Amy Dison

Friday, 25 April 2008 20:00

Help carry the load

Have you tried to find a health benefit design plan to meet the needs of each of your employees? By self-funding employee health benefits, you can have more control over the benefits offered to employees and not be limited to a set design. While no benefit design plan will ever be perfect, self-funding health benefit plans allow an employer more flexibility and control while reducing costs.

“Self-funding means the business owner is actually taking on the risk or paying the claim,” says Julie Salem, manager of new business sales with Priority Health. “Many business owners are qualified for self-funding but have not broken down the numbers to see the savings such changes may make for their business. Self-funding works by involving both employers and employees in the health care process. By giving employees an active role in their health care coverage, they are more likely to adopt a healthier lifestyle and spend wisely on health care.”

Smart Business spoke with Salem about determining which employers are qualified to self-fund health benefit plans, the benefits of self-funded plans and how such plans can help reduce overall health care costs.

Do you have to run an extremely wealthy business to self-fund employee health benefits?

No, but first you must decide if self-funding is the correct option for your company. If you believe that fully insured premiums are higher than the actual risk, self-funding is an option you want to explore.

This works well for owners who have younger employees who are healthy and/or willing to adopt healthy lifestyles. As a business owner, you should be ready to implement wellness programs for employees to help improve overall health care.

Depending on which company is used as the third party or administrator, a business owner may need to make a financial deposit to self-fund. Other parties may allow you to pay as you go. At minimum, you will need the equivalent of a one-month premium on deposit.

How do you determine if self-funding is the best coverage option for your company?

A comparison should be done between annual costs of a fully insured plan versus a self-funded plan to determine what option is the best for the needs of your employees.

First, the annual costs of a fully insured plan should be determined to see where those premiums would put health costs at the end of the year. Then use the same number of employees to determine the cost of reinsurance (specific or aggregate stop-loss) and the dollar amount of aggregate liability plus the fixed costs (administration of program and the premiums for stop loss). If that total number is equal to or less than the fully insured plan, self-funding is a good risk.

In addition, owners must determine the cost of purchasing reinsurance or stop-loss protection to self-fund health benefits. There are two types of stop-loss coverage. The first is ‘specific,’ which is a per-claim dollar amount that limits the risk the employer is liable per claim, much like a deductible. The second is ‘aggregate,’ which limits the overall total risk. This is similar to umbrella coverage.

Does self-funding really reduce costs?

If the risk is less than the premium, it should save money for both employers and employees and make coverage more inclusive. As health care costs continue to rise, more business owners are looking into this option. Employers are getting creative and looking for cost-saving methods. If they implement and utilize tools such as wellness programs, this option can be very effective. Typically, an employee who exercises regularly and maintains a healthy diet will have fewer health care costs than a person living an unhealthy lifestyle.

Some states tax employers on their fully insured premiums. The state also mandates the benefits that must be included in fully insured premium designs. If a plan is self-funded, the employer has the option of including such benefits. This may save employers money.

What are the biggest risks to self-funding?

The risk is based on actual claim dollars. There is a potential for the utilization to be higher than fully insured premiums. It is important that employers capture such risks with reinsurance. This provides owners with the worst-case scenario of what insurance may cost any given year.

With self-funding, claims change from month to month. While this may create a cash flow advantage, it also creates a risk that high utilization could cause overall costs to exceed insured premiums.

JULIE SALEM is the manager of new business sales with Priority Health. Reach her at or (248) 324-2856.

Friday, 25 April 2008 20:00

Good relations

The banking industry is a very competitive market, with banks constantly trying to introduce new products and services. As a bank introduces something new to the market, competitors are often quick to follow with their own version of the product or service. This competitiveness and lack of differentiation complicates the banking decisions for business owners.

Often, the driving factor in determining where business owners bank is the relationship and service intensity they develop with their banker, says Jim Geuther, manager of commercial banking for FirstMerit Bank.

Regardless of the size of their businesses, owners are likely to deal with a variety of divisions in a bank. Rather than keeping a roster of departments and contacts, it is beneficial to develop a relationship with a single point of contact; someone who can demystify the banking process and orchestrate easy access throughout the franchise.

Smart Business spoke with Geuther about what a business owner should look for when selecting a bank and what a good relationship can bring your business.

How should business owners start the process of selecting a bank?

The ultimate goal is to find a bank that meets and exceeds your financial requirements. Banks, in general, have a tendency to position products, services and locations as the primary differentiators from their competitors. Business owners, however, don’t always value these attributes the same way. In fact, market data for business owners clearly indicates that ‘knowing how to get things done within the bank’ and ‘inspiring trust and confidence’ are two of the most critical factors in evaluating a bank and, specifically, the primary contact. This points to the critical role individual bankers play in delivering value to their clients. Business owners should be diligent and critical when selecting a banker. The banker you choose can be a valuable asset to your advisory team, so it is important to pick the right one. Just like selecting other important vendors or advisers, business owners should ask their potential bankers for references. These should be readily provided from clients and other professionals who work with the banker.

Does every bank have ‘good’ relationship bankers?

The short answer is yes. Many banks have built strategies around relationship managers who can be trusted advisers to all of their commercial customers, all of the time. Unfortunately, when customers do seek advice from their primary bank, more often that not, it is of marginal value. In a recent study completed by the Business Banking Board, only 41 percent of small businesses and one-third of middle-market customers believe they receive good counsel from their banker. This shows that, while many banks have ‘good’ relationship bankers, the majority of clients are not enjoying the benefits of the outstanding bankers in their market.

What attributes should business owners look for when evaluating their primary contact?

I believe there are four major characteristics a business owner should look for in their relationship manager. He or she should be:


  • Knowledgeable. The banker should have a solid understanding in the products and services they are representing. They don’t have to be an expert on each product, but they should be able to explain the basics and involve an expert, as needed. More importantly, the banker should be knowledgeable in your business and be able to grasp the critical trends and developments within your industry. Also, the banker should be skilled in understanding the financial industry. As financial and economic markets shift, you should find a banker who can provide relevant and timely financial recommendations.



  • A team leader. You should be able to rely on your banker to ‘quarterback’ a team effort. Your banker should introduce you to the key players who impact your business, including the relationship manager’s boss, the credit officer and even the bank’s president. It is especially important for businesses that rely on bank financing to know multiple layers within the organization. These are typically the people who either directly make or significantly influence the credit decisions within a bank. The days of hiding behind a ‘credit committee curtain’ are over. Clients deserve to have an outstanding quarterback leading and representing their team.



  • A team player. While the banker should be a leader on the banking side, he or she should work as a team member on your business side. As an owner, it is beneficial to create a team that includes your banker, lawyer and accountant. These individuals should be in direct contact and should meet regularly to collectively work toward the success of your business. Properly executed, these professionals can become an informal advisory board that helps you achieve success.



  • Stable. You should look for an experienced, well-tenured banker who doesn’t have a history of frequent turnover. This is important so you can have a consistent and strong advocate for your business who knows how to get things done.


What should you do if you are not receiving appropriate service?

Business owners have a few choices. Of course, they can remain status quo. They can instead request a new relationship manager at the same institution. And, third, they can pursue other options elsewhere. All else being equal, why settle for an average banking relationship when there are outstanding ones available?

JIM GEUTHER is a manager of commercial banking for FirstMerit Bank. Reach him at (216) 694-5683 or

Sunday, 24 February 2008 19:00

Ergonomically correct

While the term “ergonomics” may sound unfamiliar, it should be on the mind of any employer that’s concerned about creating and maintaining a healthy and safe work environment.

Good ergonomics leads to good business, according to David M. Weir, president of UPMC Work Partners, a full-service provider of clinical and administrative services.

“Ergonomics focuses on the relationship between the worker and the job,” Weir says.

Many companies that used to worry about the bottom line when it came to ergonomics now understand that it’s really a way to make the work environment safer and, therefore, more efficient and more productive.

Smart Business spoke with Weir about ergonomics in the workplace and how it can be beneficial to businesses.

Why should an employer be concerned about ergonomics?

Ergonomics is simply the science of fitting jobs to people. To do that, you have to design work environments to maximize safety and efficiency. A safe work environment is a productive work environment. Employers need to be concerned about ergonomics because by maximizing safety and efficiency, you increase production. A work environment that reduces the number of on-the-job injuries will mean fewer lost days and, therefore, more productivity.

Essentially, ergonomics focuses on the basic relationship between the worker and the job. Thus, attention is placed on the design of work areas to enhance job performance. You introduce ergonomics into the work area in order to help prevent injuries and to limit secondary injuries. It also serves to accommodate individuals with various disabilities. By arranging the work environment to fit the people who have to function within it, you can reduce visual and musculoskeletal discomfort significantly.

What should an employer look for in an ergonomics program?

Employers need to take an inventory of the worksite to determine what they need to do to move toward the goal of having a hazard-free and worker-safe environment. To create such an environment, one should focus both on workplace design and staff training. If your employees are taught to follow basic ergonomic principles, this can result in reduced stress and the elimination of many potential injuries and disorders that are associated with the overuse of muscles, bad posture and repeated tasks. Ergo-nomics is used to do such things as redesigning workspaces, altering lighting and changing equipment to fit the physical capabilities and limitations of the employee. Most importantly, employers need to let employees know that good ergonomics is an enforceable expectation.

What specific industries are in need of an ergonomics program?

The types of work that cause problems are not always obvious. For instance, back pain can be caused by sitting in an uncomfortable office chair for long periods of time as well as by a job that requires much heavy lifting. Ergonomics can help in both areas. In the first, it might be a case of finding the proper chair and teaching an employee how to take periodic work breaks to reduce back stress. In the second instance, ergonomics can be used to teach employees how best to lift heavy objects while doing the least amount of harm to their backs.

How can ergonomics help improve work environments?

Ergonomics can be used to help minimize the risk of repetitive injury, such as carpal tunnel syndrome, and the risks associated with prolonged sitting in an office chair, such as neck strain, lower back pain and leg pain. Equipment changes, such as using a headset if someone does lengthy or frequent work on the telephone, can make a big difference. Back pain is a common work-related injury in jobs that require heavy lifting. Quantitative methods can be used to evaluate workplaces and determine those areas that can most benefit from design and placement changes. When critical areas are identified, they can be redesigned to maximize the ergonomic impact. Staff members should be taught to understand their ergonomic environments.

How can ergonomics help a company’s bottom line?

If you have a work environment that produces fewer injuries and illnesses, it will follow that you will have fewer workers’ compensation costs. Productivity will increase if the job is easier, therefore leading to greater efficiency. Those types of gains are tangible. Less quantifiable, but equally valuable to a company, are the benefits a company derives from increased efficiency, increased employee morale, and also from decreased absenteeism and turnover.

Employing the principles of ergonomics doesn’t have to be costly. There are simple adjustments that can be made. Changes such as using a rolled-up towel on a chair for lumbar support, raising the height of your computer with a telephone book or using a book to prop up your feet can be beneficial. There is a lot you can do that doesn’t cost a lot of money. You can also look at the work environment — the lighting, the sound, the noise, the temperature and the glare. All such things are important and easy to adjust.

DAVID M. WEIR is the president of UPMC Work Partners. Reach him at (412) 454-8720 or

Sunday, 25 November 2007 19:00

High-touch customer service

Traditional customer service call centers, regardless of the industry, measure their effectiveness by standard metrics, such as: How quickly do customer service representatives answer calls? How many calls do they handle in an hour? In a day? How many abandoned calls do they get?

While those measurements are important, they are not a barometer to tell you how well you are doing your job as a call center. Those measurements simply reflect the daily service every call center should provide. The more important thing to measure is: Are we satisfying the customer by successfully dealing with his or her problems or questions? It’s customer satisfaction that counts, says Mary Beth Jenkins, chief operating officer with UPMC Health Plan.

Smart Business spoke with Jenkins about high-touch customer service and how it increases overall customer service.

How would you define ‘high-touch’ customer service?

Traditionally, customer service at a call center is defined as waiting for people to call in with a question and then answering the question or solving the caller’s problem. A high-touch approach to customer service is to begin a proactive approach, to anticipate what questions or issues callers will have down the road.

Also, a high-touch approach means evaluating ‘first-call resolution,’ which is resolving the caller’s issue the first time he or she calls.

How can a company anticipate the problems or issues its customers will have?

You can only do this by gathering data that you accumulate over time, which is based on the types of questions for which the customers contact the call center. By studying the call data, you can learn what areas of your program require more detailed descriptions and information. As a response to the data gathered, call center employees can reach out and educate members or customers in a more personalized and proactive way telephonically about the services or programs offered.

When you anticipate in this way, you reduce the odds that you will get the same calls or those types of calls in the future. If you educate your customers on the front end, you are improving customer satisfaction and warding off issues before they develop.

Does high-touch service make sense in this high-tech era?

The two concepts are not mutually exclusive. You must understand that in this era you have to be able to service your customer in multiple ways. Needless to say, you need to provide the kind of online or automated 24-7 service that customers demand, so they can perform tasks when and where they want to, and which do not require interaction with a customer service representative.

However, no matter how advanced and user-friendly the technology is that you offer, you will still have a vast majority of people who want to call in and talk to a human about an issue. This requires an investment in terms of human capital on the part of a company to maintain the people needed to provide that service. But in customer service, we understand that member retention is costly and keeping members happy has a direct correlation to retention.

What are examples of high-touch service?

One good example is to monitor ‘first-call resolution.’ To achieve this goal, you need to empower your call center employees. That is, give them direct access to supervisors and direct access to other departments. This enables them to get the help they need to solve the caller’s problem without having to pass the caller on to someone else. It is also important to streamline the number of customer ‘touch points.’ The whole key is to minimize hand-offs. If you need to, you can promise to give the customer a call back after the issue is resolved.

We have formalized this process and refer to it as the ‘close the loop’ program. This ensures that we do not overpromise and underdeliver.

Having first-call resolution means spending more time on each call and handling fewer calls per hour, but it is also part of a more important value: service excellence.

Is high-touch service worth the investment from a business standpoint?

When you look at things like first-call resolution, you see that by solving a member’s problem on the first call you will prevent future calls from the member on that issue. That’s a cost benefit right there. If you spend more time on a call and you get it right, you avoid added calls down the line. That’s not only the right thing to do; it is also the cost-efficient thing to do.

High-touch service means exactly that. It’s the right thing for your customer and for your business.

MARY BETH JENKINS is the chief operating officer for UPMC Health Plan. Reach her at or (412) 454-7764.

Sunday, 25 November 2007 19:00

Protecting who you are

Is identity theft as big of a problem as the media are currently making it seem? The answer is “yes.” Identity theft is the most up-and-coming type of fraud, growing leaps and bounds over the past five years, according to Jennifer Herman, fraud analyst for corporate security with FirstMerit Bank.

For the thief, identity theft is a quick and sometimes even easy way to make a buck. As a thief, if you are a good talker, you can get the smallest piece of personal information from a person. With that piece of personal identification, a thief can manipulate that information to get more personal details and access to accounts and personal assets.

This type of theft is not likely to disappear any time soon. People need to educate themselves on ways to protect personal information and be diligent about personal finances, says Herman. There are many safeguards in place that people need to utilize instead of viewing them as nuisances, and if your identity is stolen, you’ll quickly realize how valuable they are for your assets. Often, it is common sense and diligence that can protect you and minimize your risk of becoming a victim.

Smart Business spoke with Herman about protecting your identity and how to reclaim it if it is stolen.

Are there different types of identity theft?

Personal information can be literally stolen from an individual out of the mail or from personal belongings, such as a wallet. Information can also be stolen by phishing. Phishing occurs when an e-mail is sent from what looks to be your credit card company or your financial company. These e-mails often resemble official e-mails but are actually sent by thieves looking for personal information. These e-mails will ask you to reply immediately with your account number and/or PIN or your account will be frozen. One should be on the lookout for such e-mails and never reply. If you reply with such information, a thief has everything he or she needs to start making debts in your name.

How can we keep tabs on our identities?

People should be aware and diligent when it comes to their personal information and finances. Many times people realize their identity has been stolen when they do not receive a credit statement in the mail. If a person is suspicious that his or her identity has been stolen, he or she should review his or her credit report. Everyone is entitled to one free review of his or her credit report. A review does show up as an inquiry but is not detrimental to one’s credit score. A fraud alert can also be placed on accounts if you are suspicious or have been a victim in the past. These alerts require you to be notified each time credit is requested. While this may seem burdensome, it is designed to protect you as the consumer.

What should someone do when he or she finds his or her identity has been stolen?

There are four steps people should take when they know their identity has been stolen. Diligent documentation can help them through each step.


  • Place fraud alerts — Place alerts on all accounts open because a thief may try and rob more than one account. You should also notify the credit bureau at this time. Only one major creditor needs to be notified, as it will notify the others.



  • File a police report — Identity theft should be reported as soon as possible to the authorities so they can start a formal investigation.



  • Close out accounts that have been compromised — Call and send written notification to the companies of which you have been a victim and ask for all accounts to be closed immediately to prevent future debts. Include a copy of the police report for the companies.



  • File a claim with the Federal Trade Commission — It can be reached at (877) ID-THEFT.


Are people held responsible for debits accrued when an identity is stolen?

Most debts are forgiven with the proper documentation and persistence on the part of the consumer. It takes time and personal energy to recover such losses. Not all debts are forgiven. Some identify theft victims deal with credit issues throughout their life. Prevention is key so identity theft is never experienced.

How can identity theft be prevented?

Do not place bills or letters with personal and/or account information in your personal mail receptacle outside of your home. As soon as the flag goes up to tell the mail carrier there is mail inside, a thief also knows he or she can obtain information. Do not leave personal mail by the front door or out in plain view. If your home is broken into, a thief may swipe such statements. These often go unnoticed, but if a thief obtains such documents, he or she can have access to your assets even after he or she leaves your home. Do not carry personal identification, such as a Social Security card in your wallet. Do not put your Social Security number on your driver’s license. Password protect all personal and bank accounts. Do not use simple passwords or include personal information in passwords. Finally, utilize safeguards put in place by companies.

JENNIFER HERMAN is a fraud analyst for corporate security for FirstMerit Bank. Reach her at or (888) 554-4362.

Friday, 26 October 2007 20:00

Health insurance and small business

For small businesses, employee health insurance causes different financial concerns than it does for large companies. Obviously, the economies of scale that are there for the bigger companies do not exist for the smaller ones, says Anthony Benevento, vice president of sales and marketing with UPMC Health Plan.

A survey done by the Kaiser Foundation in 2007 found that the percentage of small businesses offering health insurance to their employees has steadily declined since 2000. Ninety-nine percent of all businesses that have 200 or more employees offer health benefits, while only 59 percent of those with fewer than 200 employees offer health coverage. In 2000, nearly 70 percent of all small businesses offered health insurance to their employees but, by 2007, that percentage had dropped 11 points.

The survey also shows that almost three-quarters of the small businesses that do not offer health insurance cite cost as the major factor for not offering the benefit. This does not mean that small business owners cannot offer health care coverage. It simply means they must find the type of coverage that meets the needs of their company.

Smart Business spoke with Benevento about health care coverage for small businesses and cost effective options.

What factors should influence whether a small business owner should offer health insurance to employees?

Each business owner needs to make the decision that is right for his or her company. But small businesses have to understand that they have a number of options in health insurance that are available to them regardless of their size. They just need to map out an affordable strategy with their insurer.

One of the deciding points in determining whether a small business owner will want to offer health insurance to his or her employees is the importance the owner places on attracting and keeping top employees. After salary, health insurance is one of the biggest factors in terms of hiring and retaining the best employees.

Should the cost of insurance be the deciding factor for a small business?

Rather than looking at health insurance coverage as an all-or-nothing proposition, small business owners need to look at various plan designs that can fit their budget. Small business owners should know there are many options for their needs.

The cost of health insurance is a major factor, but the business owner also has to look at other costs if health insurance is not offered to employees. There is, for instance, the cost of turnover. Buying the right health insurance for your company is less expensive in the long run than having a constant cycle of turnover, an extended training period, more turnover and yet more training of new staff. A business owner has to think about how much that pattern costs when determining whether a company can afford health insurance for its employees.

How can an insurer meet the specific needs of small businesses?

You have to deliver a product that is designed to address the unique challenges of small businesses. Such challenges include increased price sensitivity, the desire for additional health and wellness programs and the need for dedicated customer service by representatives who not only understand plan designs, but also the unique needs of small businesses.

What should a small business owner look for in terms of coverage?

You would want coverage that is comprehensive in scope, but not overwhelming in cost. Many small businesses do not think that they can afford to have coverage that includes such things as wellness programs, vision benefits, online tools, EAP services and other value-added benefits such as a global emergency program. They do not think they will be able to get the kind of specialized customer service that a major employer receives. These types of benefits can be bundled by a health insurer and offered in a way that can be affordable for companies of all sizes.

Small business owners should also realize that advances in online access for employers can make service more complete and accessible. Many health plans have systems available that do not require an employer to talk with a health plan representative on the phone in order to perform tasks such as verifying benefits information, processing new enrollments, adding or removing dependents for coverage and creating temporary ID cards. The ability to perform those tasks when you want to also represents a form of ‘savings’ for the small business owner.

How can health care coverage be affordable for small businesses?

It is just as important for a small business owner to find coverage that helps make his or her employees as healthy as possible as it is for the large business owner. It is important to offer plans that cover smoking cessation products or discounts for products such as fitness centers, dance studios and sporting goods stores. Again, it is a case of doing what you can to hold your employees and to keep them healthy. In the long run, they will be more productive and actually save money for a business owner. For many small businesses, not investing in health care coverage is a savings they really can’t afford.

ANTHONY BENEVENTO is vice president of sales and marketing at UPMC Health Plan. Reach him at or (412) 454-7826.

Tuesday, 25 September 2007 20:00

Staying competitive

With health care costs rising and the uncertain future of government retirement options, corporate retirement plans are a large incentive for employees. For a business owner, determining the specific needs and goals of your company’s benefits package may seem overwhelming.

It is important to enlist the help of a professional that is well-versed in the Employee Retirement Income Security Act (ERISA) and can help identify the specific needs of your company, says Daniel Kissinger, vice president and retirement plan specialist with FirstMerit Bank. Each company’s plan will differ, so it is necessary to find a professional who will ask the right questions to find the plan that fits your needs, he says.

Smart Business spoke with Kissinger about the benefits of retirement plans and what business owners should look for in benefit administrators to receive the best service possible.

Why have retirement plans become a competitive part of a benefits package?

For the business owner, it is a competitive business world where he or she looks for the best way to recruit quality employees and retain those who are currently employed. Benefits packages play a large role in employee recruitment and retention. There are also tax advantages for employers who offer retirement plans in their benefits packages.

Employees are often looking for the best benefits package when they select an employer. A good 401(k) plan is important because it provides employees the ability to save money on a pretax basis for their own retirement. With the uncertainty of the future of social security, it is important for employers to realize that retirement savings now fall solely in the hands of the employee and that they should offer benefit plans to help. Offering a retirement plan helps to increase an individual’s personal wealth. This shows employees that, as a business owner, you care about their future and well-being.

Is a retirement plan a benefit that an employer has to offer to stay competitive?

Employees are currently looking at the overall package an employer can offer. In the past, salary was usually the deciding factor when an employee was selecting an employer. Changes in the benefits industry have made it necessary for employees to search for the most competitive package.

Employers are responding to this demand accordingly in an attempt to stay competitive. In the last 10 years, almost all employers began offering some type of retirement package. Employees are also looking to see what their employers will contribute to their retirement fund. Some companies are able to match a portion of what employees contribute, which makes the package more enticing.

Not all employers are able to match what employees contribute to their fund. Even if the employee is the only member contributing to the fund, it is pretax and is therefore at a cost-saving basis.

What expertise and/or qualities should business owners look for in an administrator?

A business owner should look for administrators who are experts in ERISA. You do not want a broker who is selling a product. Rather, one should look for an administrator who is an expert in the retirement industry and can be contacted directly to service the needs of your company.

Choosing a full-service provider that can serve as corporate trustee of the plan is vital, as it greatly reduces the personal fiduciary responsibility of the business owner. Depending on the size and location of your company, a local administrator may be more advantageous because you have a better chance of receiving personalized, high-touch service. Additionally, it is beneficial if the provider does not offer any proprietary mutual funds. Offering strictly third-party mutual funds allows for better diversification of investments and gives the business owner the opportunity to offer top-performing mutual funds in each of the various categories.

What role should an administrator play in the developing of a retirement plan?

An administrator should fill the proactive consulting function. This means an administrator should look at the needs and goals of the overall plan and work to redesign the benefits plan as needed to maintain those goals. Administrators should also visit the company and employees to conduct employee education meetings once or twice a year. General topics are discussed in these meetings in an attempt to get employees comfortable with the administrator. Many employers hire administrators to field employee questions and address their needs. This helps limit the time and resources the business owner must devote to dealing with participant issues. An effective administrator takes the work off of the business owner's desk.

DANIEL KISSINGER is vice president and retirement plan specialist with FirstMerit Bank, servicing Lorain, Cuyahoga, Lake, Geauga and Ashtabula Counties, along with the Toledo region. Reach him at or (216) 694-5697.

Sunday, 26 August 2007 20:00

A new standard

In late July, the SEC (Securities & Exchange Commission) approved the PCAOB’s (Public Company Accounting Oversight Board) Auditing Standard No. 5 (AS5) — An Audit of Internal Control Over Financial Reporting That is Integrated with an Audit of Financial Statements, which replaces Auditing Standard No. 2 (AS2). In addition to approving AS5, earlier this year, the SEC itself issued guidance for publicly traded companies complying with Sarbanes-Oxley Section 404.

The goals of the guidance from the SEC and PCAOB are to focus management’s assessment and the audit of internal controls over financial reporting on the high-risk areas in a company and eliminate unnecessary procedures that have been performed under the prior standard. Explicit and practical guidance on scaling the process and ultimately simplifying the rules for public companies is provided, says Andrew De Silva from Resources Global Professionals.

Smart Business spoke with DeSilva about the new time- and cost-efficient changes and how these changes benefit publicly traded companies if implemented properly.

Who stands to benefit from the new guidance?

All publicly traded companies should benefit from AS5, but the level of benefit will directly correlate to the level of effort put forth by each company in adopting the new guidance. Benefits may include reducing the amount of work previously performed by internal management and the amount of time external auditors spent under the old AS2, lowering total Sarbanes-Oxley costs.

AS5 allows the external auditors to use the work of company personnel other than internal auditors, as well as outside third parties working under the direction of management, as long as this work is performed by competent and objective persons. Management can use this to distribute some of the testing to internal personnel or third parties and, by working with the external auditor and planning how to leverage this work, reduce the cost of the external audit.

What must companies do to make this auditing standard successful?

Companies must put forth the initial effort to perform an adequate risk assessment in order to drive the scope of the work. With the new guidance’s emphasis on the use of a top-down, risk-based approach, management will be able to focus on the risk areas specific to their individual company’s environments and circumstances. The new guidance directs management’s and external auditors’ focus to those material areas where a misstatement is likely to occur. This should eliminate some of the unnecessary procedures performed under AS2.

Under the top-down, risk-based approach, management has the opportunity to determine areas of focus and higher risk by identifying significant accounts at the consolidated financial statement level. Additionally, by implementing this approach, management can leverage entity-level controls to effectively reduce or even eliminate the need to document and test process- and transaction-level controls.

The new guidance also allows management to look for areas where monitoring activities can replace detailed testing. The level of documentation and testing should match the level of risk in a particular area. This can significantly reduce the effort required.

What should management of public companies be doing now?

If they have not done so already, companies should begin the process of using a top-down, risk-based approach. This should enable them to reduce the overall scope and reduce the level of activity in low-risk areas, which will save both time and money.

Attention should be focused on the greatest areas of risk. It is critical for companies to identify effective entity-level controls and leverage those controls to reduce the testing of controls at the process and transaction level.

The increased documentation and reliance of entity-level controls, if done effectively, will significantly reduce Sarbanes-Oxley costs for most, if not all, companies. It is crucial for management to communicate with auditors. Collaboration with the external auditors is critical to achieving continuous efficiencies and cost effectiveness throughout the Sarbanes-Oxley process.

How can outside resources be utilized by companies that may need help?

Professional services firms are typically engaged when companies do not have the internal staff or experience to adequately handle the workload associated with a compliance effort, such as Sarbanes-Oxley. Some companies may go the route of the traditional consulting firms to alleviate internal pressures by pushing the project ownership, control and risk outside the organization. Other companies may wish to maintain control of the Sarbanes-Oxley compliance effort within their management team, but may still utilize a firm, such as Resources Global, to bring in experienced professionals who work from the inside out to assist with the effort on a project basis.

ANDREW DE SILVA is a client service manager with Resources Global Professionals. Reach him at (412) 263-3306 or

Thursday, 26 July 2007 20:00

The right coverage

Business owners often have much of their life and their savings invested into the properties they own, making it crucial to have the proper insurance coverage. A disaster that results in a partial or total loss of a property can result in major debt or bankruptcy for an owner.

While there are numerous ways to insure real property, all business owners can tailor their coverage to their own specific needs. The key to ensuring you have the proper coverage is to determine the value of a structure, says John Dorris with Westland Insurance Brokers.

Smart Business spoke with Dorris about different types of coverage and how business owners can find the type that works for their needs.

What is the first step business owners should take when insuring real property?

A business owner should be insured to value. This is the first step in ensuring you get indemnified to the full replacement cost of your structure.

Many insured’s don’t realize how much it costs to rebuild their property in case of a total loss. If a fire strikes your building, you may have to replace the entire physical structure. At times, this is more than the market value price of a structure, specifically on older buildings.

Can business owners receive full replacement cost?

Yes, and they should expect it. But business owners shouldn’t rely on insurance carriers to determine their building’s replacement costs. It is important for business owners to talk with their contractors, lenders, insurance broker and insurance company to get information on current day rebuild costs. Insurance brokers have access to many resources that assist in determining a property’s value.

What types of policy clauses should owners discuss with a broker?

Agreed value: Many policyholders like agreed value because it takes the guesswork out of what will be paid on a claim. Agreed value is an agreement made between the insurance company and policyholder that the limit of insurance listed on the policy is that buildings value, and that agreed upon value is what will be paid in the event of a total loss. Another advantage is that coinsurance is suspended.

Coinsurance: While some policyholders would like to avoid coinsurance, it is by no means a bad policy clause. Again, it depends on the needs of one’s company. Coinsurance is simply a policy clause that requires property to be insured at a specified percentage of its full value (usually 80 percent, 90 percent or 100 percent) in exchange for a pricing credit. However, if there’s a loss and the client has inadequate limits, the claim payout will only be a percentage of the total loss amount.

While these are just two examples of policy clauses to review, they show why it’s imperative to know your buildings value. When you do, you can make prudent decisions on how to insure it. Whether you chose an agreed value scenario or a scenario with coinsurance, you’ll feel comfortable your real property will be replaced without paying more than the deductible.

Is there a specific coverage that you would like business owners to contemplate?

Ordinance of law coverage: Ordinance of law is one of the most needed types of insurance coverage, but one of the most commonly overlooked. As your real property becomes older, building codes in your county are updated to reflect new standards for construction. In many instances, business owners don’t elect this coverage because they don’t think ordinance changes will affect them. As always, the problem comes after the loss.

Ordinance of law has three parts to it: demolition of undamaged portions of the building, increased cost of construction and debris removal after demolition. A structure may have been built in 1971 when the building code allowed for aluminum wiring, but in 1975 the building ordinance was upgraded to call for the same building to have copper wiring. If the policyholder has a fire loss that destroys half the building, he may be required to tear down the entire building and upgrade everything to current code. Since complying with this code requires a change in design and building materials, the additional costs for labor and materials will be substantial. Building owners who don’t purchase this coverage may find themselves paying hundreds of thousands of dollars to rebuild. So, for a minimal premium there is a substantial benefit when an insured purchases ordinance of law coverage.

Is proper coverage often overlooked?

It is not overlooked as much as neglected. Insurance buyers may not understand the importance of reviewing these limits on an annual basis. As we’ve seen in so many claims scenarios, business owners believe they’re insured properly only to find out after a loss that they’re underinsured. It is crucial to sit down with your insurance broker prior to renewal and review the current insurance program.

How can a business owner find the best insurance provider?

When looking for an insurance provider, business owners should choose an insurance carrier that focuses on their industry, tailors their policy forms to protect that industry, and offers risk management services to assist the policyholder in protecting their property as well as their business as a whole.

JOHN DORRIS is a commercial insurance broker with Westland Insurance Brokers. Reach him at (619) 641-3245 or

Thursday, 26 July 2007 20:00

D&O coverage

Directors and officers today face significantly more liability than in past years as corporate scandals become more visible. The fundamental principles governing their conduct come under increasing judicial and regulatory scrutiny due, in large part, to recent corruption.

The Sarbanes-Oxley Act, which was signed into law in 2002, expanded the responsibilities as well as the potential liabilities of corporate officers and directors. Although this legislation protects shareholders and is expected to improve corporate governance, it also bears the risk of increasing the number of litigations, says Victor Farfan, commercial insurance broker, with Westland Insurance. Increased corporate governance has heightened the importance of indemnification of corporations’ directors and officers.

These factors have led to the need and development of more sophisticated Director’s and Officer’s Liability Insurance (D&O). Smart Business spoke with Farfan about the importance of such coverage and how executives can make sure they are properly insured.

What is Director’s and Officer’s Liability Insurance?

In general, insurance policies for directors and officers provide coverage for defense costs and liability payments (both judgments and settlements) for covered wrongful acts if a claim is made against the insured during the policy period. This is often referred to as ‘Side’ A coverage. In addition, most policies afford coverage for the company’s own expenses incurred in indemnifying covered persons pursuant to the corporate indemnity in the company by-laws. This is often referred to as ‘Side’ B coverage. Usually, there is a deductible that applies to claims within ‘Side’ B coverage, and D&O policies typically require that the company advance defense costs and make payment for any judgment or settlement before the insurance company will pay.

Some D&O policies also contain ‘Side’ C coverage for loss incurred by the company entity. For a publicly traded company, the entity coverage for D&O typically is limited to claims against the company arising under federal or state securities statutes or under SEC rules and regulations.

A number of D&O carriers now offer ‘Side’ A only or ‘Side’ A DIC (Difference In Conditions) D&O policies, with a dedicated limit of liability covering directors and officers when indemnifications and standard D&O may be unavailable. One must also consider that when various state statutes restrict a corporation’s ability to indemnify its directors and officers in connection with shareholder derivative actions, coverage under ‘Side’ B D&O policies may be restricted. Therefore, it is common for directors and officers to rely on ‘Side’ A D&O policies for coverage for shareholder derivative actions.

Why should directors and officers invest in such coverage?

Director’s and Officer’s Insurance is the main line of defense against ruinous jury awards and legal settlements. There is a chance your personal assets may still be at risk as a result of the SEC seeking settlements that specify payments come from personal funds rather than insurance. A good D&O policy can provide important protection for an innocent director or officer from honest mistakes and even fraud committed by others.

Director’s and Officer’s Insurance premiums are falling to incredibly low levels for all buyers, including privately held corporations. With this in mind it, doesn't make any sense to expose one's personal assets and estate to the risk of an uninsured loss. Directors and officers of privately held corporations face the same risk as those of publicly held firms. Avoid the risk of being sued for complaints alleging fraud, unfair competition, interference with prospective economic advantage, infringement of trade secrets and several other alleged wrongful acts and consider how D&O can protect you.

Why aren’t all directors and officers covered?

Many directors and officers have never closely examined the D&O policies and may falsely believe they are immune from personal financial liability. The recent exposé of corporate scandals has lead to a crackdown on corporate malfeasance and fraud investigated by government regulators and prosecutors. This threat of criminal fines and civil judgments has caused D&O providers to place many limitations on policies. Some have even attempted to rescind policies altogether.

How can directors and officers select the proper coverage for their industry?

The issues directors and officers deal with will vary within the industry in which the company operates. To ensure proper and sufficient coverage one must make sure all information provided to the insurer is as accurate as possible. Outright misrepresentations and mistakes could give the insurer all the ammunition it needs to have a policy cancelled.

In this era of heightened regulatory supervision and shareholder unrest, company executives need to take the time to review the precise wording of their policies. Policyholders should review wording before they purchase their policies. By investing the time upfront in scrutinizing the wording, one can be assured the protection intended to be obtained through the purchase of a policy will be there when the insured needs it most.

VICTOR FARFAN is a commercial insurance broker with Westland Insurance. Reach him at (949) 553-9700, ext. 3319, or