Business failure has historically been a risk insurance carriers have assiduously avoided. Other than trade-credit insurance and limited credit-enhancement policies, the risk of default of a business is typically borne by the business owner.

In today’s lending environment, as banks look to mitigate their own exposures to risk, nearly all small and midsize business owners must sign a personal guarantee to secure financing. The result is that, if the business fails, the business owner’s personal assets are used to cover the loss.

This is obviously an extremely angst-inducing, emotionally charged decision, which, if it ends badly, can cause significant hardship — including loss of the owner’s home.

But with the introduction of personal guarantee insurance, a new category of coverage is now available to help business owners manage personal risks — and sleep better at night.

Smart Business spoke with Sergio Bechara, president and CEO of Millennium Corporate Solutions about how personal guarantee insurance works, how it can help business owners, and what features to look for in this coverage.

What is a personal guarantee?

A personal guarantee is essentially a signed blank check without an expiration date. But with the introduction of personal guarantee insurance, business owners can manage their personal risks — and enjoy the peace of mind that comes with knowing their personal assets will not be used to cover the loss if their business fails.

Why is personal guarantee insurance important?

Insurance practitioners are the guardians of their clients’ assets, both personal and professional. They manage, mitigate, isolate, insure and have contingency plans if bad things happen.

As part of that task, they work with lawyers to create barriers to limit liability through corporations, LLPs, LLCs and trusts. For remaining liability exposures, there is general liability, auto liability, professional liability and a host of other coverage types, all of which are used in the name of protecting assets. For property exposures, the insurance practitioners negotiate special forms coverage for their clients.

Despite the great efforts of the insurance carriers, underwriters and brokers, bankers can destroy much of their good work with one stroke of the pen. In their efforts to mitigate their own risk exposure, banks have penned personal guarantee requirements that tie the business owner’s assets to the business itself. These requirements, which most small and midsize business owners must meet in order to receive financing, have the effect of taking down the walls your insurers have so diligently erected, allowing for the unthinkable.

Since a personal guarantee gives the banker access to a business owner’s personal assets (often including a spouse’s) if a business loan is in default, bankers have traditionally had the upper hand in these situations — until now.

How does personal guarantee insurance help business owners?

Personal guarantee insurance (PGI) helps neutralize the impact of the required guarantee. It puts back the wall between the business and personal assets by covering a substantial portion of the liability of the personal guarantor in the event the loan guarantee is ever called.

With this policy, everyone can be satisfied: the bank receives the personal guarantee to complete the loan, while the client’s personal assets are protected by the insurance policy.

As a benefit to bankers, one provision of the PGI policy is that the proceeds can be assigned to the lender, thereby improving the collateral position of the bank. Now, the bank has an even better position — it has the business as collateral and a signed personal guarantee, which is backed by an insurance policy to which it is a beneficiary.

What features should business owners expect as part of this coverage?

Some features of the new insurance are:

? PGI is typically issued within six months of a loan origination or material modification.

? It can be designed to pay up to 70 percent of a deficiency judgment in the event of a loan default.

? It can typically be underwritten based on the same information the bank uses when making the business loan.

? While it adds cost to the overall loan transaction, it provides a tremendous backstop in the event personal assets are ever called into play.

? Since the bank is likely in a better position if the proceeds are assigned to the lender, it may be able to offer a more attractive interest rate on the loan once the coverage is put into place to help offset the cost of the insurance.

How can insurance brokers and risk managers ensure the personal guarantee insurance is working as it should?

As we undertake the managing of risks for our clients, a review of the personal guarantee should be included in exposure-review checklists, just like we review employment practices, environmental or cyber-liability exposures.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or s@mcsins.com.

Insights Risk Management & Insurance Services is brought to you by Millennium Corporate Solutions

Published in Los Angeles

Business failure has historically been a risk insurance carriers have assiduously avoided. Other than trade-credit insurance and limited credit-enhancement policies, the risk of default of a business is typically borne by the business owner.

In today’s lending environment, as banks look to mitigate their own exposures to risk, nearly all small and midsize business owners must sign a personal guarantee to secure financing. The result is that, if the business fails, the business owner’s personal assets are used to cover the loss.

This is obviously an extremely angst-inducing, emotionally charged decision, which, if it ends badly, can cause significant hardship — including loss of the owner’s home.

But with the introduction of personal guarantee insurance, a new category of coverage is now available to help business owners manage personal risks — and sleep better at night.

Smart Business spoke with Sergio Bechara, president and CEO of Millennium Corporate Solutions about how personal guarantee insurance works, how it can help business owners, and what features to look for in this coverage.

What is a personal guarantee?

A personal guarantee is essentially a signed blank check without an expiration date. But with the introduction of personal guarantee insurance, business owners can manage their personal risks — and enjoy the peace of mind that comes with knowing their personal assets will not be used to cover the loss if their business fails.

Why is personal guarantee insurance important?

Insurance practitioners are the guardians of their clients’ assets, both personal and professional. They manage, mitigate, isolate, insure and have contingency plans if bad things happen.

As part of that task, they work with lawyers to create barriers to limit liability through corporations, LLPs, LLCs and trusts. For remaining liability exposures, there is general liability, auto liability, professional liability and a host of other coverage types, all of which are used in the name of protecting assets. For property exposures, the insurance practitioners negotiate special forms coverage for their clients.

Despite the great efforts of the insurance carriers, underwriters and brokers, bankers can destroy much of their good work with one stroke of the pen. In their efforts to mitigate their own risk exposure, banks have penned personal guarantee requirements that tie the business owner’s assets to the business itself. These requirements, which most small and midsize business owners must meet in order to receive financing, have the effect of taking down the walls your insurers have so diligently erected, allowing for the unthinkable.

Since a personal guarantee gives the banker access to a business owner’s personal assets (often including a spouse’s) if a business loan is in default, bankers have traditionally had the upper hand in these situations — until now.

How does personal guarantee insurance help business owners?

Personal guarantee insurance (PGI) helps neutralize the impact of the required guarantee. It puts back the wall between the business and personal assets by covering a substantial portion of the liability of the personal guarantor in the event the loan guarantee is ever called.

With this policy, everyone can be satisfied: the bank receives the personal guarantee to complete the loan, while the client’s personal assets are protected by the insurance policy.

As a benefit to bankers, one provision of the PGI policy is that the proceeds can be assigned to the lender, thereby improving the collateral position of the bank. Now, the bank has an even better position — it has the business as collateral and a signed personal guarantee, which is backed by an insurance policy to which it is a beneficiary.

What features should business owners expect as part of this coverage?

Some features of the new insurance are:

? PGI is typically issued within six months of a loan origination or material modification.

? It can be designed to pay up to 70 percent of a deficiency judgment in the event of a loan default.

? It can typically be underwritten based on the same information the bank uses when making the business loan.

? While it adds cost to the overall loan transaction, it provides a tremendous backstop in the event personal assets are ever called into play.

? Since the bank is likely in a better position if the proceeds are assigned to the lender, it may be able to offer a more attractive interest rate on the loan once the coverage is put into place to help offset the cost of the insurance.

How can insurance brokers and risk managers ensure the personal guarantee insurance is working as it should?

As we undertake the managing of risks for our clients, a review of the personal guarantee should be included in exposure-review checklists, just like we review employment practices, environmental or cyber-liability exposures.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or s@mcsins.com.

Insights Risk Management & Insurance Services is brought to you by Millennium Corporate Solutions

Published in Los Angeles

Digital risk management strategy used to be a luxury reserved for huge corporations, but in today’s business climate, even small businesses need to understand digital risks and set up a plan to protect themselves.

“Today’s society is completely based on digital recordkeeping and digital media,” says Pervez P. Delawalla, CEO of net2EZ Managed Data Centers, Inc. “If companies don’t have strategies in place to insure their digital lives, they are just playing with fire.”

Smart Business spoke with Delawalla about how to develop a sound digital risk management strategy and how to ensure it will work when you need it.

What are some examples of major digital risks, and how can these risks affect businesses?

One of the principal types of risk comes from those once-in-a-lifetime events, like the terrorist attacks of 9/11. Many companies were impacted by those attacks, and not just from a personal standpoint. Getting their businesses back up and running was very difficult, and companies that didn’t have digital strategies in place for data backup were at a complete loss.

Then, you have the standard risks faced by businesses on a daily basis. Data is lost through  negligence, or even through unforeseeable events beyond one’s control, like flooding or fire. In California, the major player in this category is earthquakes. To mitigate that risk, a West Coast company can have servers located on the East Coast, so in the event of a catastrophic earthquake, their data and it’s high availability would be safeguarded.

Digital risk management or risk mitigation solutions used to be cost prohibitive for small businesses — but not anymore.

How can businesses protect themselves from digital risks?

There are a couple of ways that businesses can insulate themselves from these risks. The first step is looking at where their digital life exists, so to speak, for both their company and their personal data. That will determine what type of risk exposure they have. For example, if a company decides to keep its servers on the premises, it would have its physical and digital location present in the same place. If something happens to that building, everything goes with it.

Usually, the company’s head of information technology would be responsible for recommending a disaster recovery location just for the data, which would be located away from the office space.

The best course of action is to employ the services of a disaster recovery company with the ability to provide highly redundant locations so data can be protected in the event that the physical location goes offline.

What should be covered in a digital risk management strategy? How does it interface with overall risk management strategy?

One of the issues that needs to be covered is the geographic separation between your primary location and your disaster recovery location. You don’t want your digital disaster recovery location just a couple blocks down the street from your physical location, because if there is a large-scale event, like a natural disaster of some sort, you are likely to lose both.

Another is the ‘cut over test.’ This is where both systems are run in parallel to make sure that if you needed to cut over to the disaster recovery location that it would function in precisely the same way the primary location does. It’s like doing a fire safety drill. The frequency of the drill is determined by the company’s industry.

From that point, you start looking at the exact goal for the business in question. If the company is in an industry where going offline for a few days does not pose any real risk to business, that company would require a different strategy than a financial trading firm for whom a few minutes offline would be detrimental.

The strategy should be based upon and built around the business type. For example, a trading firm would want a disaster recovery location that is a few hundred miles from its physical location, and would ideally conduct a monthly or weekly full cut over test.

What should businesses look for in a digital risk management and insurance company or policy?

The stability of the company is important, as is its knowledge base, but the facility itself is the most important part. Look at where the servers are housed; confirm that the facility is SAS 70 certified. That designation means that independent auditors have certified the company’s policies and procedures.

Also, check how redundant the facility’s backup system is. Does it have at least one standby generator to back up the primary generators that provide power? Look into the integration and configuration of the cooling systems, as well.

Those are all integral parts to ensuring the entire facility works in unison. You may be spending a lot of money on disaster recovery, but if one of those systems is offline,  your solution could still fail when you need it the most. It’s like installing smoke detectors throughout your house, but not testing them; you are taking an unnecessary and dangerous risk.

How can businesses ensure their digital risk management strategy is working?

The key is running those drills. Systems change all the time, and a company’s digital systems will never remain the same, particularly given the pace of the society we have now. Updates are constant, whether from the software tech side or the hardware tech side, so it is very important to run those drills on a frequent basis in accordance with your type of industry.

Also, look at your checklist and conduct audits. Make sure you have selected a provider that is SAS 70 certified and has good systems, and remember that just because everything checks out doesn’t mean that you shouldn’t go over that checklist and run those drills again next year.

Pervez P. Delawalla is CEO of net2EZ Managed Data Centers, Inc. Reach him at (310) 426-6701 or pervez@net2ez.com.

Insights Risk Management & Insurance Services is brought to you by Millennium Corporate Solutions

Published in Los Angeles

Digital risk management strategy used to be a luxury reserved for huge corporations, but in today’s business climate, even small businesses need to understand digital risks and set up a plan to protect themselves.

“Today’s society is completely based on digital recordkeeping and digital media,” says Pervez P. Delawalla, CEO of net2EZ Managed Data Centers, Inc. “If companies don’t have strategies in place to insure their digital lives, they are just playing with fire.”

Smart Business spoke with Delawalla about how to develop a sound digital risk management strategy and how to ensure it will work when you need it.

What are some examples of major digital risks, and how can these risks affect businesses?

One of the principal types of risk comes from those once-in-a-lifetime events, like the terrorist attacks of 9/11. Many companies were impacted by those attacks, and not just from a personal standpoint. Getting their businesses back up and running was very difficult, and companies that didn’t have digital strategies in place for data backup were at a complete loss.

Then, you have the standard risks faced by businesses on a daily basis. Data is lost through  negligence, or even through unforeseeable events beyond one’s control, like flooding or fire. In California, the major player in this category is earthquakes. To mitigate that risk, a West Coast company can have servers located on the East Coast, so in the event of a catastrophic earthquake, their data and it’s high availability would be safeguarded.

Digital risk management or risk mitigation solutions used to be cost prohibitive for small businesses — but not anymore.

How can businesses protect themselves from digital risks?

There are a couple of ways that businesses can insulate themselves from these risks. The first step is looking at where their digital life exists, so to speak, for both their company and their personal data. That will determine what type of risk exposure they have. For example, if a company decides to keep its servers on the premises, it would have its physical and digital location present in the same place. If something happens to that building, everything goes with it.

Usually, the company’s head of information technology would be responsible for recommending a disaster recovery location just for the data, which would be located away from the office space.

The best course of action is to employ the services of a disaster recovery company with the ability to provide highly redundant locations so data can be protected in the event that the physical location goes offline.

What should be covered in a digital risk management strategy? How does it interface with overall risk management strategy?

One of the issues that needs to be covered is the geographic separation between your primary location and your disaster recovery location. You don’t want your digital disaster recovery location just a couple blocks down the street from your physical location, because if there is a large-scale event, like a natural disaster of some sort, you are likely to lose both.

Another is the ‘cut over test.’ This is where both systems are run in parallel to make sure that if you needed to cut over to the disaster recovery location that it would function in precisely the same way the primary location does. It’s like doing a fire safety drill. The frequency of the drill is determined by the company’s industry.

From that point, you start looking at the exact goal for the business in question. If the company is in an industry where going offline for a few days does not pose any real risk to business, that company would require a different strategy than a financial trading firm for whom a few minutes offline would be detrimental.

The strategy should be based upon and built around the business type. For example, a trading firm would want a disaster recovery location that is a few hundred miles from its physical location, and would ideally conduct a monthly or weekly full cut over test.

What should businesses look for in a digital risk management and insurance company or policy?

The stability of the company is important, as is its knowledge base, but the facility itself is the most important part. Look at where the servers are housed; confirm that the facility is SAS 70 certified. That designation means that independent auditors have certified the company’s policies and procedures.

Also, check how redundant the facility’s backup system is. Does it have at least one standby generator to back up the primary generators that provide power? Look into the integration and configuration of the cooling systems, as well.

Those are all integral parts to ensuring the entire facility works in unison. You may be spending a lot of money on disaster recovery, but if one of those systems is offline,  your solution could still fail when you need it the most. It’s like installing smoke detectors throughout your house, but not testing them; you are taking an unnecessary and dangerous risk.

How can businesses ensure their digital risk management strategy is working?

The key is running those drills. Systems change all the time, and a company’s digital systems will never remain the same, particularly given the pace of the society we have now. Updates are constant, whether from the software tech side or the hardware tech side, so it is very important to run those drills on a frequent basis in accordance with your type of industry.

Also, look at your checklist and conduct audits. Make sure you have selected a provider that is SAS 70 certified and has good systems, and remember that just because everything checks out doesn’t mean that you shouldn’t go over that checklist and run those drills again next year.

Pervez P. Delawalla is CEO of net2EZ Managed Data Centers, Inc. Reach him at (310) 426-6701 or pervez@net2ez.com.

Insights Risk Management & Insurance Services is brought to you by Millennium Corporate Solutions

Published in Los Angeles

Business failure has historically been a risk insurance carriers have assiduously avoided. Other than trade-credit insurance and limited credit-enhancement policies, the risk of default of a business is typically borne by the business owner.

In today’s lending environment, as banks look to mitigate their own exposures to risk, nearly all small and midsize business owners must sign a personal guarantee to secure financing. The result is that, if the business fails, the business owner’s personal assets are used to cover the loss.

This is obviously an extremely angst-inducing, emotionally charged decision, which, if it ends badly, can cause significant hardship — including loss of the owner’s home.

But with the introduction of personal guarantee insurance, a new category of coverage is now available to help business owners manage personal risks — and sleep better at night.

Smart Business spoke with Sergio Bechara, president and CEO of Millennium Corporate Solutions about how personal guarantee insurance works, how it can help business owners, and what features to look for in this coverage.

What is a personal guarantee?

A personal guarantee is essentially a signed blank check without an expiration date. But with the introduction of personal guarantee insurance, business owners can manage their personal risks — and enjoy the peace of mind that comes with knowing their personal assets will not be used to cover the loss if their business fails.

Why is personal guarantee insurance important?

Insurance practitioners are the guardians of their clients’ assets, both personal and professional. They manage, mitigate, isolate, insure and have contingency plans if bad things happen.

As part of that task, they work with lawyers to create barriers to limit liability through corporations, LLPs, LLCs and trusts. For remaining liability exposures, there is general liability, auto liability, professional liability and a host of other coverage types, all of which are used in the name of protecting assets. For property exposures, the insurance practitioners negotiate special forms coverage for their clients.

Despite the great efforts of the insurance carriers, underwriters and brokers, bankers can destroy much of their good work with one stroke of the pen. In their efforts to mitigate their own risk exposure, banks have penned personal guarantee requirements that tie the business owner’s assets to the business itself. These requirements, which most small and midsize business owners must meet in order to receive financing, have the effect of taking down the walls your insurers have so diligently erected, allowing for the unthinkable.

Since a personal guarantee gives the banker access to a business owner’s personal assets (often including a spouse’s) if a business loan is in default, bankers have traditionally had the upper hand in these situations — until now.

How does personal guarantee insurance help business owners?

Personal guarantee insurance (PGI) helps neutralize the impact of the required guarantee. It puts back the wall between the business and personal assets by covering a substantial portion of the liability of the personal guarantor in the event the loan guarantee is ever called.

With this policy, everyone can be satisfied: the bank receives the personal guarantee to complete the loan, while the client’s personal assets are protected by the insurance policy.

As a benefit to bankers, one provision of the PGI policy is that the proceeds can be assigned to the lender, thereby improving the collateral position of the bank. Now, the bank has an even better position — it has the business as collateral and a signed personal guarantee, which is backed by an insurance policy to which it is a beneficiary.

What features should business owners expect as part of this coverage?

Some features of the new insurance are:

  • PGI is typically issued within six months of a loan origination or material modification.
  • It can be designed to pay up to 70 percent of a deficiency judgment in the event of a loan default.
  • It can typically be underwritten based on the same information the bank uses when making the business loan.
  • While it adds cost to the overall loan transaction, it provides a tremendous backstop in the event personal assets are ever called into play.
  • Since the bank is likely in a better position if the proceeds are assigned to the lender, it may be able to offer a more attractive interest rate on the loan once the coverage is put into place to help offset the cost of the insurance.

How can insurance brokers and risk managers ensure the personal guarantee insurance is working as it should?

As we undertake the managing of risks for our clients, a review of the personal guarantee should be included in exposure-review checklists, just like we review employment practices, environmental or cyber-liability exposures.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or s@mcsins.com.

Published in Los Angeles

Insurance touches the lives of all U.S. citizens, yet is still a fairly mysterious financial instrument even for the most sophisticated business leaders. To better understand the behavior of this insurance one must blend a mix of economics and social science to arrive at common sense explanations for what is happening and why.

“There are very meaningful financial impacts felt by those who purchase health insurance, and those impacts are largely caused by politics,” says Sergio Bechara, president and CEO of Millennium Corporate Solutions.

As an insurance broker, Bechara is well-positioned to understand the plight of health insurance companies and employers alike.

Smart Business spoke with Bechara about the ramifications of President Obama’s health care plan on the health insurance industry and how it will affect employers.

Why are health insurance costs rising?

Ask yourself what you would do if you owned a health insurance company facing a legislative tsunami known as ‘Obamacare’ with two potential financial threats looming.

1) The government might compete against you. However, because the government, unlike your other competitors, can print money when it needs more, you might be competing against a better capitalized opponent.

2) You might be forced to take on risks you did not calculate for as a condition of doing business. This is a very big deal.

How can the addition of new risks pose a financial threat to insurance companies?

How many banks failed in the last four years? More than 350. By contrast, how many insurance companies have failed? Only one.

Insurance companies have a major investment in actuarial analytics to help determine their risk and, therefore, their future pricing. They measure a large assortment of data such as cost of care, likelihood of disease, probability of use resulting from accidents, etc. These companies have years and years of data to improve their accuracy of assumptions leading to their pricing. However, the wild card with zero data to analyze is the complete unpredictability that ‘Obamacare’ might have on their business.

It creates a potentially tremendous unknown that has to go into their tried-and-true formula. There are no data points telling them how to predict their future cost, because nobody really knows how much it is going to cost.

So are insurance companies adapting, and what is the impact to employers?

As a smart businessperson, what would you do? Lowering rates in an uncertain economy never happens. Essentially, you have two choices: Begin to build a ‘war chest’ to protect yourself against the future unknown or continue business as usual and simply meet tomorrow’s challenges when tomorrow comes. This was, of course, a rhetorical question, but one that has a serious ripple effect because every dollar that goes into a war chest is one dollar that goes out of circulation from our economy.

Now how many other industries, companies, sole proprietorships are reacting the same way with their capital for the similar core reason: an uncertain economy? When capital exits circulation, the economy slows.

There is no greater or lesser wealth or money on this planet today than there was in 2007. As a visual example, if one were to look at Earth from space, and take ‘before’ and ‘after’ photographs, it would look the same in 2007 as it does today. There were no aliens that came to Earth and left with the planet’s wealth in 2008.

The flow of capital is the life’s blood of any business and any economy.

When capital flows like a river, businesses thrive like reeds on the river banks, when capital flows like oozing lava businesses suffer from atrophy — it is that simple.  All the dollars and financial resources that were on this planet in 2007 have not left the planet. They have just stopped flowing through our economic streams. This is either because of dams being built or streams being redirected to foreign countries or reservoirs.

How will employers be affected and how will they react?

They are going to have increased costs and increased overhead. Employers have three choices of how to handle the increases coming from the health insurance sector. They can pass them along to employees by asking them to participate more in their own health insurance through company plans, or the company can absorb the increase and try to pass it along to its customers. There is one other choice: avoid an increase in cost by decreasing benefits.

What is the outlook for the future, and how will our economic climate affect that outlook?

‘Jobs, jobs, jobs.’ This has been the battle cry from all corners of the nation and from all walks of life. However, for a job to exist or be created, an employer or a business of some kind must exist. That business will have shareholders and/or owners. That business must have a need followed by a willingness to hire. That having been said, let’s take a look at our climate:

1) Banks lending with considerable more restraint to not lending at all

2) Threat of higher taxes and of ‘unknown’ amounts

3) In California, new regulations giving employees more rights to unionize or threaten to increase the cost of doing business in an already suppressed economy leaving little room to pass along increases

4) Regulatory enforcement from various agencies, especially the Occupational Safety and Health Administration, becoming more present that ever. In fact, in our firm of insurance brokering and risk management, defending clients from O.S.H.A. has been the fastest growing part of our practice.

Sergio Bechara is president and CEO of Millennium Corporate Solutions. Reach him at (949) 679-7120 or s@mcsins.com.

Published in Los Angeles

When buying or renewing any type of insurance for your business, you have to strike a balance between price and coverage.

“Since the recession, so many buyers are making decisions about insurance based on price alone. They know they need insurance, so they take the lowest-price option, many times sacrificing coverage or service or both,” says Steve Grane, partner, Millennium Corporate Solutions. “The problem comes in, however, if something happens and they’re not covered. Then there can be all kinds of negative consequences to deal with.”

Grane says that the goal of a good broker or agent should always be to get his or her client the best coverage at the best price.

“If the broker or agent doesn’t have your best interests at heart, you could really get burned,” he says.

Smart Business asked Grane for tips on how buyers can get the most bang for their buck when making insurance purchasing decisions.

What should a buyer do if his or her rates have increased to a price that is higher than expected?

The first instinct may be to go price shopping. But you have to think about your risk at the present time. Is it different than it was a year ago? Is it going to become greater over the coming year? Each situation is different.

You then have to weigh the premium increase and total cost against how much it will cost if you have a claim that’s not covered. Talk with your broker or agent. There might be places where you can raise your deductible.

You should also see what other options are available in the market. Get three bids. Make sure the bids are for the same coverage you already have. Request a face-to-face meeting. You can usually determine rather quickly if the person is legitimate. If the person is ethical, he or she will lay out the premium costs and all the coverages in a way that you can easily understand. Ask for the names of people you can call to assess how responsive this person is. You want someone who is accessible — someone who will return your call within a few hours, not a few days.

What else should the buyer look for when comparing bids?

You have to compare apples to apples. Ask your current broker or agent to give you a comparison sheet on the main coverages. Ask him or her to write out what is covered and what the limits are. Then ask others who are bidding to do the same. For example, say you are responsible for homeowner association (HOA) insurance. The total insured value on the declarations page is $10 million. The agents or brokers who are submitting bids should come in and take a square foot inventory and then provide you with a cost analysis of what it would cost to reconstruct the property per square foot. They would use this as a guideline to come up with total insured value. In some cases, it may be determined that you are underinsured.

How can being underinsured cost more in the long run?

Let’s look at the liability that comes from being on the HOA board. There are many different directors’ and officers’ liability policies out there. You can get a very inexpensive policy as part of the main policy, but it’s not going to cover much. For about 10 percent more, say around $1,000, you can get 60-70 percent more coverage to protect board members against things such as wrongful acts, sexual harassment, nonmonetary claims and spousal liability. Board members are volunteers, and if a homeowner decides to sue, even for nonmonetary claims, it can end up costing the volunteers a great deal of money out of their own pockets if they are not adequately insured.

If coverage levels are comparable and it comes down to price, what next?

Service is just as important as price. What would happen if you actually had to file a claim? How professionally will the claim be processed, and how swiftly? Is the insurance company A-rated on AM Best? Is the adjustor easy to reach?

How can the buyer be sure that the claims will be processed quickly?

You can’t know for sure until you have a claim. That is where the importance of the relationship with the broker or agent comes into play. If you find out the hard way that the company with the lowest price is not responsive, it can cost you thousands of dollars of your own money trying to fix problems while you are waiting for a claim to be settled.

How often should insurance needs be reassessed?

Talk with your broker or agent at least four or five times throughout the year, and always at renewal. This way, if there are any changes, or anticipated changes, the broker or agent can ensure that your insurance coverage reflects the changes. You should view your broker or agent as a partner. They are like football officials. At the worst games, there are all kinds of complaints about the calls; at the best games, you don’t even realize they are there.

STEVE GRANE is a partner with Millennium Corporate Solutions. Reach him at (949) 679-7131 or SGrane@mcsins.com.

Published in Los Angeles

Frank Marrone, Senior Vice President and Partner, Millennium Corporate SolutionsThe health care delivery system is broken and costs are spiraling out of control.

Federally mandated reforms have only made the system more confusing. Now, more than ever, you need someone on your side to help you make sense of the mess.

“If your health care consultant doesn’t understand how the system works, then you’re forced to become an expert in health care when you should be focusing on your core business,” says Frank L. Marrone, senior vice president and partner with Millennium Corporate Solutions. “There are qualified insurance advisers out there; investigate, interview and then engage with one that fits your needs.”

Smart Business spoke with Marrone about how a skilled consultant can help you navigate the confusing aspects of the health care system during health care reform and any other time you need a trusted adviser.

How is the health care and insurance system changing?

In our country, health care is a trillion-dollar industry that is driven by Wall Street. Wall Street and medicine are opposite forces. I’m not saying that one is good and one is evil; they just work in different directions. Wall Street exists for profitability. Executives of insurance companies keep their jobs by being profitable.

The health care system is a triangle consisting of the patient, the doctor and the insurance company. When the two most significant players are pulling in opposite directions with the patient in the middle, you have a broken system.

Employers, employees, family members — all patients — need to be able to make sound decisions with what we know to be true. Costs are not coming down, services are being stretched and the realities of health reform are only going to mean increased costs for the currently insured, while offering greater and more timely access to the uninsured or underinsured.

There is good and bad in almost everything. The good in health reform is going to cost a lot more than anyone knows.

Why are costs out of control and how can they be fixed?

The key element to health care reform and pricing is that the delivery system has not figured out a way to compensate doctors for keeping us healthy. Today, there is no incentive for a physician to have healthy patients because the physician will most likely go out of business.

Another reason costs are out of control is litigation. Everyone pays for medical malpractice claims; doctor premiums are passed on to all consumers. In fact, as medical products get priced, it’s necessary to factor in the cost of medical malpractice.

What can consumers do to survive in today’s health care system?

For example, A PPO rate for a family may be $2,300 per month, or $27,600 per year, just to have medical insurance — to prevent the risk of huge personal costs if they get sick. Who can afford that? And, how long can it be afforded?

The one thing consumers can do is ask themselves these questions: Do you exercise regularly? Do you consciously plan a healthy lifestyle? Do you eat proper food? We, as a nation, need to get healthy. If you are an overweight smoker with high cholesterol and hypertension and you want to eat a burrito at midnight, you are more likely to increase your chances of a heart attack.

First Lady Michelle Obama is promoting wellness and fighting child obesity on television, but I’m not sure people understand that getting healthy is a long-term process. Everyone wants to see immediate results, but patience is necessary. Just like no one gains 10 pounds in a week, no one loses 10 pounds in a week.

How can a health insurance broker or consultant help companies navigate the system?

You need someone on your side who understands how the system works. You cannot negotiate simply by telling an insurance company, ‘Give me a better price.’ You have to bring facts to support your claims.

The role of a good broker or consultant is to gather information from insurance companies and use that information to battle for his or her clients. At end of the day, insurance carriers will work cooperatively with good data and research — they want to make the best decisions too, so a good consultant will help develop that story.

For instance, if I let insurance companies know my client has had a good year, I will show them the utilization statistics to support my claim. If the carrier wants to charge my client a higher premium to compensate for other companies that have had a bad year, I will tell the carrier to get that increase from someone else — not from my client.

Frank L. Marrone is a senior vice president and partner with Millennium Corporate Solutions. Reach him at (818) 844-4120 or fmarrone@mcsins.com.

Published in Los Angeles

Upcoming health care reforms will require employers to monitor and report so much information that staying compliant will require a lot of time and effort.

“There are already many laws and rules that exist today affecting employers who offer health insurance benefits to their employees. The Patient Protection and Affordable Care Act, popularly referred to as the health care reform law, will impose many more responsibilities, including many new reporting requirements,” says Alicia Saporito, partner, Millennium Corporate Solutions. “That’s why it is so important to partner with a broker or consultant that not only understands how your business is affected by the health care reform law but also how to use existing technology to help you stay on top of the rules and minimize your liability for failure to comply with many of the thousands of laws you are required to follow today and in the future.”

Smart Business spoke with Saporito about how technology can make compliance easier.

What do businesses need to know about new initiatives and requirements?

The new initiative is going to require that companies track and document much more information than they ever had to in the past. In addition, employers will have to report much more information about their health plan to the federal government. For example, employers must document it when they offer medical insurance to qualified dependents up to age 26 and that the employee had a full 30 days to make the election. Employers must also provide notice to employees that lifetime limits under medical insurance plans are no longer legal. Employers will have to provide a uniform explanation of coverage to their employees and they will have to provide notice to the employee 60 days in advance of any change in the benefit plan. A new reporting requirement will mandate that all employers report the value of the employee benefits on the W-2 of each employee. Noncompliant employers would be subject to hefty fines.

How can technology assist employers in complying with existing rules and requirements?

COBRA requires that employers provide timely notice to eligible participants of their rights and contains many important notices and timelines. HIPAA requires health plans offered by employers to document certain business processes and rules. This law also requires you to provide information about benefits availability to eligible participants of the plan on a uniform basis.

Technology can help you provide historical proof that you offered benefits to eligible participants and document the reasons employees waived their right to participate under the health and welfare benefit plan. A good system will track all transactions and approvals and show a timestamp to provide an audit trail. You can track COBRA notices and prove how quickly required notices were issued. By using an automated system, employees will be notified well within the guidelines and this will minimize employer liability for failure to provide timely and accurate notices.

Using a technology tool will ensure that benefits deductions are fed to payroll correctly. When done manually, incorrect deductions may be sent to payroll and, instead of taking advantage of having their employees help pay for the cost of insurance, employers are then paying the full cost or, in some cases, overpaying the incorrect cost.

How can leveraging technology increase efficiency in the administration of benefit plans?

Employers are responsible for timely and accurate reporting of new enrollments and terminations to their benefit plan administrators or insurance companies. If there is a delay when an employee becomes eligible for coverage and is actually added into the insurance company’s system, this could present a challenge not only to the employee but also the company’s HR department. If the employee experiences an urgent need to see a provider or in obtaining a required medication, the HR department will spend a lot of time helping the employee receive the medical attention they need while they wait for coverage verification from the insurance company. Even worse, from a risk management standpoint, if HR forgets to send the paperwork on a timely basis the insurance company can deny coverage altogether. The employer may be liable for the coverage promised to the employee. There is another employer liability if a deduction is taken from the employee’s pay while there was no coverage in place.

Employers who rely on manual reporting of changes in coverage to the insurance company may end up overpaying for their benefit plans. For example, if a company terminates someone’s employment, it has to terminate the coverage on a timely basis to avoid paying unnecessary premium for that individual. When you streamline the process by making it automatic with an electronic component, it makes it a lot more foolproof.

Where should an employer start with the compliance and technology evaluation process?

Employers should begin by performing an audit of their current practices and business process as they relate to the health and welfare benefit plans and evaluate them against the requirements set forth by state and federal law. Also, review all the information provided to employees. There should be practices in place to track and document all of this.

It is important to correct any deficiencies before they are discovered either by an employee complaint or through a Department of Labor audit. The federal government uses random audits to ensure that employers are complying with their various obligations under their health and welfare benefit plans. It’s important for employers to demonstrate they have the required documentation, systems and tools in place and that the information is stored in a secure manner as to protect the information as required under existing laws. A good employee benefit broker/consultant who is familiar with the laws as well as the technology available to employers to assist with compliance is a valuable resource.

Alicia Saporito is a partner and senior vice president in the Employee Benefit Plan Risk Management division of Millennium Corporate Solutions. Reach her at (949) 679-7117 or asaporito@mcsins.com.

Published in Los Angeles

Risk is present in every phase of business, but is not always self-evident. The creation, effective implementation and maintenance of a risk management program can significantly reduce and in some cases eliminate the possibility of a claim against a company, says Michael J. Lucas, CIC, CRM, a partner with Millennium Corporate Solutions.

“Risk management is important to protect the company’s assets from lawsuits and claims,” Lucas says. “Taking a systematic approach to a risk management program will make the process go more smoothly.”

Smart Business spoke with Lucas about how to make the risk management process more effective in your organization.

What are the steps in the process?

The risk management process can be expressed in five general steps: risk identification, risk analysis and prioritization, risk control and loss prevention, risk financing, and risk implementation/administration. Many companies focus on one or two of these and fail to effectively use all of the steps in considering operational, strategic and financial risks that can impact the company at many levels.

Are there keys to effective risk management?

Some of the keys include identifying the company’s hazards/exposures, incorporating all levels of the organization into the process, and elevating the importance of risk management companywide.

There are six general classes of risk that an organization must consider when developing and implementing its own risk management program: economic, legal, political, social, physical and juridical risks. Within these general classes, risks can come from many sources. To make matters worse, risks are changing faster than companies can keep up with ways to manage them.

There are several tactics that risk management professionals can use to help companies stay ahead of the curve. Identifying the company’s corporate culture is a good start. Next, it is very important to establish the company’s risk appetite and tolerance level. This helps determine just how much risk an organization is comfortable allowing. Risk management projects such as installing risk control programs, advanced engineering techniques, and increasing or decreasing deductibles should be strongly considered if the potential benefits outweigh the projects’ costs on a short-term and/or long-term basis.

How does corporate culture affect risk management?

Some corporations are willing to retain more risk than others. Through a risk analysis and by identifying the corporate culture, you can identify whether a specific exposure coincides with the culture relative to the organization’s tolerable risk levels. For example, if a company’s corporate culture is to have high retention on its programs, as far as deductibles are concerned, then it is going to be more comfortable taking on risk because it has controls in place. The company will put more emphasis on and funding into risk management and will elevate its importance in an effort to coincide with its corporate culture and ultimately control its exposures.

Why is it important to elevate the importance of risk management companywide?

Due to the catastrophic effect some exposures can have on an organization, it’s important for the risk management to be implemented consistently companywide. Risk retention can and may vary from department to department within an organization outside of the normal company culture, but only after a thorough risk analysis has been performed on the specific hazard/exposure. Corporate culture may dictate that the organization carry higher retentions, but if the organization is unable to control frequency, higher retentions become cost prohibitive.

How does a company’s level of risk tolerance impact risk management?

Identifying the company’s risk tolerance zone is important and will be considered when determining what solution best fits the organization for each exposure identified.

As different projects, changes in operations, exposures or hazards arise, a risk analysis should be performed to completely understand and identify the potential impact of the exposure to the organization. If the risk analysis falls within the tolerance corridor and is deemed acceptable to the organization, it can move forward with the appropriate risk management tool. Insurance is just one solution to risk management. Once the hazard or exposure is identified, the company will choose to eliminate, retain, reduce, transfer, minimize, avoid or control the risk.

How do you evaluate the data?

Data will be gathered at various stages of the risk management process based on historical data, industry data, flowcharts, inspections, compliance review, surveys or policy/procedure review. There are several ways to evaluate the data. This can be done by determining the likelihood and impact of the event occurring. When determining the likelihood, loss analysis, risk mapping, forecasting or probability analysis can be used. When determining the impact on the organization, cost benefit, payback analysis, net present value analysis or internal rate of return analysis can be used. Understanding the importance of the administration phase of the risk management program is critical and requires an organization to look at loss trends, or a trend in certain other factors. This is when the organization will use the data and make changes from an implementation or procedural standpoint to mitigate future losses. Many companies will effectively identify an exposure and will put a policy or procedure in place, but fail to monitor or revisit this exposure from time to time to measure the effectiveness of the program.

Exposures and hazards to an organization appear and change quickly, forcing companies to be reactive instead of proactive through their risk management program. Again, this is why it’s crucial to elevate the importance of risk management companywide.

Michael J. Lucas, CIC, CRM, is a partner with Millennium Corporate Solutions. Reach him at (909) 456-8911 or mikel@mcsins.com.

Published in Los Angeles
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