Amy Borghese

Tuesday, 26 August 2008 20:00

Coverage for all

Not all employers have the same capacity to provide for their employees’ needs. Most employers want to help their low-income employees be able to provide the kind of health insurance that their families need, but, for a variety of reasons, those employers are unable to provide that coverage directly.

In those cases, employers need to be aware of new programs that have become available in recent years that are designed to provide coverage for families, regardless of income level. There are options, such as Pennsylvania’s Children’s Health Insurance Program (CHIP) that employers can educate their employees about to help employees provide for the needs of their families.

“A lot of times, people think that a program like CHIP is just for people on Medicaid, but that’s not the case,” says John Lovelace, the vice president of Medicaid and CHIP services for the UPMC Insurance Services Division and UPMC Health Plan. “In Pennsylvania, CHIP is available to most uninsured children and teens up to the age of 19, regardless of income, except for those who are eligible for Medicaid (known as ‘Medical Assistance’ in Pennsylvania).”

Smart Business talked with Lovelace about CHIP and other ways to find health benefits for low-income employees.

What factors keep low-income workers from finding family health insurance?

First, low-wage workers are more likely than other workers to be employed in industries that do not offer benefits. They are also more likely to be part-time, or seasonal workers, who also do not have benefits. Studies show that there is a decline in employer-sponsored insurance, which is highest among poor and near-poor employees, those who work in small businesses and those who are under age 35. A majority of employees who are uninsured have no access to employer-sponsored insurance either because no one in their family works for a business that sponsors health benefits, or they are not eligible at work for health benefits.

Do low-income workers have benefit options when an employer-sponsored health benefits plan is not available to them?

Yes. Many states provide options in such cases. For instance, in Pennsylvania, workers may be eligible for the Pennsylvania adultBasic program, which, like CHIP, is offered through the Pennsylvania Insurance Department. To be eligible, an individual must not have other coverage. Premiums are subsidized by the state. However, there are more eligible workers than slots on the program, so an applicant may be placed on a waiting list for coverage.

What is CHIP?

CHIP was designed to provide insurance for all uninsured children and teens that are not eligible for enrollment in Medical Assistance programs. This program was established in 1992, and has grown steadily since that time. Beginning in 2007, following the state’s ‘Cover All Kids’ initiative, the program’s reach has been greatly expanded. Now, there are no upper income limitations on membership. CHIP is administered by private health insurance companies that are licensed and regulated by the Pennsylvania Insurance Department and are contracted by the state to offer CHIP.

Is CHIP designed exclusively for low-income families?

No family makes too much money for CHIP. There is no upper income limit. If your company does not provide coverage for your employees’ families, you can help by offering education about CHIP, as that could provide the coverage their children and teens require. For example, if a family of four makes up to $42,400 a year, the family is eligible for what is known as free CHIP. There are no premiums and no co-payments with free CHIP. A variety of low-cost CHIP programs are available for a family of four that makes up to $63,600. Depending on income level, premiums can range from about $35 a month to less than $60. If a family of four makes more than $63,600, they are still eligible to purchase CHIP at cost. Monthly premiums for at-cost CHIP would cost about $143. Children who are enrolled in free CHIP do not have to pay any co-payments for any services. With low-cost and at-cost CHIP, there are co-payments for some services, but there are never any co-payment charges for preventive services.

What obstacles keep low-income employees from enrolling in programs such as CHIP?

First, many people are simply unaware of the program’s existence because they have never been exposed to it, or they don’t think they qualify. They may think it’s a ‘welfare program,’ or a program that they can’t afford. Or, they may even think that their children wouldn’t need it because they are young and healthy. That’s where an employer can help. By making information on these programs available to their employees, or by showing them where they can get more information, employers can help lead their employees to a program that fits their needs.

JOHN LOVELACE is the vice president of Medicaid and CHIP services for the UPMC Insurance Services Division and UPMC Health Plan. Reach him at (412) 454-5269 or lovelacejg@upmc.edu.

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 Jim Bandeen, vice president of business banking, FirstMerit Bank. “Today, customers are concerned with capital preservation and maintaining uninterrupted access to their working capital.”

Smart Business spoke with Bandeen 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 polices?

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.

JIM BANDEEN is a vice president of business banking with FirstMerit Bank. Reach him at jim.bandeen@firstmerit.com or (614) 718-5558 x227.

Monday, 23 February 2009 19:00

Tough talk

In a world full of negative economic news, many business owners are fearful of what reporting bad news to their banks will mean for the future of their banking relationships and, ultimately, their businesses.

“Today’s economic circumstances require that communication with your bank be timely, direct, open and frank,” says Sue Zazon, president and CEO with FirstMerit Bank.

Business owners should not fear reporting bad news to the bank, but they must be realistic about potential changes the bank may insist upon, says Zazon. Banks understand that no one likes to have to give bad news, but they would rather have the information as soon as possible so they can help you develop a plan to deal with the problem and move forward.

Smart Business spoke with Zazon about how business owners should communicate with their banks during difficult times.

What causes difficult discussions between banks and consumers?

Banks and borrowers sometimes do not see eye-to-eye when the customer’s business has veered astray from the original business plan, as well as from historical results, both of which the bank used to make their loan decision. When the bank determines that this new information has changed the risk assessment of the loan then the terms of the loans will likely change. This may be unnerving or upsetting to business owners, but in most cases it does not mean the end of the relationship. Banks are trying to modify the terms to return the risk profile to the same place it was at loan inception. These changes may include adding a personal guarantee, changing covenants, adding collateral to support the loan or a change in pricing.

What might this conversation between the bank and the business owner sound like?

If earnings and/or cash flow are below historical levels and below your plan, your banker will be interested in three things: how it happened, how it’s going to be fixed and when it’s going to be fixed. The prepared business owner will have a detailed analysis of the causes of changes in earnings, including data on sales, margin and expenses. The plan to remedy the current situation is equally important; what’s being done to return the company to its history or projected profitability? Of course, all plans cover a time frame and the timeliness of the turnaround actions is important.

Your banker is your advocate within the bank, so make sure he or she is prepared to accurately and effectively understand and communicate the circumstances. It is important to know your banker well and it is also good to have a relationship with the bank’s management. An action plan will then be created to address the situation.

What if I don’t like what I hear from my bank?

As previously stated, your bank may propose changes of terms and conditions under which they will continue to lend money to your business. You may not like the proposal. Business relationships are fluid and, as situations change, the bank has to react. In the vast majority of cases, neither party likes the circumstances, but they find a tolerable middle ground. At times, however, the bank may take a very hard stand and will not budge. Conversely, I’ve seen borrowers do the same. These are the most difficult situations, which cause the most disruption for both the bank and the borrower.

Exacerbating the current times is the unprecedented upheaval in the banking market. Many banks have had capital pressure due to loan losses and asset write-downs; these bankers may be less flexible. Further, the ‘economic crunch’ has caused the ‘credit crunch,’ so many banks have become less tolerant of perceived risk.

As always in a free market, if you don’t like what you hear from your bank you can always talk to other banks for a free assessment of your situation. Depending on the circumstances, you may find another bank interested in acquiring your business.

How should business owners keep lines of communication open with their bankers?

This communication is a two-way street. During challenging times, more communication is better than less. Monthly meetings are often helpful, as the bank is kept up to speed at regular intervals while business owners are able to get real-time feedback from the bank.

What is the bank’s responsibility in the communication process to its consumers?

It is the same as the borrowers. Banks owe their customers timely and straight answers to their questions and clear direction of how the bank will proceed with the relationship going forward.

Any other thoughts on this topic?

Tough times often require steady perseverance to get the best outcome.

SUE ZAZON is the president and CEO of FirstMerit Bank’s Columbus region. Reach her at sue.zazon@firstmerit.com or (614) 545-2791.

Monday, 23 February 2009 19:00

Tough talk

In a world full of negative economic news, many business owners are fearful of what reporting bad news to their banks will mean for the future of their banking relationship and, ultimately, their businesses.

“Today’s economic circumstances require that communication with your bank be timely, direct, open and frank,” says David Janus, president and CEO with FirstMerit Bank.

Business owners should not fear reporting bad news to the bank but they must be realistic about potential changes the bank may insist upon, says Janus. Banks understand that no one likes to have to give bad news but they would rather have the information as soon as possible so they can help you develop a plan to deal with the problem and move forward.

Smart Business spoke with Janus about how business owners should communicate with their banks during difficult times.

What causes difficult discussions between banks and consumers?

Banks and borrowers sometimes do not see eye-to-eye when the customer’s business has veered astray from the original business plan, as well as from historical results, both of which the bank used to make their loan decision. When the bank determines that this new information has changed the risk assessment of the loan then the terms of the loans will likely change. This may be unnerving or upsetting to business owners but in most cases it does not mean the end of the relationship. Banks are trying to modify the terms to return the risk profile to the same place it was at loan inception. These changes may include adding a personal guarantee, changing covenants, adding collateral to support the loan or a change in pricing.

What might this conversation between the bank and the business owner sound like?

If earnings and/or cash flow are below historical levels and below your plan, your banker will be interested in three things: how it happened, how it’s going to be fixed and when it’s going to be fixed. The prepared business owner will have a detailed analysis of the causes of changes in earnings, including data on sales, margin and expenses. The plan to remedy the current situation is equally important; what’s being done to return the company to its history or projected profitability? Of course, all plans cover a time frame and the timeliness of the turnaround actions is important.

Your banker will then assimilate this information and make a recommendation to management. Your banker is your advocate within the bank, so make sure he or she is prepared to accurately and effectively understand and communicate the circumstances. The banker will then tell you how he or she would like to address the situation.

What if I don’t like what I hear from my bank?

As previously stated, your bank may propose changes of terms and conditions under which they will continue to lend money to your business. You may not like the proposal. First, understand that relationships are supposed to be give and take. Things didn’t go as planned; consequently, the bank wants to make changes. At the most basic level this is fair. In the vast majority of cases, neither party likes the circumstances but they find a tolerable middle ground. At times, however, the bank may take a very hard stand and will not budge. Conversely, I’ve seen borrowers do the same. These are the most difficult situations which cause the most disruption for the bank and the borrower.

Exacerbating the current times is the unprecedented upheaval in the banking market. Many banks have had capital pressure due to loan losses and asset write downs; these bankers may be less flexible. Further, the ‘economic crunch’ has caused the ‘credit crunch,’ so many banks have become less tolerant of perceived risk.

As always in a free market, if you don’t like what you hear from your bank you can always talk to other banks for a free assessment of your situation. Depending on the circumstances, you may find another bank interested in acquiring your business.

How should business owners keep lines of communication open with their bankers?

This communication is a two-way street. During challenging times, more communication is better than less. Monthly meetings are often helpful, as the bank is kept up to speed at regular intervals while business owners are able to get real-time feedback from the bank.

What is the bank’s responsibility in the communication process to its consumers?

It is the same as the borrowers. Banks owe their customers timely and straight answers to their questions and clear direction of how the bank will proceed with the relationship going forward.

Any other thoughts on this topic?

No matter what, be patient. Tough times often require steady perseverance to get the best outcome.

DAVID JANUS is president and CEO with FirstMerit Bank. Reach him at (216) 694-5658 or david.janus@firstmerit.com.

Monday, 26 January 2009 19:00

Crunching the credit

These days, there is a misconception regarding the credit crunch. If you take a look at the data published by the Federal Reserve, commercial and industrial lending was actually up through November 2008. This means for traditional operating businesses, there is plenty of credit available.

The same data shows the real difference in credit today — lending standards have generally tightened. So, businesses on the margin (high leverage, weak cash flow coverage) that may have received loans several years ago may now have trouble getting those same loans. Further, the data shows that loan spreads have widened for businesses.

“Even though LIBOR and federal funds are at historically low levels, a borrower’s all-in rate, even with a higher spread, is extremely cheap right now,” says Doug Houser, CPA, senior vice president with FirstMerit Bank.

Smart Business spoke with Houser about how businesses can plan to operate successfully with new lending standards.

How can businesses survive if they are dependent on credit?

Communicate with your bank. This cannot be emphasized enough. Banks are being extremely diligent about reviewing their credit portfolios. A business owner should meet at least quarterly with his or her bank and review current financial information, including the budget/backlog and receivables aging. The business owner and the bank should be on top of any trends or changing industry conditions.

Business owners should also scrutinize the bank. That means owners should perform their own due diligence. Business owners should know the bank’s financial condition (profitability, loan/deposit ratio, charge-offs and capital level) and its ability to provide additional credit in the current market. Through this turmoil, an extreme divergence has developed in what certain banks can and cannot do. It is important that the business owner understand the bank’s capabilities.

How do you recommend business owners adjust their business plans to prepare for tighter lending standards in 2009?

The primary concern of a business owner should be his or her own operation. The credit is available to the well-managed business. A motto for a business owner should always be this: Plan for the worst and hope for the best. That means a business should have a definite action plan should market or industry conditions deteriorate. The business should have flexibility to withstand changing conditions. The most important measure of this flexibility is the business’s working capital position and access to liquidity, including a line of credit. An owner should be examining all assets and business options in order to maximize liquidity.

What are successful businesses doing today to stay on top during turbulent times?

Most have communicated with their banks and negotiated extensions to their lines of credit to ensure access to liquidity. Too often, businesses focus on what they paid for the credit. Smart business owners realize that the access to credit and ability of the bank to respond appropriately is vastly more important. The ability to access credit is crucial for most companies, thus, being a well-run business has never been more important. Most capital market alternatives are not available for accessing credit. Bank credit remains the best source of capital for closely held businesses. A business’s credit needs should contract as its volume contracts. Again, the credit is available and inexpensive right now, but the business owner should be prepared to meet higher standards from the bank in order to gain access.

What qualifications are banks looking for today when they provide credit?

Today, banks are looking at a business’s cash flow, liquidity (working capital), net worth, collateral and industry risk. Certainly, specific industries are having a tougher time accessing credit. Industries such as automotive, investment real estate owners/developers and retailers are a few such industries. That said, a superior management team can still produce outstanding results in a difficult industry, and a good bank will provide credit to the right owners/managers.

Again, communication comes into play here. Banks want to know what you are doing and what you plan to do in the future. Keep them involved in your business plan.

What risks should business owners be aware of during turbulent times?

Today business owners don’t only have to worry about their own actions. Businesses also need to know what their business partners, suppliers and customers are doing in their businesses. Receivables risk is greater than ever. A business should re-examine its customers. What is their financial condition and ability/history of payment? Don’t assume that a ‘legacy’ customer will pay just as it always has. Communication is also important with those with whom you do business.

Are these tighter credit standards something businesses will be able to survive?

Most businesses have an uncanny ability to do what they need to in order to survive some hardship. The real difficulty for those businesses on the margin is to find the ability to fund the growth when demand ramps back up. It is at that point that the flexibility afforded by a strong balance sheet becomes imperative.

DOUG HOUSER, CPA, is a senior vice president with FirstMerit Bank. Reach him at doug.houser@firstmerit.com or (614) 314-5937.

Monday, 26 January 2009 19:00

Crunching the credit

These days, there is a misconception regarding the credit crunch. If you take a look at the data published by the Federal Reserve, commercial and industrial lending was actually up through November 2008. This means, for traditional operating businesses, there is plenty of credit available.

The same data shows the real difference in credit today — lending standards have generally tightened. So, businesses on the margin (high leverage, weak cash flow coverage) that may have received loans several years ago may now have trouble getting those same loans. Further, the data shows that loan spreads have widened for businesses.

“Even though LIBOR and federal funds are at historically low levels, a borrower’s all-in rate, even with a higher spread, is extremely cheap right now,” says Steve Hendricks, manager, commercial banking, FirstMerit Bank.

Smart Business spoke with Hendricks about how businesses can plan to operate successfully with new lending standards.

How can businesses survive if they are dependent on credit?

Communicate with your bank. This cannot be emphasized enough. Banks are being extremely diligent about reviewing their credit portfolios. A business owner should meet at least quarterly with his or her bank and review current financial information, including the budget/backlog and receivables aging. The business owner and the bank should be on top of any trends or changing industry conditions.

Business owners should also scrutinize the bank. That means owners should perform their own due diligence. Business owners should know the bank’s financial condition (profitability, loan/deposit ratio, charge-offs and capital level) and its ability to provide additional credit in the current market. Through this turmoil, an extreme divergence has developed in what certain banks can and cannot do. It is important that the business owner understand the bank’s capabilities.

How do you recommend business owners adjust their business plans to prepare for tighter lending standards in 2009?

The primary concern of a business owner should be his or her own operation. The credit is available to the well-managed business. A motto for a business owner should always be this: Plan for the worst and hope for the best. That means a business should have a definite action plan should market or industry conditions deteriorate. The business should have flexibility to withstand changing conditions. The most important measure of this flexibility is the business’s working capital position and access to liquidity, including a line of credit. An owner should be examining all assets and business options in order to maximize liquidity.

What are successful businesses doing today to stay on top during turbulent times?

Most have communicated with their banks and negotiated extensions to their lines of credit to ensure access to liquidity. Too often, businesses focus on what they paid for the credit. Smart business owners realize that the access to credit and ability of the bank to respond appropriately is vastly more important. The ability to access credit is crucial for most companies, thus, being a well-run business has never been more important. Most capital market alternatives are not available for accessing credit. Bank credit remains the best source of capital for closely held businesses. A business’s credit needs should contract as its volume contracts. Again, the credit is available and inexpensive right now, but the business owner should be prepared to meet higher standards from the bank in order to gain access.

What qualifications are banks looking for today when they provide credit?

Today, banks are looking at a business’s cash flow, liquidity (working capital), net worth, collateral and industry risk. Certainly, specific industries are having a tougher time accessing credit. Industries such as automotive, investment real estate owners/developers and retailers are a few such industries. That said, a superior management team can still produce outstanding results in a difficult industry, and a good bank will provide credit to the right owners/managers.

Again, communication comes into play here. Banks want to know what you are doing and what you plan to do in the future. Keep them involved in your business plan.

What risks should business owners be aware of during turbulent times?

Today business owners don’t only have to worry about their own actions. Businesses also need to know what their business partners, suppliers and customers are doing in their businesses. Receivables risk is greater than ever. A business should re-examine its customers. What is their financial condition and ability/history of payment? Don’t assume that a ‘legacy’ customer will pay just as it always has. Communication is also important with those with whom you do business.

Are these tighter credit standards something businesses will be able to survive?

Most businesses have an uncanny ability to do what they need to in order to survive some hardship. The real difficulty for those businesses on the margin is to find the ability to fund the growth when demand ramps back up. It is at that point that the flexibility afforded by a strong balance sheet becomes imperative.

STEVE HENDRICKS is a commercial banking manager with FirstMerit Bank. Reach him at stephenr.hendricks@firstmerit.com or (330) 384-7546.

Tuesday, 25 November 2008 19:00

Crises averted

Some current reports state that insurance prices are soft and commercial insurance is readily available. Is this a sign we have avoided an insurance crisis?

“No,” says Philip Glick, senior vice president of ECBM Insurance Brokers and Consultants. “It’s not a question of whether the insurance marketplace will become difficult but rather when the change will take place and how severe the increase.”

As a result of several large hurricane losses, significant investment losses incurred by many insurance companies and an overall increase in total claims experience, most major insurance companies are reporting losses or have seen their profits reduced significantly this year, he says. To correct this situation, insurance companies will have to increase premiums, cut expenses or, most likely, both.

Smart Business spoke with Glick about how an insurance crisis may affect your business and the steps to take now to protect it.

What does an insurance crisis mean for your company?

Insurance premiums will undoubtedly increase beginning next year and many of the broad coverage extensions that insurance companies have been offering at little or no price will be pulled back. Insurance consumers are used to seeing their premiums drop each year even if not justified by lower claims. Such ‘freebies’ will be ending. For some industries, such as construction or trucking, the ability to get adequate insurance at an affordable cost may be more difficult.

There is also a hidden cost increase likely to come of which consumers should be aware. As insurance company profits decline, they may slow down the payment of claims and become more difficult to deal with in the adjustment of most claims.

The news is not bad for everyone. Buyers who control losses and have good claims experience will do far better than those who have not paid attention to their underlying losses in the past few years.

What actions should business owners consider?

The single most important thing is to take steps now to evaluate the risks of your business, including property, liability and workers’ compensation exposures. Then take all reasonable steps through safety and loss control procedures to eliminate or mitigate the potential for losses.

It is also important to establish aggressive claims management procedures, including prompt investigation of any losses that happen, careful review of the appropriateness of insurance company reserves, and aggressive plans to defend and settle liability claims. Careful management of workers’ compensation losses, and careful settlement and adjustment of any property claims will become very important.

Purchasing insurance from strong, stable insurance companies is critical. This does not necessarily mean leaving your current insurance company — but have a backup plan ready. One specific approach is to obtain a standby quote from another insurance company with the agreement that the insurance company will keep this alternative quote open for an extended period of time, possibly through the expiration date of your current policies. Your company would then be covered in the event there should be a rating drop or sale or other change of control of your current insurance company.

How can you cut costs now to prepare for premium hikes in the future?

Increase insurance deductibles so that you pay for routine smaller losses directly out of pocket. When insurance markets are very competitive, low deductibles are not as costly. As prices increase, insurance companies will charge significantly more than the out-of-pocket costs to transfer small routine claims to them. Paying minor claims out of pocket will also improve a company’s overall claims experience when viewed by an underwriter.

We also recommend that, while costs are low, companies purchase additional limits of necessary coverage or new policies now rather than waiting to make these changes later when costs may be higher. This may include increasing limits of directors and officers liability coverage, purchasing higher limits of umbrella coverage, and upgrading limits of property or business income coverages now to more adequately cover your risks.

Another approach to consider is working with your current insurance company to consider doing an extension of your current policies at current premium rates and terms and conditions. This would let you lock in current favorable rates for another six to 12 months.

How can business owners manage this process proactively?

Look at your company the way insurance underwriters and loss control consultants view it. Although most insurance buyers put tremendous attention on bidding out their insurance premiums, on average 65 to 70 percent of your premiums are directly related to actual claims. Taking all reasonable steps to reduce your claims experience is the best way to manage insurance costs over time.

As markets tighten, medium- to large-size companies should also consider alternative risk financing approaches, such as large deductibles, retrospective rating, and captive insurance company options for workers’ compensation and liability insurance risks. While these programs can be effective ways to reduce insurance costs, they all represent long-term commitments by the buyer.

PHILIP GLICK is senior vice president of ECBM Insurance Brokers and Consultants. He may be reached at (610) 668-7100 x1310 or pglick@ecbm.com or through the company’s Web site at www.ecbm.com.

Tuesday, 25 November 2008 19:00

Managing disease

Employee absenteeism contributes to millions of dollars in lost production each year. Employees who suffer from chronic illnesses, such as diabetes and asthma, can benefit from disease management programs that provide information and tips to members with chronic illnesses to ensure they have information to help them stay healthy and keep working.

“It is the right thing to do,” says Bruce Niebylski, M.D., associate vice president, medical affairs, with Priority Health. “You are helping people stay healthy and helping treat diseases. Education is much more efficient for both the employee and employer than only prescribing a medication.”

Smart Business spoke with Niebylski about disease management programs and the benefits they provide.

What purpose do disease management programs serve for employees?

Disease management programs were originally designed to care for four different ailments: diabetes, asthma, maternal child diseases and congestive heart failure. Such conditions were selected because studies showed patients suffering from these diseases were not receiving the treatment needed. Employer groups suggested implementing disease management programs to help employees follow regimens, attend regular doctor visits, and find qualified doctors in their area, and for any extra care they required.

Today, many more diseases have been added to disease management programs. Patients suffering from such diseases often have a hard time following a schedule of regular doctor appointments and their prescription drugs are often very costly. Disease management programs have been implemented to help employees deal with such issues and receive the appropriate care for treating their condition.

How can disease management programs benefit an employer’s bottom line?

Diabetes accounts for 5 percent of the health care population and half of the money we spend on health care is spent on diabetics. If such a disease can be managed, there will be a reduction in additional costs for side effects associated with diabetes such as stroke, dialysis and system failure.

Many disease management programs are showing a positive return on investment. Statistics show that for every $1 spent to pay for disease management there are $4 in savings. Over the years, there has been controversy regarding whether disease management programs make treatment more efficient and help reduce costs.

It is difficult to track cost savings with these programs. Financial analysis can be used to show the return on investment for such programs. Disease management programs are very effective for patients with high intensity diseases such as asthma and congestive heart failure. These fluctuating diseases cause patients to visit hospitals regularly. These programs are designed to keep patients healthier, to increase their quality of life and keep them out of the hospital for additional costly treatments.

What if employees feel disease management programs are too intrusive?

This is a real concern that disease management programs have faced. Because of that resistance, it is important to separate employees’ private information from the employer. Employers only receive information on which diseases are present in the employee population but it is not disclosed which employee has a certain disease. Employers need this information so they can ensure they are selecting the correct health plans for their employees’ needs in the future.

Some employers offer their employees all the resources needed to properly treat their disease but are faced with resistance in participation. For many programs, there is only a 10 to 30 percent uptake in disease management programs. This means that for every 10 people who are invited to participate in the disease management program, you only get one to three takers. It may be beneficial for employers to use incentives to get employees enrolled in a disease management program.

Are there on-site practices employers can implement to help employees prevent/manage chronic illnesses?

On-site programs had been offered by many disease management companies. It was found employees were hesitant to participate because they didn’t want their employer to figure out they had a disease and have that information affect their employment status. Now on-site programs simply include general screenings where the results are only presented to the employee in general information sessions.

Employers can create a wellness atmosphere for employees through simple things like decorating stairwells and pumping in music so employees can walk the stairs on their lunch hour or break. Employers can offer healthy foods in vending machines. Some employers allow employees to leave early a few days a week if they belong to a gym.

BRUCE NIEBYLSKI, M.D., is associate vice president, medical affairs with Priority Health. Reach him at (248) 324-2763 or bruce.niebylski@priorityhealth.com.

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 Sue Zazon, president and CEO of FirstMerit Bank’s Columbus region.

Smart Business spoke with Zazon 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.

SUE ZAZON is the president and CEO of FirstMerit Bank’s Columbus region. Reach her at sue.zazon@firstmerit.com or (614) 545-2791.

Sunday, 26 October 2008 20:00

Asset-based lending

Many businesses today are looking for loans that can help their businesses advance in a market where credit standards are tighter than they have been in recent years.

During good or bad times, asset-based loans allow companies to leverage their assets to obtain the cash they may need, according to Mark Seryak, the vice president of asset based lending at FirstMerit Bank. Asset-based loans are a working capital finance option available to business owners.

Smart Business spoke with Seryak about the benefit of asset-based loans in today’s trying market and how business owners should prepare to apply for such loans.

How does an asset-based loan work versus a traditional loan?

An asset-based loan is structured using the value of the borrower’s collateral as opposed to financing that is primarily based on the borrower’s cash flow and overall balance sheet leverage. Because the conversion of collateral (accounts receivable and inventory) is the primary source of repayment, a major characteristic of an asset-based borrowing structured loan is the emphasis on monitoring the collateral.

Asset-based loans have the potential to provide a business with greater liquidity because the loan advances are based on the current level of the company’s working capital assets. These loans may be ideal for companies that are fast-growing or undercapitalized and need assistance to finance their working capital assets.

Have lending standards changed for asset-based loans?

In general, the lending and credit markets have changed dramatically this year with the failure of some major financial entities. This means that the scrutiny has increased for business loans. More and more banks are implementing some form of asset-based structure in the loans they are offering businesses.

On-site field exams are conducted by the bank to determine the advance rates on the collateral and other terms of the loan. Field examiners will review the accounting records, verify the account receivables and review the systems and procedures for recording and tracking inventory. This allows for a detailed and hands-on review of the company in addition to the traditional financial overview.

How can businesses prepare to apply for asset-based loans?

Accurate accounting records are critical in the bank’s ability to evaluate the quality of a company’s working capital assets. The accuracy and timely completion of financial records are essential to the bank obtaining a level of comfort with a company’s collateral and financial reporting. The borrower’s ability to provide financial data and collateral supporting schedules in an electronic format can greatly speed up the bank’s due diligence process. This leads to a quick response to the borrower and ultimately to better understanding of the borrower on an ongoing basis.

What types of business are best suited for asset-based loans?

Typical asset-based borrowers are heavily invested in working capital assets. These companies can be experiencing high growth or have seasonality in the business cycle.

Other candidates include turnaround situations, leverage buyouts and ownership transitions.

Are there any drawbacks to asset-based loans of which business owners should be aware?

Asset-based loans typically provide more borrowing capacity for a business. There are incremental costs for asset-based loans for field exams and monitoring fees. However, interest expense is minimized because the loan is repaid daily as accounts receivable are collected and borrowing only occurs when checks or other items are presented for payment.

MARK SERYAK is the vice president of asset based lending at FirstMerit Bank. Reach him at mark.seryak@firstmerit.com or (216) 802-6591.

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