Amy Borghese

Thursday, 26 March 2009 20:00

The new FDIC

In today’s changing financial environment, it is very important that business owners know how Federal Deposit Insurance Corporation (FDIC) insurance works, particularly in light of two recent changes.

“The changes made to FDIC coverage are important, as they provide stability to the U.S. banking system,” says Wendy Bolas, a business banking manager with FirstMerit Bank. “Today, customers are concerned with capital preservation and maintaining uninterrupted access to their working capital.”

Smart Business spoke with Bolas about the changes in FDIC insurance, how they work to protect customers and common misconceptions about FDIC coverage.

What are the changes in FDIC coverage?

The first change is increased coverage, per person, per account. The coverage increased from the $100,000 to $250,000 for money held within an FDIC insured institution. Customers should understand they are not necessary limited to $250,000 in coverage. For personal accounts, the coverage can be multiplied by different ownership categories. For example, an individual can be insured on a single account as well as a joint account as well as selected trust ownership categories. Dividing your funds into different accounts is a great way to increase coverage for you and your family.

The second change is more important to businesses and corporations. This change is referred to as the Temporary Liquidity Guarantee Program (TLGP) and it provides full coverage for non-interest bearing transaction accounts regardless of the dollar amount. That means that business and corporate checking accounts are insured separately from business savings, money markets and CDs.

Under the previous law, if a business owner had $100,000 in a money market and $300,000 in their checking account, their total coverage would have been capped out at $250,000, but with the new rule the money market is insured up to $250,000 and the checking account is completely insured.

Why were such changes put in place?

In the weeks leading up to these changes, there was a great deal of concern regarding the stability of financial institutions. Many customers were moving money around to different financial institutions to ensure they were receiving as much coverage as possible. Increasing the insurance cap from $100,000 to $250,000 dramatically reduced the need to move money to multiple institutions.

The purpose of the TLGP change was to ensure that businesses could be sure that funds for vendor payments, payroll, etc., were guaranteed to be available. This program increased confidence in the payment systems between financial institutions, thus increasing stability.

Are these changes permanent?

The changes mentioned are in effect until December 31, 2009. At that time, the government will evaluate the state of financial institutions and customers’ trust in such institutions to determine if these changes should be extended or changed.

This time limit was put in place due to a concern about the effect these changes would have on the overall reserves of the insurance fund. By placing a time limit on these changes, the FDIC has allowed for the opportunity to reevaluate and make changes if necessary at the end of 2009. Many reports have stated that the chairman of the FDIC believes that the $250,000 limit will remain in place moving forward for consumers. The need to extend the TLGP will depend on the perception of the strength of financial institutions at year end.

How are banking consumers affected?

Customers who are aware of these changes can consult with their bankers to maximize their FDIC insurance coverage or earnings potential depending on their individual situations. In the case of business owners, the best way to maximize insurance coverage is to increase the percentage of deposits into their checking account as these deposits are completely covered under the TLGP.

Are there drawbacks to these new policies?

Yes, these changes have increased the amount of potential claims against the FDIC insurance fund which has resulted in an increase in insurance premiums for member banks. As for- profit businesses, all banks will be looking to reduce other expenses, pass the costs along to their customers, or some combination of both. Customers may see a direct charge that is identified as an FDIC fee, an increase in general fees to offset costs or financial institutions lowering interest paid to offset the FDIC premium.

Are there any misconceptions consumers currently have about FDIC policies?

How customers can increase or maximize coverage based on different ownership categories is confusing. It is important to have conversations with trusted financial advisers to ensure you are receiving the appropriate coverage for your individual situation. It is important that you think about insurance coverage within the context of the overall goals of your business. Your financial institution should offer a complete product set that will fit the needs of your business and your financial institution should have a strong balance sheet, available capital, and a track record of solid financial performance.

WENDY BOLAS is a business banking manager with FirstMerit Bank. Reach her at (330) 996-8061 or Wendy.Bolas@firstmerit.com.

Monday, 23 February 2009 19:00

Having care close at hand

As costs for business owners continue to rise, owners are welcoming new ideas and ways to reduce costs without affecting their company or employees. American employers faced with the rising cost of insuring their employees are turning to on-site clinics integrated with wellness to improve employee health, boost employee productivity and reduce their costs, says Sally Stephens, president of Spectrum Health Systems.

According to David Beech, a senior health management consultant at Hewitt Associates Inc., “A clinic serving about 1,000 employees (usually considered a minimum number for critical mass) can expect to make hard-dollar savings of $70,000 in the first year, mainly because of fewer visits to the ER and self-referrals to outside specialists. These savings can rise to $250,000 annually by the third year, when preventive savings kick in.”

Smart Business spoke with Stephens about on-site clinics and how implementing such clinics can benefit both employers and employees.

Is there a cost savings involved with on-site clinics?

According to a study published in the December 2005 issue of the American Journal of Preventive Medicine, employers can see a return of $3 to $6 for each dollar spent over two to five years on workplace health program strategies, which include medical screenings, financial perks for participation in health programs, health education classes, healthier food choices in the cafeteria and on-site clinics. Initially, such clinics are typically only opened to employees then later to spouses and dependents. Maximum savings will be generated when the entire family utilizes the clinic for health concerns that they might automatically seek through an outside provider.

What medical services do on-site clinics offer?

Employer-based clinics may offer a variety of services such as primary care, travel medicine, nutrition counseling, etc. Preventive services including health screenings and immunizations are the most common. Onsite clinics originally began by providing accident and injury care and have expanded into primary care, preventive services, disease and lifestyle education, distribution of pharmaceuticals, and some even provide diagnostic testing, such as X-rays. The level of services provided is dependent upon the needs of the client and capabilities of the clinic/wellness provider.

What are the benefits of on-site clinics?

Employers can reduce the number of visits employees make to more costly facilities, such as physicians’ offices and hospital emergency rooms. Having workplace access will also eliminate the need for the employee to miss an entire or partial day to an outside provider. Travel time is also eliminated. Wellness services can also help employees manage chronic health conditions and maintain better overall health, while reducing the amount of time they spend away from the job visiting off-site providers.

Is there ever any hesitation from employees to utilize such services?

Employees may hesitate to use the clinic if they question the confidentiality or are concerned that the employer will have access to their health information. Employees may also be reluctant to seek care from clinicians other than their own primary care physician. For those employees who might be questioning the value of the clinic, co-worker testimonials can often alleviate these concerns.

Today, most employers contract third-party providers to staff and manage the clinic. This can eliminate any issues regarding confidentiality on the part of the employees. Frequent communication regarding the benefits of the clinic can continue to increase the number of employees utilizing such services. Most employers allow employees to access the clinic at no or little cost, which serves as a powerful incentive.

How does the employee’s experience with a practitioner change with on-site clinics?

Employees who use the clinic frequently get in faster and spend more time talking to their practitioner. Practitioners then have the opportunity to explain the importance of preventive medicine. Because of the convenience of the on-site clinic, employees are more likely to seek care in a timely manner, avoiding delays that can exacerbate an illness or injury. The clinic saves the employee money when they avoid co-pays and deductibles that are standard requirements of almost all health plans.

Many clinics also offer generic or over the counter drugs at discounted or no cost. This can dramatically improve medication compliance and improve outcomes as well as save money for the employer and employee.

Should all companies consider implementing on-site clinics?

It is worth investigating for all companies. Often the determining factor is the size and demographics of the organization. Historically, employers with 1,000 employees or more are ideal candidates for on-site clinics. Due to the tremendous success of such clinics, smaller employers with several hundred lives are implementing or considering on-site clinics.

SALLY STEPHENS is president of Spectrum Health Systems. Reach her at Sally.Stephens@spectrumhs.com.

Monday, 26 January 2009 19:00

Know your risk

When a company sets up a 401(k) plan or pension plan for its employees, the focus is on the benefit that it is providing to its employees. Owners and executives are not always aware of the added liability that they incur. The Employee Retirement Income Security Act of 1974 (ERISA) formalized and increased the potential liabilities of fiduciaries, says Gloria Forbes, executive vice president with ECBM. It doesn’t stop there though as ERISA holds those individuals to the highest degree of care, creating a significant risk for many people.

Smart Business spoke with Forbes about such personal liability risks and what you can do to protect yourself and your future.

Who is exposed to this personal liability?

Any employee who is a trustee of the plan is liable to the plan participants along with the employer or owners of the firm. This is often a financial or human resources officer or director. But it doesn’t stop there. Fiduciaries include any individual who exercises any discretionary control in managing plans or has authority or responsibility for administering plans.

Many people are in tune with some of the risks because they are aware of the fidelity requirements of ERISA. They must show evidence of crime coverage for their IRS filings — their 5500 forms. ERISA includes a provision requiring uninsured plans to have an employee dishonesty policy of 10 percent of the plan assets. While important, the ‘ERISA bond,’ as it is often referred to, does not provide all the protection that is needed.

What other steps can employers take to protect their assets from personal liability risks?

ERISA precludes the use of corporate indemnification. However, a fiduciary liability policy can be purchased. These policies are not expensive and provide the protection that a company and its trustees need. A privately held firm can purchase it as part of a ‘package policy’ along with its directors’ and officers’ and employment practices coverages. This policy can also be sold as a stand-alone form. There are many insurance companies that provide the coverage.

Every firm that has any pension, 401(k) or similar savings plan should purchase a fiduciary policy. The limits purchased should be adjusted to the size of the plans covered. Defense costs are often part of the limit of liability purchased. Employees should make sure that employers have taken that into account with their coverage, as well.

What should fiduciaries do to make sure they have the correct protection?

Employees who have fiduciary responsibilities should question whether a fiduciary liability policy is in place. Fiduciary liability policies are not standard contracts like many of the insurance policies that are purchased. Make sure that the policy language is thoroughly reviewed and that available coverage extensions are included. For example, defense costs can be provided within the limit of liability or in addition to the limit. Since these lawsuits are often very costly to defend, much of the protection you need can be eaten away in defense. Every attempt should be made to have defense outside of the limit.

Are there any steps employers can take to help protect their employees’ investments?

The assets of employees in these plans are invested by the individuals according to their appetite for risk and their current age and retirement age. Because many of these investments involve the purchase of equities and bonds, there is risk involved. The best thing employers can do to help their employees is offer a program with a quality investment firm and provide many options.

Additionally, the employer should audit and require a full report of all compensation that the investment company and broker are charging for the management of the plans. These are often undetected layers of charges that can become quite significant, reducing employees’ earnings in their plan.

A diligent search of the marketplace for qualified providers with many options available to employees for investment reduces risk. Ask your investment firm to provide education or advice to employees about their investment options.

Should risk management plans be put in place for personal liability risk?

As with any risk management plan your goal is to eliminate and reduce the risks that you can, transfer risks in contracts where it is possible and insure the risks you cannot financially absorb. The risk reduction and elimination task is a little more complicated with ERISA liability than with other exposures like workers’ compensation.

Expect the Department of Labor and the IRS to increase their oversight of ERISA compliance. Regulations change frequently and can create new reporting requirements or liabilities of which a company may not be aware. Uncertainty is probably the greatest area of risk for any firm. An annual review with your insurance broker or legal counsel can keep you abreast of current issues.

There is increased focus on making sure that there is no evidence of conflict of interest. Placing your employees’ assets in these plans with a company bank, investment firm or other relationship for leverage can result in civil penalties, fines and liabilities.

GLORIA FORBES is executive vice president at ECBM. Reach her at GForbes@ecbm.com or (888) 313-3226.

Tuesday, 25 November 2008 19:00

On-the-job snacking

According to a 2007 Harris Interactive poll, 58 percent of employees in the U.S. said their companies were “very active” or “somewhat active” in offering employees information about exercise and healthy eating. However, 75 percent also said that the vending machines where they work mostly contain junk food, such as chips, cookies and candy bars.

When a company sends mixed messages like this to its employees, it greatly diminishes the chances the employees will actually follow a healthy eating regimen. The work-place must reinforce healthy eating by offering employees a wide variety of food choices.

“It’s not that a company needs to impose a regimen of healthy eating on its work force,” says Sandra Carpenter, MS, Med, LDN, RD, CDE, BC-ADM, CNSD, the weight management/nutrition program manager at UPMC Health Plan. “Any healthy eating program initiated at work should be voluntary, but employers also have to understand that what happens in the workplace can go a long way toward leading people toward making more healthy choices.”

Smart Business spoke with Carpenter about the importance of healthy eating.

Why is healthy eating a concern in the work-place?

According to a 2007 survey by Nationwide Better Health, 72 percent of employees eat an unhealthy snack (chips, candy, etc.) at work at least once a week, 27 percent eat an unhealthy snack three or more times a week, and 22 percent of workers ages 18 to 27 eat one more than five times a week.

Why should an employer be concerned about healthy eating in the workplace?

A 2008 survey by Kronos Optimal Health shows that 65 percent of all employees are either overweight or obese. Obesity has been estimated to cost U.S. companies about $13 billion each year. But, the U.S. Department of Health and Human Services contends that companies can save from $1.49 to $4.91 for every dollar spent on health promotion and disease management programs.

There are many positives that can result from encouraging your employees to eat healthy and adopt a more active lifestyle. These positives not only benefit the employees’ overall health but also help the employer’s bottom line because healthy employees cost employers much less. Healthy eating helps reduce the risk of heart disease, improves energy levels, reduces anxiety and stress, and leads to a higher self-esteem.

Historically, the workplace has been a place where unhealthy food options (primarily from vending machines) have dominated. When employees do not have healthy choices available to them, it is less likely that they will follow healthy eating and snacking habits. By improving the offerings, you improve your employees’ chances of eating healthier at all times.

How can an employer determine what healthy foods to offer employees?

If you are not sure about whether a certain food is healthy, you should check the Nutrition Facts label to identify calories, fat content and sodium content in each serving. Most Americans need only 40 to 60 grams of fat each day and should avoid saturated fat and trans fats.

Employers should look for foods with specific labels. Foods labeled as ‘low sodium’ contain no more than 140 milligrams (mg) of sodium per serving. Most Americans eat far more than the 2,300 mg sodium limit recommended by the 2005 U.S. Dietary Guidelines for Americans and The National High Blood Pressure Education Program. Most foods containing more than 400 mg of sodium per serving should be avoided. Foods with at least two grams of dietary fiber are considered good sources of fiber.

How do you recommend employees eat healthy snacks at work?

As an alternative to vending machine snacks, such as potato chips (303 calories, 19.6 fat grams), why not have healthier snacks available at your desk? Trail mix, nuts or seeds, dried fruit, high-fiber and low-fat crackers, low-calorie hot chocolate, or even some granola bars or breakfast cereals are fine. If you wish, you can bring in some perishable snacks, such as low-fat yogurt with fruit or low-fat cottage cheese with fruit.

Beverages are often overlooked when it comes to making healthy choices. Often employees reach for soft drinks that contain high amounts of caffeine and are high in calories. Herbal tea, diet soda, mineral water and flavored water are good choices. Juices may contain sugar but those that are 100 percent fruit juice are healthy.

How does one introduce healthier food choices to employees?

If your meetings require food, look to avoid serving less-than-healthy foods. For instance, instead of doughnuts or pastries, you could substitute whole-grain mini bagels or low-fat bran or fruit muffins. Offering diet drinks, water and small quantities of 100 percent fruit juice instead of regular soda is another healthy alternative.

Vending machines should also include healthy choices. Fresh or dried fruits are great options, along with low-calorie, low-fat healthy snacks, such as granola bars, 100 percent juices, pretzels, nuts, seeds, cereal boxes and yogurt.

SANDRA CARPENTER, MS, Med, LDN, RD, CDE, BC-ADM, CNSD, is the weight management/nutrition program manager at UPMC Health Plan. Reach her at (412) 454-7662 or carpentersk@upmc.edu.

Tuesday, 25 November 2008 19:00

Plan ahead

By all intents and purposes, 2009 may be the most challenging year for business owners since the Great Depression.

The changes that are underway in the financial service industry are historic and businesses have to learn how to grow as they face these challenges. The more reliant you are on a bank for capital, the more you need to be in contact with your banker.

A banker should ask you how he or she could assist you and your business in 2009. This will initiate thoughtful conversation about the goals and needs of the business in the upcoming year, says Nicholas Browning, president and CEO of FirstMerit Bank’s Akron region.

“Programs should be designed to increase efficiency, lower overall banking costs and grow capital,” says Browning.

Smart Business spoke with Browning about ways business owners should approach 2009 and how to utilize their banker in their approaches.

What should a banker be able to do for your business?

Each company’s needs are different and a banker’s services range greatly. Let your banker be an asset to your team.

Here are a few suggestions:

  • Brainstorm your 2009 business plan. Your banker can help you start a business plan and cover any unforeseen areas.

  • Play the devil’s advocate. Let your banker use other businesses’ mistakes to help you. Allowing your banker to identify gaps or holes will make your business plan stronger.

  • Find a means to your plan. If you have designed your business plan and identified your goals, allow the banker to introduce what banking programs or products will help you reach your goals.

  • Bring value to the business. Your banker should have a general understanding of your industry and be able to help you keep an eye on changes in your market.

What should a business owner look for in a banker?

Typically, business owners do business with individuals they know, like and trust. You can’t know your banker unless you visit with him or her often. Business plans will need to be adjusted throughout the year so a banker should be there to provide revised solutions and to introduce any new products that can enhance a business.

Business owners should identify what qualities or services are important to their needs and business. Certain qualities, such as bankers who can offer sound advice, banks with the newest products or banks with plans to help your business grow, may be necessary.

How do you recommend business owners approach their 2009 business plan?

Business owners need to always be thinking of ways to retain their current profit and grow it in the future. The SWOT approach encourages business owners to evaluate their strengths, weaknesses, opportunities and threats. Today, some business owners predict that their customers will request fewer orders in 2009. With this reduction in revenue, retention may be the biggest goal.

In 2009, business owners anticipate their customers may pay them slower. Because of the credit meltdown, lines of credit may be limited. It is helpful to determine how restrictions on consumers’ credit may affect your business and plan accordingly.

Are there any approaches to running a business you recommend business owners take in 2009?

Cut costs overall. This is the year to take the time to evaluate every line item. If you are spending money, it should add value to your company. If you spend a dollar, one should question if it was necessary to spend the dollar and, if deemed necessary, is there any way that cost can be reduced to 99 cents?

Business owners should take advantage of the products and services the bank offers to meet the needs of increased efficiency. Some services may cost you money initially, but they can save you in the long run. Products such as remote deposit capture allow you to deposit customer checks from your office. This means you are not wasting the time to visit the bank, the money it costs to get you to the bank and the loss of productivity.

In light of the financial insecurity in 2008, are there steps business owners can take to increase financial security in 2009?

There are four steps to take:

  • Have immediate access to your capital. It is important that business owners be vigilant of the soundness and security of their financial institution. You need to know that you can visit your bank at any point and access all of your capital. Ask your bank if it intends to provide you with the same access to credit and capital as it has in the past.

  • Diversify. Even if you are happy with your bank, it is a good idea to know other banks that may be able to handle the needs of your business should you ever need another option. Have a backup plan.

  • Research. Know the background and future outlook for your bank, vendors and customers. They all play a role in the future success of your business so you need to know how they can weather the storm.

  • Know more people at your bank than your banker. You should know your relationship manager, his or her boss and his or her boss’s boss. Thus, if your banker leaves, there is more than one person who has knowledge of your company and its needs.

NICHOLAS BROWNING is president and CEO of FirstMerit Bank’s Akron region. Reach him at nicholas.browning@firstmerit.com or (330) 384-7807.

Sunday, 26 October 2008 20:00

Game planning and strategy

If you were the owner of a sports franchise and you were looking to hire a coach, would you hire the first one that came along? Would you hire the one who asked for the lowest salary? How about a coach that didn’t have a playbook? An owner who is looking to get the most out of his franchise needs a coach who shares a similar philosophy, has a game plan to put in place, and a strategy to be competitive and successful. The same is true for business owners looking to hire people for professional services.

Surprisingly, in the business world, these obvious answers are often overlooked, particularly when it comes to insurance. Business owners are bombarded by choices in brokers, yet many fail to ask some fundamental questions in regards to experience, knowledge, planning and strategy, says Josh Farrow, a commercial insurance broker with Westland Insurance Brokers.

Smart Business spoke with Farrow about the significance of asking the right questions and how business owners should evaluate the answers when hiring a broker for their insurance needs.

Why is a broker’s experience overlooked by business owners during the hiring process?

Normally, its price. The success of a business is ultimately judged by its bottom line and cutting costs is the easiest way to increase profit. Too often business owners fall into the trap of thinking that insurance is a commodity, when it is in fact a service. They may select a broker and carrier that are less expensive, but risk hiring someone who is inferior to their other options. This can lead to unforeseen problems having the opposite effect of cutting costs.

Why is it crucial to hire a broker who has knowledge in your business’s field?

A broker with knowledge in a particular field will be able to handle his or her clients with greater efficiency and superior service. The broker will be able to cooperate with the business owner to help determine which coverages are needed and which are not, evaluate proper levels of coverage, and answer questions in regards to legal requirements that a business may have.

A broker with knowledge in a particular industry will also be at the forefront of industry changes and be able to pass that knowledge on to clients.

What is the risk then of hiring a broker with no knowledge of your business’s field?

Worst case, an owner who chooses a broker based on price over experience runs the risk of being insured by a carrier that ends up insolvent and unable to pay claims. Many carriers today are new to insurance and are not using sound underwriting principles to price their premiums. This means they will eventually become unprofitable and be forced out of business.

Worst-case scenario aside, there are still other risks. Inexperience leads some brokers to represent carriers that do not have the proper staff to service and manage claims, which can affect a business owner’s loss ratio and workers’ compensation experience modification. A broker may also not know certain coverages are or are not needed, potentially leaving a gap in coverage or wasted money for the client.

Should brokers have a strategy or risk management plan for the business before they are hired?

Without a doubt, yes. A broker should have a definitive risk management plan for a prospective business, and be able to cite examples of current work. An owner of a sports franchise would not hire a coach who did not have a playbook and strategy already in place, so neither should the owner of a business. A broker should be able to communicate a potential plan for the business and show how he or she will be an asset to the company and team.

Are there certain qualifications or qualities a broker should possess?

This may vary, but the broker and agency that he or she represents should both be licensed, and the agency should be large enough to maintain appointments with a comprehensive roster of insurance carriers.

This is a relationship business, and both the broker and business owner need to agree on what type of relationship they will have, which will, in turn, reveal which qualities are important. A business owner should look for a broker who has excellent communication skills and who is honest, punctual and accountable. This will ensure a professional and effective relationship between the broker and business owner. A broker should strive to be a part of the team.

How can a business owner check a broker’s experience and knowledge in the business’s field?

Ask for a resume, references and/or a list of current clients that particular broker has that are in a similar industry. A business owner should also ask the broker about his or her knowledge of that industry segment. It should not be expected that the broker would be as informed as the business owner, but the broker should have a good working knowledge of the industry in which he or she is specializing.

JOSH FARROW is a commercial insurance broker with Westland Insurance Brokers. Reach him at JFarrow@westlandib.com or (619) 584-6400.

Thursday, 25 September 2008 20:00

Westfield Insurance on property coverage

Many companies require the services

or goods of another company to

make their product or to run their business. As a business owner, your company may never experience a tragic loss or

damage, but what would happen to your

business if one of your suppliers experienced

such a loss? Do you have the proper insurance to cover your loss if your sole supplier

can no longer provide goods or service?

Business income provides for the business

what it cannot provide for itself. Dependent

property takes this coverage to the next level

to protect the business even if the loss happens to a third party on which it relies, says

William V. Reedy CIC, AU, The Learning

Group, Westfield Insurance. Business owners who understand the protection offered

with dependent property coverage and recognize their need are considered savvy insurance consumers and risk managers, he adds.

Smart Business spoke with Reedy about

the need for dependent property coverage,

how it can help protect your business and

how to evaluate your company’s risk to determine if such coverage is needed.

What is dependent property coverage?

Most businesses depend on other businesses to supply them with the raw materials or

finished products they will sell. Conversely,

supplier businesses rely on having other businesses that will buy their product. In both

cases, the business is dependent on another

entity to conduct its business. When a business cannot get the materials or product to

sell, it will experience indirect financial loss.

The fact that it is indirect does not lessen

the loss. Conventional business income

insurance reimburses a business for income

and expense after its own loss. Dependent

property coverage is used to protect a business when the loss takes place at a business

on which it relies.

Why is this type of coverage so important?

Dependent property coverage is extremely

important because the actual physical loss

(fire, wind, etc.) may happen to the business

you depend on and not your business. The

fact that this coverage responds on your

behalf relieves you of the financial loss you

would have had. These losses can be debilitating to a company.

Most business owners and insurance

agents readily identify buildings and business

personal property when they consider property exposures. Business income is sometimes overlooked in this process. Business

income coverage without the dependent

property endorsement will not respond to

the dependent property exposure. It requires

both business income along with the dependent property endorsement to make sure all

dependent exposures are addressed.

Who requires such coverage?

Any business that relies on another business is a candidate for dependent property

coverage. This coverage is especially important and most often provided when there is a

single or short list of key contributing or

recipient dependent property businesses.

For example, perhaps the insured business

makes wooden rocking chairs that are

known for their craftsmanship and quality. It

may only use one particular supplier of hickory that provides the best wood. Since the

chair company bases its reputation on quality, it is dependent on this particular wood

supplier. If the chair company added the

hickory supplier as a dependent property and

a fire occurs at the hickory supplier’s location

(rendering it unable to supply the insured

company with top-quality wood), it is considered a covered peril, since fire is a covered

peril under the policy.

The business income policy endorsed with

dependent property would pay the insured

company the amount it would have earned

until the wood supplier is back in business.

With dependent property coverage, the company is indemnified for the business it normally would have done, and it does not have

to resort to using inferior wood and potentially damaging its reputation for quality.

Are there different types of dependent properties?

There are four main categories of businesses that may require this coverage.

  • Recipients: businesses that rely on others

    for product 

  • Contributors: businesses that rely on others to whom they sell their product 
  • Manufacturing locations: businesses that

    sell a product on behalf of a manufacturer 

  • Leader locations: businesses that rely on

    other businesses to draw traffic to their location. An example would be a card shop located near a large retail chain store. The card

    store benefits from the traffic and would

    experience a downturn in revenue if the

    chain store were to close.

 

How can one determine risk of exposure?

If a business has a number of potential suppliers or available markets in which to sell its

product, then the need for dependent property coverage is not as great as if it depends

on a more limited and thus more important

few. The questions any business owner

should ask are: On what other businesses do

I depend? What would happen if they were

forced to shut down for a month, six months

or a year? Would I lose income as a result? If

the answer to these questions results in identifiable companies that would cause financial

loss if they were out of business, then one

may conclude that dependent property coverage is necessary.

WILLIAM V. REEDY, CIC, AU, is with The Learning Group, Westfield Insurance. Reach him at billreedy@westfieldgrp.com or (330) 887-0859.

Tuesday, 26 August 2008 20:00

International business insurance

In today’s global economy where the majority of U.S. companies are doing business internationally, many companies are exposing themselves to risks of which they are unaware. While almost all companies have adequate domestic insurance, many are not insured internationally. Many business owners might think that international insurance only applies to very large companies. They often overlook the fact that, due to the Internet, companies of all sizes are now operating globally and thus have the need for international insurance coverage, says Carol Corporales of Westland Insurance Brokers.

Often the biggest hurdle is recognizing the exposure, says Corporales, which is not always obvious. For example, companies who only sell domestically but send representatives traveling outside of the U.S. risk exposure for employees who are not covered by traditional insurance policies.

Smart Business spoke with Corporales about international insurance coverage and when it is needed to protect your business.

What is international insurance?

International insurance is designed specifically to address the risks and exposures that companies face when conducting business outside of the U.S. Insurance requirements, limits, coverages, legal liabilities, risks and exposures are different in each country. Currency valuations, language variations, local customs, and political and legal considerations can all create unknown exposures and pitfalls. A basic international insurance policy will cover foreign voluntary workers’ compensation, auto liability and general liability.

For the employer, international insurance can satisfy local government requirements of foreign countries and provide protection against basic and unique exposures by extending limits and broadening coverage. Often, coverage limits obtained in foreign countries are much lower than limits offered in the U.S., which can create a shortfall in coverage. It also can provide coverage for product liability suits filed outside of the U.S., which are not covered under traditional general liability policies.

While traveling internationally, employees may encounter unique exposures that create significant problems, such as endemic diseases, loss of passport, etc. For employees, a form of international insurance called foreign voluntary workers’ compensation provides medical and travel assistance and repatriation expenses that are not provided under U.S. workers’ compensation policies.

Are most businesses adequately covered?

Today, many companies simply do not recognize their exposures. Others may not know that the exposure is insurable. Still others may assume that their general liability policy covers everything.

U.S. policies are very specific with regards to coverage territory, terms and conditions. For example, workers’ compensation policies typically offer coverage on a ‘state specific’ basis and only cover employees while on the job, not after hours. General liability policies typically only offer coverage for claims and suits brought in the U.S.

Only recently has international insurance coverage become available from standard carriers. Previously, it was obtained from international brokers. Today, several of the major carriers offer international insurance coverage and can even provide locally admitted coverage for countries that require it.

What is ‘locally admitted’ coverage?

It refers to policies that are issued by insurance carriers that are licensed and authorized by foreign governments to provide coverage in the local country or jurisdiction. In some countries, only locally admitted insurance is allowed to respond to a claim. This coverage complies with local regulations and ensures that taxes and claims are paid and managed in-country. Locally admitted policies also allow U.S. companies the right to defend themselves in a foreign court system.

If not mandatory, locally admitted insurance is still worth considering for cost and tax reasons and to avoid gaps in coverage. International policies then provide differences in conditions (DIC) and differences in limits (DIL) coverage, bringing limits up to U.S. standards and broadening coverage to include protection against additional risks that may not be covered by the local policy.

Why do travelers need 24-7 coverage?

Foreign voluntary workers’ compensation recognizes that when employees travel internationally for business they face unique challenges and are subject to risk at all times for which the employer is liable. This coverage provides medical and travel assistance, which can include such circumstances as injury, death, repatriation, emergency transfer of funds, or lost travel documents.

Why is international coverage important in today’s business market?

Foreign countries are rapidly fashioning themselves to the U.S. and adopting similar laws and litigious habits. Without proper coverage, companies can suffer large financial losses, loss of assets and damage to their brand and reputation. In some instances, foreign executives can be held personally liable and subject to fines and imprisonment.

International insurance can also include coverage for kidnap and ransom, transit, crime, political risks, trade credit exposure, cyber liability, contract frustration, and environmental damage.

CAROL CORPORALES is a commercial insurance broker for Westland Insurance Brokers. Reach her at ccorporales@westlandib.com or (619) 641-3269.

Tuesday, 26 August 2008 20:00

Capital positioning

The rapid change and constant unease of the economic market today has many consumers and business customers more aware than ever about their bank’s capital position. It is a hot topic in the media today and interest and awareness have heightened in recent months as banks continue to make headlines.

While customers may be more aware of a bank’s capital position, it is important to use the information appropriately when making financial business decisions. The media has discussed “capital” at length, but only very broadly. Consumers should be educated on what capital really is, why it is being impaired so dramatically and at what levels they should be concerned.

“Capital is certainly one indicator of a financial institution’s strength,” says David Janus III, president and CEO of FirstMerit’s Cleveland region. “The stock market’s reaction over capital concerns at some financial institutions confirmed that belief. However, there are many more factors consumers must consider when evaluating a bank’s financial strength.”

Smart Business spoke with Janus about the effects a bank’s capital position may have on your relationship with your bank and what you must consider when evaluating capital position.

How can a bank’s capital position affect the relationships consumers and business customers have with their bank?

A bank under capital stress may change the way it deals with its customers. Capital is the cushion that protects the depositors and shareholders against loss. With each loan a portion of the bank’s capital is ‘committed’ to back that loan. Capital has a real economic cost and raising additional capital increases costs to the bank. A bank under stress may have to reexamine its loan portfolio and elect to reduce loan exposure to free up capital.

Does the unknown in today’s market create stress for consumers that they in turn take out on their banks?

A good relationship with your bank is important whether you’re a depositor, a borrower or both. People need to be comfortable with the financial stability of their institution. A good bank communicates clearly with customers and addresses their questions and concerns.

What real effect does a bank’s capital position have on the service a consumer receives?

Asset write-downs and losses impair capital. Earnings are also impacted by write-downs and losses. Shareholders expect earnings; therefore management often makes expense cuts to improve earnings. Significant staff reductions can affect customer service. Weakening capital positions are also affecting consumers’ banking behaviors. In recent years, consumers often waited out any troubled times their financial institutions experienced. Today, consumers are not so patient. As we see in the market now, some customers change banks because of their concerns. Few are waiting until they are impacted.

Is a bank’s capital position ever a warning sign that the bank is in real trouble?

Absolutely. Very large charges against capital or a continuing trend of declining capital for several quarters are red flags. A clear warning sign is when a bank’s capital levels are approaching regulatory minimum levels. However, if your bank’s capital position has been negatively impacted just recently or for a brief period, do not panic. Ask questions of your banker, understand what is going on with the bank. Understand your FDIC insurance coverage, evaluate your relationship with the bank and your banker and then decide if you should change banks. It is important for consumers to stay educated and know how the FDIC protects them. If you are truly concerned, you should evaluate your banking options.

How can consumers monitor their bank’s capital position?

The Web site of the Federal Deposit Insurance Corporation (www.fdic.gov) includes financial information on all insured banks. You can find your bank on this site and with a little searching find out how it compares to other banks on many measures. Another source of information for publicly held banks is the stock analyst reports. One can also review a bank’s financial reports.

DAVID JANUS III is the president and CEO of FirstMerit Bank’s Cleveland region. Reach him at david.janus@firstmerit.com or (216) 694-5658.

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