But there are some risks associated with such projects. There are numerous laws and regulations surrounding the issue, and the vital need for investors and developers to be sure they have sufficient risk transfer.
Smart Business spoke to Rob Ranallo of DLD Insurance Brokers Inc. about this growing trend and how businesses can avoid the hazards that could follow.
How has the need for insurance covering condominium conversions changed over the past 10 years?
It seems to have increased or at least resurged greatly. Clients are seeing more opportunities linked with, hopefully, a better rate of return on their investments by buying apartment projects and then rehabbing them into condominiums for sale in today’s tougher marketplace, where there continues to be a high demand for affordable housing in Southern California.
But there is a very limited insurance marketplace, and carriers are closely underwriting the exposures due to heavy litigation in the past on condominium development. California laws have changed recently, making carrier underwriting standards a bit less tough. Carriers mandate brokers to send complete applications that include the claim history for owner/developer and general contractor if an outside general contractor is used, as well as a detailed forensic physical property inspection report and budgets on each location to be remodeled.
What are the major liabilities and risks facing developers of condominium conversion projects?
Courts have yet to determine the full extent of liability a developer would face on condominium conversions, so conservative clients and their counsel are very cautious and treat the projects like new construction. This translates in the purchasing of multi-year wrap-up/Owner Controlled Insurance Programs for liability insurance that include the owner, general contractor, most subcontractors and a 10-year products-completed operations extension to protect them from the 10-year property damage statute in California.
It is important that policies are purchased without any prior work exclusions. Also, some limited coverage for the architects and engineers is added when possible as their policies like most subcontractors’ will exclude work done on condominiums or apartments.
Wrap-up policies take more effort on behalf of the broker as well as the developer, as there is more administration of the subcontractors as well as contract amendments that must be made with counsel’s insight.
How fast is this business growing?
We are quoting quite a few risks, but only about 10 percent of them have come to fruition. The cost of these programs can be expensive, so the acquisition cost of the existing project versus insurance costs must be closely reviewed.
What liability statutes are in place?
Various statutes are in place dictating the period of time in which an owner, developer or contractor is liable for bodily injury and property damage to third parties. State statues appear to apply to new construction, but again there are a lot of unknowns as to whether the original work will be brought into a claim. The gray area is whether the statute will apply if the renovation does not involve structural changes: Is it a facelift or does it qualify as new construction?
How can developers protect their assets?
Consult with counsel in respect to setting up an LLC as well as how the statute may apply in respect to the scope of remodeling they are considering.
Consider strict contract indemnity wording with sellers as well as arbitration clauses with potential homebuyers.
Consider self-insuring to a certain level that they are comfortable with, to keep insurance costs down.
Buy appropriate limits, since condominium projects have the potential to generate large construction defect settlements, at least in the past or in a depressed economy.
Excellent customer service and warranty call follow-up after the unit is sold can go a long way with buyers as well to deter potential claims.
Are there any other concerns businesses should be aware of?
Make sure the property/fire/builders risk insurance coverage is placed correctly. This involves obtaining coverage for the entire project term, usually beyond one year; being sure coverage is there for existing structures as well as work to be done; and making sure coverage stays in place until the actual unit sells versus when the remodeling work has been completed. This last issue is especially important in this slowing economy when standing inventory may increase considerably.
ROBERT RANALLO is an assistant vice president at DLD Insurance Brokers Inc., responsible for marketing and risk management services to Southern California-based clients involved in residential construction and property management. Reach him at (949) 221-1788 or email@example.com.
Given the wide spectrum that this discipline covers, neurosurgeons must be well-versed in a wide array of surgical treatments. “On top of experience and residency at a trauma center, I’ve also undergone fellowship training in cerebrovascular surgery as well as skull-based neurosurgery,” says Peyman Tabrizi, M.D., a neurosurgeon at Western Medical Santa Ana.
Smart Business spoke with Tabrizi about neurosurgery, neurovascular emergencies and technological advances in the neurosciences.
What types of conditions do neurosurgeons typically treat?
We deal with various types of intracranial hemorrhages. We also work with spinal trauma which includes fractures or dislocations of the spine. When dealing with trauma you have two forms: penetrating trauma and blood trauma. Forms of penetrating trauma include gunshot wounds or stab wounds to either the head or the spine. Forms of blood trauma include automobile accidents, motorcycle accidents and falls.
As far as non-emergency cases are concerned, there is a whole gambit of pathologies that a neurosurgeon deals with: brain tumors, spine tumors, brain aneurysms and hemorrhagic strokes to name a few.
How does a neurosurgeon treat spinal cord trauma?
With spinal trauma we try to take pressure off of the spinal cord. If there is any fractured portion of the bone that is pinching the spinal cord, we remove the fragments so that the patient can become mobile again. When a trauma patient comes in with a spinal injury, he or she has to be bedridden until the spine is stabilized. If it’s a thoracic or a lumbar spine, then a vascular surgeon or a trauma general surgeon is needed to help with the exposure. Once it’s exposed, the neurosurgeon can address the situation by determining the degree of damage.
What is the procedure for someone who has suffered a skull fracture?
If the patient is involved in a motor vehicle accident, or falls and sustains a skull fracture with internal bleeding, then he or she is taken to the operating room immediately. A skin incision is made in the area of the bone that is fractured and the brain is visualized. Bleeding is controlled, and any minimal blood clots are evacuated. Then the bone is replaced and secured, the fracture is repaired, the skin is closed, and the patient can return to the ICU.
There are some instances in trauma where the brain tissue is so damaged that there is significant brain swelling. In such conditions, the bone flap which is the portion of the bone that is removed and set aside in the operating room until the brain is addressed may need to be stored until the patient has recovered from the acute phase of insult.
What kinds of advances in neurosurgery have occurred over the past few years?
There have been many advances. We have better equipment and improved instruments to deal with neurological cases such as spinal and brain injuries. For example, we now use a navigation system that allows surgeons to navigate within the brain to a specific location. When a patient is taken to an MRI or CAT scan suite, special markers are placed on the scalp which transfers images to the data base in the operating room. The data is used to form a 3-D image, which allows for various views of the brain. During the operation, the images that are obtained are used to help a surgeon hone in on a lesion with more precision.
Also, significant advances in research, associated with both trauma and nontrauma neurosurgical issues, have been made. For example, the appropriate management and approach to stabilization of spinal fractures has transpired through many years of research.
How has the development of minimally invasive techniques aided neurosurgeons?
These days, the amount of skin tissue that is needed is quite small to perform the removal of herniated disks as well as performing spinal fusion. In the past, a neurosurgeon would normally need to make a long incision to be able to perform the operation. Now, with minimally invasive surgery, a very small incision is made, and through that small hole, the same operation can be performed.
How important is continual innovation in the field of neuroscience?
Without continued research and progressive innovation, we would not be able to see increased survival rates and increased improvement in functionality of patients. Ongoing research and advancement in both science and technology helps provide better patient care.
PEYMAN TABRIZI, M.D. is a neurosurgeon at Western Medical Santa Ana. Reach him at (714) 834-0439 or firstname.lastname@example.org.
Bob Deuster, chairman and CEO of Newport Corp., more than doubled the size of the company in one of those single swings, but he is quick to point out that a successful acquisition isn’t a just a matter of signing contracts and cutting checks.
“If you think it’s just a deal, and just buying a company without all of the other pieces being thought through, it’s a 50-50 chance,” says Deuster.
Newport’s 2004 acquisition of a complementary laser products company took its annual revenue from $118 million in fiscal 2003 to $404 million in 2005.
Founded in 1969, Newport developed as a company that provides the enabling technology, optics, motion controls technology and optical tables that are combined with the light sources produced by other companies that are used in laser devices.
Two principal trends the introduction of laser technology in defense systems and the use of fiber optics and laser technology to speed communications helped boost laser applications from the research lab to more broad commercial markets.
Those changes made it clear to Newport that there were lucrative opportunities for companies that could take advantage of the expanding demand for laser devices in the commercial marketplace. And that potential was the impetus for Newport to grow into not just a bigger company but into an integrated solutions provider, the first in the laser industry.
“I came into the company in the mid-’90s, when our company was still primarily focused on research, and our board of directors saw this trend and said we need to turn this company into one that can serve the industrial markets as well,” says Deuster.
The company was well-positioned to provide solutions into various markets, relying on other manufacturers to continue to provide the light source itself.
“So we developed our business model around this integrated solution strategy in the mid-’90s ... not really caring whose light source was used, but we incorporated all of our technology into the solution,” says Deuster. “But as we tracked into the early 2000 timeframe, we saw that we were going to be inhibited in our growth unless we actually had light technology to supply along with it. So we got interested in looking at what laser manufacturers were out there so that we could augment our company through acquisition or partnership so that we could build a strategy, a platform for growth for the next 10 or 20 years.”
Identifying a target
The solution came in the form of Spectra-Physics, a company whose forte was the development of the light sources used in laser instruments, the complementary technology piece to the equipment manufactured by Newport.
“We looked at Spectra-Physics as a prime target for us because they were a company that provided state-of-the-art laser technology, they covered most of the same markets that we did ... plus, they have a lot of factors that were important to us, such as a similar heritage, legacy and brand,” says Deuster. “Their culture was not too different from ours in terms of how it grew over the last 40 years, so we saw that as an important catalyst for building an integrated company going forward.”
Deuster initiated the acquisition talks with Spectra-Physics with a tightly drawn group of executives from both companies to flesh out what the company might look like after the two combined.
“Part of the success was we kept the negotiations at a very small group level, just the senior management level,” says Deuster. “It started in the discussion phase early on, meeting with Spectra-Physics’ management team, having an understanding of how organizations might be shaped, what the growth objectives might be, assuring that we were executing clearly.”
Once a deal was in hand, Deuster and his team hit the ground running the following day to communicate the news to the entire organization.
“We went on the road to share with everybody in the company this vision of a company that had an integrated solution as its strategy, and we did that by myself personally as well as my staff touching the organization, but also having Spectra-Physics people talking to Newport people, so there was an understanding of what the organizational impacts would be,” says Deuster.
A video of Deuster explaining the rationale for the deal was broadcast to everyone in both companies the day after the announcement. He and his senior managers followed up with face-to-face meetings at several major company sites around the world and had several follow-up meetings leading up to the closing.
Deuster structured the transition to a single company so that both sides had a hand and a stake in the outcome.
“My strategy was to effectively balance the management team on both sides,” says Deuster. “This wasn’t viewed as a Newport takeover of Spectra-Physics. We put the best talent we could in jobs and in some cases, those individuals had to change roles, so we had a balanced management team from a Spectra-Physics and a Newport point of view.
Deuster changed his own role in the corporation, moving away from the day-to-day, hands-on operation to a more strategic role in the much larger company. Deuster says he created a chief operating officer position within the company to drive operational excellence and keep the company focused on its goals and objectives.
“I tend to focus on the bigger picture, the longer-range objectives, involvement at the business development level side, acquisitions side and with key customers,” says Deuster.
One of the obstacles to mergers in the laser products industry has been the specialized nature of the technology and the relatively narrow body of expertise that individual companies tend to possess, making it difficult to bridge the gap between the two to produce an entity that can create synergy with two different competencies.
“We had to bring two companies together that had distinctly different product lines, and we had to combine our sales teams so that they appeared as what we call one voice or one face to the customer,” says Deuster.
Rather than create a sales force in which each member was versed in all aspects of the technology, Deuster leveraged the expertise of each organization’s sales reps in a team concept.
“There’s no question that our Newport sales force was very much oriented toward the optics, motion controls and vibration isolation products, and the Spectra-Physics team’s was light source,” says Deuster. “We knew right up front that we didn’t want super salesmen who had all the knowledge that they could explain to the customer any time of the day.”
Newport teamed up, either regionally or by top-tier accounts, Newport product specialists with Spectra-Physics reps. Goals for the teams were consolidated so that everyone shared responsibility for success, making each dependent on the other, says Deuster.
“We introduced a selling strategy I call hybrid selling that created integrated solutions for customers. Where you normally had a sales team that would sell lasers and then the Newport team would sell the other products, we now have account teams that will go in and sell the customer a complete light system. And that we did mainly because there’s a lot of value captured in the total solution.
“We take responsibility for the customer for the performance of that solution. We gave our sales teams a much stronger competitive advantage in selling that way than we did before.”
Creating the hybrid selling model required a lot of cross-training to build awareness on both sides of how laser products sales transpired and how the sales of the follow-on optics and motion control occurred. Deuster points out that each side of the sales team was able to share leads very quickly and get earlier indications that there would be a larger sale available because the Newport people were involved at the very first stage of a laser inquiry.
“Within six months after the deal was announced and done, we had sales teams that were account selling into all the target markets we had identified,” says Deuster. “I think that’s one of the key success factors.”
The role of technology
While much of the emphasis when it comes to combining companies is placed on the people factor, Deuster heavily emphasizes technology as a means to glue two entities together.
“We’ve moved off those days of only talking about integration and starting on our growth track two years ago to even more tightly couple the company, not through just people and management, but we’re changing our information system within Newport that literally breaks down all the walls between the divisions,” says Deuster.
The heart of it is a new material resource planning system that integrates the companies’ systems into a single global information system that can facilitate design and manufacturing functions in any of Newport’s locations worldwide. That gives the company the capability of planning and launching production of its products in any of its plants for customers in those locations. It also provides that sales team with better information on market dynamics and customer needs.
“Systems can help amplify the pace at which companies become more tightly coupled, and we believe that communications is everything if you’re going to operate on a global scale,” says Deuster. “So it’s more than people; it’s building your business around information technology.”
While integrating two companies can be a complex process, Deuster warns that letting the process drag on can impede progress and limit its success.
“I believe very much in speed of execution once you decide what you’re going to do, because what it does is it tends to get everyone focused on the end goal, as opposed to what they’ve got to give up along the way to get there,” Deuster says. “Usually, that’s the hardest part of a change process: ‘What am I giving up as opposed to what am I getting?’”
That’s why Deuster created a COO position that went online the day the deal was closed. The COO and the CFO led a team to focus on the main deliverables that were the most important integration factors, including cost reductions, organizational change and realization of synergies that would be necessary to make the deal work optimally.
“It’s easy to buy companies,” says Deuster. “It’s very hard to make them productive very quickly. One of the things that we believe in here is you need to envision how the business is going to operate after the deal, and you need to let the management team know what to expect. Eliminate the uncertainty.
Whether they like it isn’t the point. The point is there has to be this clarity of where we’re going and how fast we need to get there.”
How to reach: Newport Corp., www.newport.com
According to Jay Freedman, a partner with the law firm of Newmeyer & Dillion, there are several ways business owners can protect themselves. Common options include general liability insurance, performance or surety bonds and indemnity agreements. Freedman says the key is to know which one is right for the particular business and situation. He also warns that many people sign indemnity agreements (which relieve one party of fault) without realizing it.
Smart Business spoke with Freedman about the importance of paying attention to details and how business owners and other parties can avoid facing costly risks.
What is risk transfer, and what are the general methods a business can use to transfer risk?
Risk transfer is simply a business taking whatever risk it may potentially face, such as a loss of profits caused by an equipment failure, and trying to transfer that risk to someone else. The most common options are first-party and third-party insurance, and there are indemnity agreements and defense agreements.
How does an indemnity/defense agreement work?
Indemnity agreements require one party to bear a risk that might normally be born by another party. A typical situation could be if you’re a commercial landlord and someone slips and falls on your property. As the owner, you can require the tenant to indemnify you for those accidents as a part of the lease.
They are fairly common in many instances and for various businesses, and they can be in the fine print or in the boilerplate on the back side of a standard purchase order. Business owners have to be aware that they exist and read documents carefully before signing and agreeing to them. Like anything else, the devil’s in the details.
There are also defense provisions, which mean not only would someone be required to indemnify another party, but they could be required to cover the cost of the defense as well if a lawsuit is filed. The indemnity obligation is typically after the fact, and is usually a reimbursement. The party that is entitled to indemnity seeks reimbursement for money already paid out. On the other hand, the defense provision is typically prospective. It acts from the beginning of the dispute, and if properly worded in the agreement, can require an immediate defense. So, the party entitled to the defense isn’t out-of-pocket at all.
What are the different types of indemnity agreements?
In California, there have been three types of indemnity agreements. Under a Type 1 agreement, our hypothetical commercial landlord, for example, could take part in whatever causes harm to a tenant or customer and can still receive indemnity. The landlord, although negligent, can still transfer risks.
Under a Type 2 agreement, the party seeking indemnity can be passively negligent. The landlord could fail to notice something which later causes harm and still receive indemnity.
Under a Type 3 agreement, if the landlord is negligent at all, actively or passively, the landlord is not entitled to any indemnity.
What are some factors courts will consider in these types of disputes?
The courts want to determine both parties’ intent at the time that the contract was signed. The Type 1, Type 2 and Type 3 classifications are generic terms used by the courts to label the indemnity provisions after they’ve determined the parties’ intent. The courts will look at the language of the agreement, the respective bargaining strengths of the parties, their business sophistication and whether or not the particular interpretation, such as a Type 1 versus a Type 3, was commercially reasonable when the contract was signed.
Nonetheless, California has a strong policy of holding people responsible for contracts they enter into, even if they haven’t read a particular provision. So if a business owner enters into an indemnity agreement without necessarily realizing it, he or she could be bound.
How can business owners protect themselves from facing risks?
First, they have to look at what their risks are. Different businesses have distinctive risks at all levels. They have to look at all the possible ways they can be affected by issues in and out of their control. Second, they should sit down and determine if they can transfer those risks to another party. Finally, they need to make sure that the contracts they’re signing have the right indemnity language to meet the business owner’s goals.
JAY FREEDMAN is a partner in the Newport Beach office of Newmeyer & Dillion and concentrates on complex construction and business litigation. Reach him at email@example.com or (949) 854-7000.
The ultimate goal, says Kevin Teeters, vice president of marketing for Mpower Communications in Pittsford, N.Y., is to achieve a seamless transition that allows the company and its employees to continue performing day-to-day business operations without experiencing a single hiccup. Crucial to that is selecting the right network provider for the job, which means doing a lot of homework and research.
Smart Business spoke with Talbot about what a company needs to do to avoid common pitfalls when upgrading technology systems and how to pick the right provider to offer the right solutions.
Why do business owners need to be aware of the disruptions that can occur when integrating technology upgrades or transferring systems to a new facility?
Any time there is potential to disrupt operations, there is also potential to lose customer contact. So whenever you upgrade or add technology, or move from your current technology, you need to work hand-in-hand with your network provider.
It’s important for a business to integrate its service or technical people with its provider’s service technicians to ensure a seamless transition to the new or upgraded services. For example, a business could have 24/7 operations and do a lot of international business as well so that most of their network use comes between 11 p.m. and 4 a.m. That kind of business probably should be working with a provider who can customize a system that will minimize the interruption of services at peak flow times.
Also, when you look at upgrades, make sure you look future-forward and implement technology that will allow you to future-proof your communications. If you look at Voice-over-Internet Protocol (VoIP) solutions, for instance, customers should look at it not as a product but a solution that could provide cost reductions, not to mention enhanced services, integration of data and voice systems, a stable platform and more productivity.
What are some strategies a company can use to ensure a smooth integration of new technology systems?
Look at the support structure that will be provided by the telecommunications provider to make sure there is training available for new technology and services. Also, make sure your provider has demonstrated fiscal stability and longevity. To do this, check out their standing with the Better Business Bureau and ask for references from other customers. Ask those customers about the provider’s reliability and support response times. Also, study the provider’s service agreements and other contracts, and make sure all commitments are in writing.
What can a company that’s moving locations do to ensure the same such smooth integration of new technology systems?
Make sure communications are top-notch, and that the provider has offered and communicated a detailed timeline for the network upgrade or the initialization of new services. Also, make sure your team has a high comfort level and that your provider understands their needs and listens and responds to them adequately. Make sure there is a tightly delineated schedule of events, multiple people available for contact, and a clear escalation list if there are any concerns or problems.
Where do companies tend to go wrong in this regard? What challenges do they face?
The biggest mistake that companies make is letting providers give them a generic, predetermined product and not pushing them to go back and understand their specific challenges and come back with a customized business solution that’s tailored to their needs. Regional Bell Operating Companies (RBOCs) are so large that they can’t scale a customer’s solution quick enough, so they’re more inclined to simply provide such a precut, predetermined product. A smaller, more nimble company would be a better bet to provide that kind of customized solution.
The challenge is finding time to fully research the best solution and find a provider willing to understand your company’s needs and be a consultative solution.
What final advice would you give a company on the brink of upgrading its technology or moving to a new office?
Start thinking outside the box and research what’s been done before. Don’t replicate what you had in the old location, but consider things you haven’t considered before like Virtual Private Networks (VPNs) that now allow businesses to connect securely at their location or from somewhere else remotely via intranet or extranet. Start looking at the cost-benefit analysis of VPNs, VoIP and other new technologies that can help you out.
KEVIN TEETERS is vice president of marketing for Mpower Communications in Pittsford, N.Y. Reach him at (714) 453-6705.
Education: MBA, University of Oregon; bachelor of science degree, Oregon State University
First job after business school: Financial analyst with Ford Motor Co.
First job ever: Loading dock of ice packing plant
Whom do you admire most in business and why?
Gordon Moore (Intel’s chairman emeritus) inventiveness, technological contributions to society. Richard Branson (head of The Virgin Group) entrepreneurial, positive approach to life’s challenges. John Templeton (financial guru who created the mutual funds bearing his name) thoughtful, modest, insightful. Michael Dell (founder of Dell Computers) successfully evolved an existing industry
What is the most important business lesson you’ve learned?
I need to take more risks in the pursuit of change. Companies need to continually reinvent themselves
What has been your toughest business challenge?
Adjusting to the very unusual national environment created by the combination of open borders, hurricanes and regulatory changes.
Describe your leadership style.
Strategic pursuit of being in the right business. Operationally, I prefer decentralized organizations that seek to empower people.
In many businesses, telecommunications expenses such as telephone long-distance minutes, local charges, Internet connectivity, wireless and messaging -- among the top five indirect expenses --show no sign of a downturn.
Finding the right local solution provider/partner with relevant experience with a company's day-to-day type operations is the key to maximizing that potential.
Smart Business talked with Kevin Teeters of Mpower Telecommunications to find out how the right business/telecommunications provider can improve competitive position.
When should businesses start looking for upgrades in telecommunications systems?
When they want to balance cost with benefits. Most small businesses are not in a position to attach every bell and whistle to their hardware, software, communication systems and services. The right provider will carefully balance a business's costs with its benefits and provide managed solutions that are less expensive to small businesses.
Rather than pushing the most expensive products and services, a trustworthy solutions provider will only suggest options that make solid fiscal sense.
Why is it important to find the right telecommunications solutions partner?
Telecommunications providers understand the technology and how it translates into helping businesses. The right partner will educate the business and cut through the jargon to provide relevant, concise information about the technology and how it translates to its bottom line.
Today, smart businesses look constantly for new ideas and communication solutions that improve productivity and business processes while staying cognizant of the capital and support costs, and competing with international companies.
Newer services such as business text messaging, integrated messaging (fax, voicemail and e-mail in the same desktop inbox) and wireless telecommunications often provide a competitive edge in industries where efficiency and customer service are paramount.
How can businesses take advantage of new telecommunications products and services?
Rather than attempting to navigate this ever-shifting landscape on their own, they should partner with an expert who is fully versed in the products and services available, and who can help integrate these systems to help them maximize the potential of technology.
What benefits do business owners derive from comparing providers and telecommunications systems available?
Businesses that review their return on investment when making choices benefit by solving problems that drive costs. The lowest price may not always be the best choice.
Providers that develop next-generation communication services by leveraging new technology and focusing on solving customer communication problems can provide solutions that improve productivity and give businesses the competitive advantage they need in their industry.
How do businesses find the right solution provider partner?
They should look for five crucial characteristics in a provider.
1. Good listener: No matter how much knowledge providers have, they can't identify unique solutions for individual businesses unless they're willing to listen. The right adviser will probe for important information about current assets, issues and challenges, and will ask about the growth and direction of the company.
2. Financial stability and longevity: Solution providers come and go. Those that have built a history and thrived in recent years have earned their good reputations. Check their status with the Better Business Bureau. And research public records to find out how often they have been to court. Finally, don't be shy about asking a firm to provide some proof of its current financial stability.
3. References: Ask for references. Don't settle for just one -- ask for several.
4. Reliability: Do they stand behind their services? Carefully review service-level agreements and other contracts to be sure they are fair to all sides. Explore what's to be included, such as solution performance, uptimes, support response times and more. Make sure all commitments are in writing.
5. A well-oiled machine: Ask for the details of the company's standard operating procedures and project methodologies. Demand to meet with the highest-level executive available. Face-to-face relationships with the CEO, CFO, CIO and others always help management make decisions and solve problems.
Also, ask to meet with every technical person involved with the account, from project coordinators to engineers. Make sure they are the kind of folks you want to be working with side-by-side in the future.
KEVIN TEETERS is the vice president for marketing for Mpower Telecommunications. Reach him at firstname.lastname@example.org.
To help minimize their risk, insurance companies that write coverage for these perils in high-risk areas rely on purchasing reinsurance from a small and dwindling group of carriers.
According to Michael Perry, vice president at DLD Insurance, as fewer insurance and reinsurance companies provide catastrophic property insurance, premiums have skyrocketed, especially in high-risk areas.
“With the recent increase of major storms and other catastrophic events, it’s become more difficult for insurance companies to predict the risks, and many companies are simply afraid to write the policies,” he says. “And with fewer insurance and reinsurance companies writing policies, it comes down to basic supply and demand, which leads to higher premiums.”
Smart Business spoke with Perry about the reasons property insurance rates have skyrocketed and steps businesses can take to keep their rates under control.
Why have catastrophic property insurance rates skyrocketed?
We’ve seen a significant decrease in the number of insurance companies and reinsurance companies that offer catastrophic property insurance, resulting in an imbalance between supply and demand. The main reason this has occurred is the large number of named storms that have hit the East and Gulf coasts in recent years and forecasts that this trend will continue.
Mainly as a result of Hurricane Katrina last year, many of the reinsurance carriers providing financial backing to the commercial property insurance companies had to pay well over twice what they had predicted for the year. This increase in claims payments by the reinsurers has forced the reinsurance market to decrease the amount they can write going forward so they can stay in line with their surplus to exposure ratios required by the various insurance rating agencies.
There’s also a growing concern about the potential for a large earthquake on the West Coast due to the lack of earthquake activity since the Northridge Quake in 1994.
And lastly, we’re seeing a higher concentration of property values, including more expensive homes, greater population and large valued energy related assets, in the affected areas.
For all of these reasons, many insurance companies are passing the risk on to the insured by way of decreased capacity and increased pricing.
Who is most affected by these rising rates?
While catastrophic property insurance rates are increasing across the board, businesses on the coasts are especially feeling the sting. In particular, large property owners and manufacturers with distribution centers located in the West Coast, due to earthquake exposure, and the East and Gulf coast areas, due to hurricane and windstorm exposure, are being affected.
How can businesses keep their rates manageable?
Businesses should work with their broker to get into the marketplace sooner rather than later and they shouldn’t wait until just before their renewal date. Also, businesses can sometimes get a break on their premiums if they can show that they have disaster plans in place. Demonstrating the ability to move products out of the path of a hurricane, protect property in a major storm or ensure that buildings have been retrofitted to survive a hurricane or earthquake can do this.
Businesses should also take a close look at how their insurance policy is structured. If they are willing to take on more of a financial risk by increasing their deductibles or self-insuring certain locations, they can potentially see premium savings. Businesses may also want to look to alternative property programs for covering inventory against catastrophic perils.
How can businesses obtain the most competitive rates?
It’s important that they work closely with their broker to determine a marketing strategy and ensure their broker is going to all available markets when researching carriers. Where a business may have used three carriers to cover their risks, due to the decrease in capacity of each carrier, five, six or seven may be needed to obtain the appropriate coverage for total insurable values. Working with a broker that knows how to fully utilize the marketplace is key.
How have rates for other types of insurance fared?
Non-catastrophe property insurance rates are increasing slightly while casualty insurance, which includes general and auto liability, is in the midst of a market cycle that has resulted in slight decreases in the cost of premiums the past few years. However, this may soon change as we expect to see slight increases in casualty premiums in the coming years.
Thanks to California reform measures introduced a few years ago, Worker’s compensation is seeing drastic reductions in premiums. In the directors & officers line, while premiums have continued to decrease, the rate of decline has flattened over the past year or so.
MICHAEL PERRY is a vice president at DLD Insurance. Reach him at email@example.com or (949) 553-5686.
After the mid-market technology solutions provider acquired Redrock Communications and Integrated Technologies Inc. in 2004, CEO Casper Zublin Jr. built the company’s success on a solid foundation of communication with employees and clients.
“Most of leadership’s job here at DynTek is to ask a lot of questions and be quick to listen and slow to speak,” says Zublin. “People, I think, are a little tired of inauthentic leaders, so we’re trying to create an environment of leadership that is both transparent and authentic. It leads to having some faith and trust in the leadership of the firm.”
DynTek’s revenue has grown from $49 million in 2004 to $76 million at the end of its 2005 fiscal year last June.
Smart Business spoke with Zublin about how he uses internal and external communication to keep DynTek on a path of success.
How do you show your employees that you and the other members of the leadership team are transparent and authentic?
All leaders at DynTek publish monthly an accountability report detailing what will get done in the next month and how we fared this past month. Honest, direct and straight communication is key.
Additionally, we are starting something called the DynTek Scorecard. Essentially, during our quarterly conference calls, we announce to the team what we define as our key metrics for the upcoming quarter. We then report back to the team on how we fared. We really believe in being an open and honest management team business may not always be rosy, and we think people would rather hear about truth rather than spin.
How do you communicate your culture to your employees?
We’re actually going through a bit of a cultural reinvention at the moment. We want to create more of a bottom-up corporate culture, so we are reaching out to our employees through a series of conference calls, webinars and in-person town hall forums.
[We handed] out an employee questionnaire. How would you rate our sales, technical and corporate services? How would you rate DynTek’s future outlook? What internally drives you? What are our distinct advantages in the marketplace?
With the answers to that employee questionnaire, we provide the summary answers at the town hall meetings as kind of a baseline of information of how we’re doing. We want to actively listen to what our associates have to say about our culture, how they view it, and then tell them what we heard. From that baseline, we think our work is to shape the culture we have today into an ideal that everyone can believe in.
How do you also listen to your customers?
Customer surveys, customer advisory board and then me personally being out talking to our customers on a regular basis. (The board) is really like a long lunch with three or four of our key customers.
The advisory board advises me on what they’re seeing in our market from their perspective. You get very open and honest feedback, and because there’s multiple CIOs around that table [you also get] them kind of confirming each other’s thoughts. That’s just extremely valuable feedback to listen to multiple CIOs saying, ‘Yeah, the world’s heading in that direction. And we’d sure like you guys to head in that direction.’
When you’re in the services industry, everyone is focused on customer service. One of the things is you have to be asking your customers, ‘How are we doing for you?’ I think part of our corporate culture is creating that willingness to ask the customer how we’re doing on a consistent basis and then listening very carefully to what they have to say and adapt.
Being in the services industry is largely about adapting to the customer requirement on an ongoing basis.
What is the concept behind your ‘technology, process, people’s philosophy?
If I asked you what’s your experience been with technology, has it been just as wonderful as promised? Probably not. It’s not just about technology.
Let’s add another leg to that. Let’s say we get the technology right, but we also get the process for procuring it, for installing it, for supporting it right. Does that make your experience a little better?
Then, what about now you, throw in the people aspect of people actually caring about your experience with the technology? Does that kind of round that whole triangle out?
It seems like it’s a three-legged stool. You can’t just be saying it’s about the technology without also talking about the process and the people that are part of that. It takes all three to have a successful and meaningful impact of an implementation of technology for any kind of organization.
At the end of the day, we really are staking our reputation on helping our clients build their reputation. So many of our clients are not only the executives of mid-market companies but really the IT professionals within those mid-market companies. If we can’t go in and fundamentally make them look like heroes, then we’re not doing our jobs.
HOW TO REACH: DynTek Inc., www.dyntek.com
The Export-Import Bank’s Working Capital Guarantee Program provides a number of financing options designed to meet the needs of U.S. exporters. The program guarantees 90 percent of the principal and interest on loans extended by commercial lenders, and the loan amount may be used for a variety of purposes related to exporting goods.
Pete Knudson, senior vice president at Comerica Bank one of the lenders that offers this program says that obtaining financing for exports can be a dicey proposition.
“Most banks and financial institutions do not typically accept foreign accounts receivable as collateral, nor do they accept export orders as evidence of orders for goods to be purchased and/or manufactured or services to be provided,” he explains. “This really makes the Working Capital Program beneficial, particularly for small to mid-sized companies.”
Smart Business spoke with Knudson about how a new Fast Track program can be beneficial for companies in need of rapid funding, eligibility requirements for the program, and why the U.S. government is aiming to level the playing field in the competitive world of exports.
What is the Fast Track program, and how can a business secure this type of funding?
The Fast Track program was introduced at the end of last year. We are one of only eight lenders in the United States six are commercial banks and the other two are finance companies that offer this service. It provides a quick and easy process for credit facilities in excess of $10 million and up to $25 million. The company must have a domestic credit facility with the financing institution of at least $5 million and a positive tangible net worth. If there is a personal ownership level of at least 20 percent, then that personal ownership must be supported by a personal guarantee.
Who is eligible for the program?
Eligibility is specifically for companies that are located in the U.S. It can be a foreign company, but the location must be in the U.S. It must have a one-year operating history, and must have a positive net worth. Financial statements are required. The U.S. government provides us with a 90 percent guarantee, so we need to examine the creditworthiness of the companies.
It depends on the size of the transaction and the size of the company as to whether the statements are prepared by the company or a CPA.
What are some common reasons for claim denials?
The most common reason for claim denials would be missing a claim filing deadline. Other reasons include changing material terms with the exporter without the Export-Import Bank’s approval, non-notification of any events of default, and no collateral security filings. Another critical one would be nonpayment of the Ex-Im fees.
Once the financing has been approved, what can the funds be used for?
The funds are used to purchase finished product for export. They can be used for payment of raw materials, equipment, supplies, labor and overhead used to produce goods and/or provide services for the export. They can cover standby letters of credit that serve as bid bonds, performance bonds or any type of payment guarantee. Also, they can be used to finance foreign receivables.
What are some advantages of the Export-Import Bank’s guarantee program over other types of credit programs?
Typically, it is done with a fee structure that gives it an advantage over private commercial insurance programs. Also, it is a guarantee which is quite a bit different than insurance. Insurance tends to provide support against named perils, whereas a guarantee from the U.S. government covers all events and not just named perils.
How important is this program for American exporters to be able to compete globally?
Much of the eligible collateral would not be acceptable to a lending institution. Therefore, having the U.S. government provide a 90 percent guarantee can either make or break the financing requirement for the individual exporting company.
Many foreign competitors are also provided support by their individual governments, whether they are in the U.K., France, Germany or Japan. These countries all have institutions that provide governmental support to their exporters.
This program is an attempt by the U.S. government to level the playing field and allow our companies to compete with companies that are located in other countries.
PETE KNUDSON is senior vice president at Comerica Bank. Reach him at (310) 297-2849 or firstname.lastname@example.org.