are present.

You also need to redefine the roles and responsibilities of the senior members. This discussion can be more easily accomplished (and without the drama) through the facilitation of an experienced succession coach. Salaries can be realigned for fewer hours, providing revenue to pay the next tier of partners. You retain the skills of senior members while creating a circle that continues to build success.

Succession planning must be a fundamental element in every business’s strategic plan, even if you’re not looking to transition in the near future. It is always important to be prepared for a change within your business and provide a smooth transition for the clients; because, leadership change can occur without warning.

Ricci M. Victorio, CSP, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952.

Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners