BlueStone Advisors News http://www.bluestoneadvisors.com Insurance, risk managemnent, and consulting Mental Health at Work: How Employers Can Help Tue, 07 May 2019 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=25 http://www.bluestoneadvisors.com/blog/article.html?id=25 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/mental-health-work.jpg" class="mceItemNoResize" />Employers can better support the mental health of their employees and help them thrive at work</p> <hr /></blockquote> <p>Although a certain level of stress at work is normal, excessive workplace stress can leave a lasting impact on an employee's health, productivity and relationships- at work and at home. Even though mental health is typically seen as a taboo topic at work, employees are turning to employeers to support their mental health and well-being: </p> <ul> <li>Nearly 75% of employees say they want employers to <a href="https://www.forbes.com/sites/alankohll/2018/11/27/how-to-create-a-workplace-that-supports-mental-health/#1e99003adda7">champion their mental health</a> and well being- which rates higher than ratings for equality (48%), sustanibility (38%) and diversity (31%). </li> <li><span>39% of Job seekers rate <a href="https://www.benefitspro.com/2019/05/01/employees-more-likely-to-seek-mental-health-help-but-services-are-lacking/?kw=Employees%20more%20likely%20to%20seek%20mental%20health%20help%2C%20but%20services%20are%20lacking&utm_source=email&utm_medium=enl&utm_campaign=benefitsmanagerpro&utm_content=20190507&utm_term=bpro">Behavioral Health benefits as a top priority</a></span></li> <li><span>Over half of employees with Wellness Programs say they create <a href="https://www.uhc.com/employer/news/consultant/new-survey--employees-say-wellness-programs-improve-health--prod">real, substantial benefits</a></span></li> <li><span>and  <a href="https://www.uhc.com/employer/news/consultant/new-survey--employees-say-wellness-programs-improve-health--prod">73% of employees</a> without access to wellness programs say they want one </span></li> </ul> <p><span class="action">"The businesses who are tapping into what people actually want from their workplace—and investing in their culture and their employees—are the ones that are becoming the next great global brands and the most sought-after places to work"- Alex Kholl, Forbes </span></p> <p><span>However, many employer health programs aren’t meeting their employees’ behavioral health needs: One in three people say they have paid directly for behavioral health services because their benefits are inadequate. </span><span>Additionally, one fifth of people say don’t take advantage of behavioral health services offered through their employer because they are concerned that if their employer finds out, it will damage their career (<a href="https://www.benefitspro.com/2019/05/01/employees-more-likely-to-seek-mental-health-help-but-services-are-lacking/?kw=Employees%20more%20likely%20to%20seek%20mental%20health%20help%2C%20but%20services%20are%20lacking&utm_source=email&utm_medium=enl&utm_campaign=benefitsmanagerpro&utm_content=20190507&utm_term=bpro">Benefits Pro</a>). </span></p> <hr /> <h2>What Employers Can Do to Help</h2> <p><span>Although discussing Mental Health can be a difficult topic for employers to tackle, there are many ways in which employers can contribute to their employees well-being. Behavioral Health and Wellness Programs aren't the only piece of the puzzle either; Employers can work to foster a work culture that encourages collaboration, social connection and open communication and instill policies that reduce stress, such as:</span></p> <ul> <li><span>Providing a line of open, honest communication </span></li> <li><span>Fostering a work culture that encourages collaboration and social connection</span></li> <li><span>Flexibile work hours and parental leave, regardless of gender</span></li> <li>Setting challenging but realistic goals and room for advancement</li> <li>Treating employees with trust and allowing for autonomy </li> <li><span>Providing workspaces that encourage collaboration and the freedom to move about during the day</span></li> <li><span>Encouraging employees to unplug after hours and on the weekends </span></li> </ul> <p><span>With the right strategies in place, employers can work to reduce workplace stress and create a more positive, productive and healthy workplace for everyone. </span> </p> <p> </p> <p><br /><br /></p>]] Was Notre Dame Cathedral Covered by Insurance? Wed, 17 Apr 2019 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=23 http://www.bluestoneadvisors.com/blog/article.html?id=23 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/notre_dame.jpg" class="mceItemNoResize" />Who is responsible for covering the costs to repair Notre Dame and how will they fund it?</p> </blockquote> <hr /> <p>In light of the tragic fire that caused irretrievable damage to historic French landmark, Notre Dame Cathedral on Monday night- Who is responsible for covering the costs to repair Notre Dame and how will they fund it?</p> <p>“It is really going to be up to the French state and benefactors to help to restore and rebuild this", Robert Read, head of art and private client at the insurer Hiscox told <a href="https://www.reuters.com/article/us-france-notredame-insurance/insurers-expect-france-to-bear-notre-dame-rebuilding-cost-idUSKCN1RS1LO">Reuters</a>, "The French state is huge, bigger than any insurer, so they are likely to self-insure not only the building but also the important artifacts it contained", added Read.  </p> <p>According to experts, the total restoration of Notre Dame could take up to 15 years and cost an estimated $8 billion. </p> <h1>Renovators Could be Held Liable </h1> <p>Prior to Monday, Notre dame was in the middle of undergoing a series of major renovations involving numerous contracting firms, including restoring the iconic spire that collapsed during the fire. Investigators believe the fire began in the roof cavity, below the Cathedral's spire, where work was being done the day before by employees of a well-respected enterprise, Le Bras Freres. The employees of the family-owned Le Bras Freres had recently begun the process of restoring the 19th century spire, whose intricate lead-coated wooden structure had dried-out and weakened over the years. </p> <p>Company head, Mr. Le Bras told reporters at the scene "We want more than anyone for light to be shed on the origin of this drama," adding that their workers are cooperating with the investigation. </p> <p>French insurance firm <a href="https://us.axa.com/home.html">AXA</a> said on Tuesday it provided insurance coverage for both Le Bras Freres as well as another contracting firm working on the restoration, Europe Echafaudage. An AXA spokesman declined to estimate the company’s potential liabilities associated with the damage caused.</p> <p>If one of the numerous contracting firms involved is found liable for the fire's outbreak, their insurance company will be responsible for paying up to the amount their policy covers. An AXA spokesman declined to estimate the company’s potential liabilities associated with the damage caused.</p> <p>"There is a major risk that in this case it will go to court given the importance of what is at stake and the determination of responsibility is complex," said Nicolas Kaddeche at Hiscox, a specialist insurer for artworks, adding that given the a number of construction firms working on the renovation, it could be difficult to prove who was ultimately responsible for the fire. </p> <h1>The Potential Risk was Known</h1> <div class="call-r" style="width: 350px;"><img src="/content/images/cms/notre_dame_2.jpg/image-full;size$350,230.ImageHandler" class="mceItemNoResize" /></div> <p style="margin-bottom: 16.8pt; text-align: justify;"><span>According to statements made by on-scene firefighters in a News Conference on Wednesday, there was a clear risk for fire in the centuries old roof prior to Monday. The roof's beams had dried-out and weakened over the years and its immense height provided for extra oxygen to fuel the fire. In addition, the stone walls trapped the heat and smoke inside, making it difficult for the firefighters to enter to reach the source of the flames. According to Phillipe Demay, who was among one of the first firefighters to arrive on the scene, the firefighters knew “perfectly well” that if the roof caught fire, “it was going to be very complicated to stop". It wouldn't have taken much to spark the massive outbreak that occurred on Monday.</span></p> <h1>Donors Pledge Nearly $1 billion  </h1> <p>Although the financial responsibility for Notre Dame's repair has thus far fallen solely on the French State, it’s clear they will not have to bear the expense alone. Less than 24 hours after the fire, individuals, companies and institutions together have pledged over €845 million ($950 million) to rebuild the beloved French landmark.</p> <p>The fundraising campaign was kickstarted on Monday night, with a pledge of €100 million from Francis Pinualt, CEO and chairman of luxury group Kering.</p> <p>“Last night, I was like many French people watching the tragedy of Notre Dame burning in front of me and I was so in shocked and I was among kids, adults, all people crying looking at that, and I said I had to do something,” Pinault said on Tuesday, according to Euronews.</p> <p>The fundraising efforts have not been limited to the rich and famous either; Smaller fundraising campaigns have spread worldwide, including over $43,000 raised through an <a href="https://www.leetchi.com/c/financement-des-reparations-de-notre-dame-de-paris">online campaign</a> started by 23 year old business student, Charles Gosse. </p>]] Aurora Shooting has Chicago Businesses Insuring for the Worst Sat, 16 Mar 2019 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=22 http://www.bluestoneadvisors.com/blog/article.html?id=22 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/activeshooter2.jpg" class="mceItemNoResize" />Following the mass shooting at Aurora's Henry Pratt in Feburary, Chicagoland businesses are considering Active Shooter Insurance.</p> </blockquote> <hr /> <p>Active Shooter Insurance, which is primarily purchased by schools and public organizations, <span>is </span>in growing demand for businesses- and for good reason. According to the<span> </span>Federal Bureau of Investigation's (FBI), <a href="https://www.fbi.gov/about/partnerships/office-of-partner-engagement/active-shooter-incidents-graphics">most recent report</a>, from 2000- 2017, <strong>42% of Active Shooter Incidents took place at businesses. </strong></p> <p>Chicagoland businesses are taking notice. After the tragedy at<span> </span><a href="https://www.usatoday.com/story/news/nation/2019/02/15/aurora-illinois-shooting-henry-pratt-heres-what-we-know-now/2884427002/">Henry Pratt</a><span> </span>last month, Claire Bushey of Crain's Chicago Business, reports Chicago-based Insurance brokers, Aon and Arthur J. Gallagher had gotten more calls from businesses regarding Active Shooter Insurance. "<span>There were certainly calls to find out, 'Hey, do we have coverage for this?' " he says. "People don't think about this until it becomes real."- Robby Kunz, Arthur J. Gallagher</span></p> <hr /> <h1>Why Active Shooter Insurance?</h1> <p>Many standard insurance policies were written before the surge in workplace gun-related violence. As a result,  coverage for gun violence or workplace violence-related incidents can sometimes fall into a gray area. This can become costly for businesses, especially  when their coverage  doesn't include victim compensation. According to the Program Director of Active Shooter/Workplace Violence Insurance at McGowann Program Administrators,</p> <blockquote> <p>“The ‘duty to defend’ clause in commercial general liability policies means victims have to sue an organization and win a lawsuit, even if the organization has good intentions and wants victims to be taken care of.”<strong> - </strong>Paul Marshall, <a href="http://mcgowanprograms.com/">McGowan </a></p> </blockquote> <p>Consequently, more businesses are opting for the additional coverage of Active Shooter Insurance, not only to ensure proper coverage for their businesses and employees, but to avoid the potentially hefty litigation fees in the event that their liability insurance doesn't properly compensate victims following an Active Shooter incident. Active Shooter Insurance can include coverage for: </p> <ul> <li>medical bills, victim cousenling, death expenses and funeral expenses</li> <li>litigation </li> <li>property damage </li> <li>temporary loss of revenue </li> <li>damage to a company's reputation, diminished productivity and decreased morale</li> <li>loss of attraction </li> </ul> <hr /> <h1>Workplace Preparation Best Practices</h1> <p>Today's businesses face a unique set of challenges when it comes to preventing and preparing for a potential active shooter. However, addressing these challenges promptly and effectively, could mean the difference between life and death.<span> According to experts, the are the best practices for training employees on how to react in the event of an active shooter include: </span></p> <h2><strong>Create a Plan of Action</strong></h2> <p>Companies can should first start by formulating an<span> <a href="https://www.dhs.gov/publication/active-shooter-emergency-action-plan-guide">Emergency Action Plan</a></span><span> </span>(EAP), that includes input from the Human Resources Department, Training Team and Management Team in addition to input from their property manager and local law enforcement agents. An effective EAP includes:</p> <p style="padding-left: 30px;">- An evacuation policy, procedure and escape route (including floor plans and safe areas)<br />- Roles and contact information for individuals listed in the EAP <br />-An Emergency notification system for to alerting local law enforcement, hospitals and employees in     remote areas of the facility</p> <h2><strong>Conduct Regular Training </strong></h2> <p>In addition to creating a plan of action, businesses should provide employees with hands-on training.  According to the Department of Homeland Security,"The most effective way of training your staff for an active shooter incident is to conduct mock active shooter training exercises." To prepare for Active Shooter Training sessions, contact local law enforcement for help and for additional resources, visit the Department of Homeland Security's Active Shooter workshop modules <a href="https://www.dhs.gov/cisa/active-shooter-workshop-participant">here</a>. </p> <h2><strong>Tips from the Experts</strong></h2> <p><span>Some key tips to keep in mind when preparing yourself and employees for an Active shooter.</span></p> <h3><strong>RUN</strong></h3> <p><span>Getting as far away from the shooter as possible should be your first priority. Escape to a safe nearby location or designated safe area, as outlined in your EPA, if possible. Leave any belongs behind and warn others your encounter of the threat. When you arrive to a somewhere safe,  call 911. </span></p> <h3><strong>If you can't escape quickly, HIDE</strong></h3> <p><span>When escaping is not an option, hide. But this doesn't mean you need to passively sit in on place, instead law enforcement and experts recommend an "active" approach to hiding, with a plan of escape when possible. Hide in areas that lock from the inside, have thick, or cinderblock walls and little to no windows. Designate the best areas ahead of time in your EPA. In the event that you can't make it to one of these areas, use furniture or heavy objects to baracade doors shut. For outward opening doors, if there's a hyradulic arm at the top </span></p> <blockquote> <p><span>"you can tie a belt tightly around the v-shaped arm and door won't open"- Rob Berryman, Safety consultant of the American Contractors Insurance Group. </span></p> </blockquote> <h3><strong>As a last resort, FIGHT</strong></h3> <p><span>If the shooter breaks into your hiding spot and conterring them is the only option, fight aggressively and if possible, in a group. Remain low but ready to run and grab nearby objects to use as improvised weapons and to throw them directly at the shooter's face.</span></p> <blockquote> <p><span>"I challenge people to go back to their desk and find five things that can defend themselves with. Staplers, scissors, coffee mugs, anything." Berryman continues.</span></p> </blockquote> <p>Although no individual or business could ever be expected to be fully prepared for the tragic and unpredictable nature of an active shooter situation, with the right preparation and training in place, businesses can potentially save lives or lessen the losses.</p> <hr /> <h6>For more information and resources to help prepare your business for an active shooter, visit:<em><span><br /><br /></span></em><a href="https://www.dhs.gov/cisa/active-shooter-preparedness">https://www.dhs.gov/cisa/active-shooter-preparedness</a><a href="http://www.dhs.gov/cisa/active-shooter-prepardness"><br /></a><a href="https://leb.fbi.gov/articles/featured-articles/workplace-violence-prevention-readiness-and-response">https://leb.fbi.gov/articles/featured-articles/workplace-violence-prevention-readiness-and-response</a><a href="https://leb.fbi.gov/articles/featured-articles/workplace-violence-prevention-readiness-and-response"><br /></a><a href="https://www.nsc.org/pages/active-shooter-resources-instructors">https://www.nsc.org/pages/active-shooter-resources-instructors</a><a href="https://www.nsc.org/pages/active-shooter-resources-instructors"><br /></a><a href="https://www.ready.gov/active-shooter"><span>https://www.ready.gov/active-shooter</span></a></h6> <h2><strong><br /><br /></strong></h2>]] Workplace Active Shooter: How to Respond Guide Fri, 15 Mar 2019 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=20 http://www.bluestoneadvisors.com/blog/article.html?id=20 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/shutterstock-01.png" class="mceItemNoResize" />42% of Mass Shootings take place at businesses- Prepare yourself and your team with the Department of Homeland Security's "Active Shooter: How to Respond" </p> </blockquote>]] Business Income Worksheet: A Refresher Mon, 08 Oct 2018 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=19 http://www.bluestoneadvisors.com/blog/article.html?id=19 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/shutterstock_348054452converted-02.jpg" class="mceItemNoResize" />Over 70% of businesses involved in a major fire either do not reopen, or subsequently fail within 3 years of a fire. The ones that do survive have a disaster response plan in place before a claim happens. Every business is vulnerable …</p> </blockquote> <hr /> <p>Over 70% of businesses involved in a major fire either do not reopen, or subsequently fail within 3 years of a fire. The ones that do survive have a disaster response plan in place before a claim happens. Every business is vulnerable to unpredictable events. Whether or not they become catastrophic is up to the executive’s pre-disaster recovery planning, including continuity planning and properly completing the <a href="/content/documents/bluestone-business-interruption-worksheet.xls" target="_blank">Business Income worksheet</a>.</p> <p>Business income losses result from the interruption of normal business operations because of direct physical damage of property under a covered cause of loss. The business either shuts down or continues operations in a reduced capacity. In most instances, revenue falls or stops while at least some expenses continue. If you are unable to supply your customers during a loss, will they turn to one of your competitors to supply your product or service? If it takes 3, 6, 9 or 12 months to rebuild and become fully operational, how many of your clients come back to you after they have established a new relationship? These questions should be considered with completing a business continuity plan.</p> <p>After a business income loss the insured seeks compensation under the lost business income provisions of its policy. It is critical that a CEO/CFO properly complete the <a href="/content/documents/bluestone-business-interruption-worksheet.xls" target="_blank">Business Income<span> </span>worksheet</a> at the insurance renewal if the claim is to be adequately paid. Below is a refresher on business income coverage to help understand and complete the <a href="/content/documents/bluestone-business-interruption-worksheet.xls" target="_blank">Business Income<span> </span>worksheet</a>.</p> <p><strong>Definition</strong> — Business Income insureds the net profit (or loss) and continuing expenses you (the insured) would have had if there had not been any covered loss. Any expense that is not necessary to continue will not be paid.</p> <p><strong>Continuing Expenses</strong> are normal operating expenses, including payroll that may continue during the period of restoration and extended period of indemnity.</p> <p><strong>Non-Continuing Expenses</strong> are normal operating expensed that do not continue during the period of restoration and extended period of indemnity.</p> <p><strong>Period of Restoration</strong> is the period of time that payment the covered losses will continue until:</p> <ul> <li>The property is restored,</li> <li>For manufacturers, plus the time it takes for them to restore the manufacturing production facilities; or</li> <li>The limit of insurance is exhausted, whichever is first.</li> </ul> <p><em><strong>Extended Period of Indemnity:</strong></em> The policy may provide for an extended period of indemnity, which insures the difference between what the business is doing following restoration of property and what it would have done had no loss occurred. Most companies grant 30 days coverage for the extended period of indemnity with the option to purchase a greater time frame up to “unlimited”.</p> <p><em><strong>Waiting Period:</strong></em> A waiting period is an amount of time, represented by normal business hours, which must elapse before the insurance company will start calculating a BI loss. The BI coverage starts after the waiting period is exhausted. The waiting period does not apply to extra expense. This is so you may use the EE dollars immediately so as to return to business quickly.</p> <p><em><strong>100% Business Income:</strong></em> The 100% BI amount is determined by completing a <a href="/content/documents/bluestone-business-interruption-worksheet.xls" target="_blank">BI<span> W</span>orksheet</a>. The worksheet sets forth what constitutes the 100% BI for the 12 months of the policy year. In theory, if you were out of business for 12 months, and you determined the 100% BI correctly, you would have insurance for 12 months. If you determine that recovery will take a period longer then 12 months, you will need to calculate an increased BI limit. You must be conservative in estimating how long it will take you to return to the business to where it would have been if no loss occurred.</p> <p>If you estimate it would take the following recovery times:</p> <ul> <li>9 months (optimistic) you’d require 75% of the 100% BI,</li> <li>12 months, you’d require 100% of the 100% BI, or</li> <li>18 months, you’d require 150% of the 100% BI.</li> </ul> <p><em><strong>Ordinary Payroll:</strong></em> Ordinary payroll is automatically covered under Business Income. If you do not want to cover the ordinary payroll, it must be excluded or limited by endorsement. Non-ordinary payroll or executive payroll may not be excluded, as these individuals are essential for the insured’s return to business.</p> <p>Failure to insure the ordinary payroll may cause you problems in returning to the market place because trained employees may not be available. In such cases training costs are not insured and may represent a considerable amount plus a delay in returning to business.</p> <p>There are two types of payroll calculations for Business Income:</p> <p><em>Executive Payroll</em></p> <ul> <li>Officers, executives, department managers, employees under contract; and any additional person or persons the insured wants to decree as executive payroll either by job classification or by individual’s names.</li> </ul> <p><em>Ordinary Payroll</em></p> <ul> <li>Payroll, benefits, governmental pensions paid by the insured, union dues paid by the insured, and Worker’s Compensation premium.</li> </ul> <p>Even though it is usually not advisable to exclude ordinary payroll, you have the option to exclude the ordinary payroll entirely or insure the ordinary payroll for 30, 60, 90 or 180 days.</p> <p><em><strong>Extra Expense</strong></em> (EE) insures those necessary expenses, over and above your normal operating expenses, you pay in an attempt to reduce the BI loss and/or return to business more rapidly than if such extra expenses were not paid.</p> <p><em><strong>Business Income Including Extra Expense Combined Limits:</strong></em> If the combined BI/EE form is purchased, values for BI and EE should be established and combined. Too many times only the BI value is calculated. At the time of loss, the combined BI/EE limit of insurance may be used entirely for BI; entirely for EE; or any combination of BI/EE.</p> <p><em><strong>Steps you can take to help resolve your claim favorably:</strong></em></p> <ul> <li>Do your best to read your policy carefully. If you do not understand how the insurer will calculate the income loss, ask for an explanation and insist that the method of calculation be consistent with policy terms and applicable laws and regulations.</li> <li>Start gathering data immediately following the incident. Don’t throw anything away, even if it’s damaged, until you determine whether it may be needed to support your claim, including your claim for the physical damage.</li> <li>Involve your accountant or other financial expert in any significant financial loss.</li> <li>Keep accurate records of sales and operations expenses that continue after a loss. Lost revenue and extra expenses caused by the business interruption should be tracked from day one. You may want to track the extra expenses in a separate ledger or account. Get professional help if necessary.</li> <li>Take photographs of the damage before you make any repairs or remove any damaged items.</li> <li>Take reasonable steps to avoid or minimize your loss. For example, you may consider re-opening your business at a temporary location, outsourcing of some operations to other organizations, continuing to operate using only part of your business space, etc.</li> <li>Keep a log of all your communications with the insurance company during the claim process. Also keep copies of all letters and e-mails you receive from and send to the insurer or its representatives.</li> <li>Avoid misunderstandings, ask the insurance company to request documents in writing.</li> <li>Consider hiring an independent insurance adjuster or insurance attorney (at your expense) to deal with the insurance company and advise you regarding how best to prove your claim and maximize your recovery consistent with policy terms.</li> </ul> <p><strong>Conclusion:</strong></p> <p>Accurately calculating business interruption values is a critical part of an organization’s pre-loss planning process. Having an accurate valuation greatly improves the recovery process and the organization’s probability of surviving a catastrophic event.</p> <hr /> <p>If you would like more information on Business Income, please contact BlueStone Advisors at <a href="tel:630.504.6400">630.504.6400</a>.</p> <p><em>Andrew Royce, CIC, CRM, CLCS, CRIS is Co-Founder & President of BlueStone Advisors, LLC, an insurance brokerage and consulting firm specializing in Property & Casualty, Employee Benefits and Captives. He specializes in Captives for P&C and Employee Benefits and has over 15 years of industry experience. Andrew can be reached at <a href="mailto:aroyce@bluestoneadvisors.com">aroyce@bluestoneadvisors.com</a>.</em></p>]] The Pharmacy Rebate System: Traditional vs. Fee-Based Model Mon, 24 Sep 2018 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=18 http://www.bluestoneadvisors.com/blog/article.html?id=18 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/pharmacists-fight-patients-for-pocketbooks.jpg" class="mceItemNoResize" />The pharmacy rebate system is under fire and companies are beginning to make moves toward more transparency</p> </blockquote> <hr /> <p>In 2018, Carl Ichan (a large investor in Cigna) stated that Cigna's merger with Express Scripts, a national Pharmacy Benefit Manager (PBM), rivaled 'the worst in corporate history'. Ichan went on to say, “When Cigna entered into this agreement several months ago, I believed a $60 billion purchase price made no sense, but there were at least arguments that could be made by management to try to persuade us into thinking that it was not completely ridiculous”.</p> <p>In his <strong><a href="https://carlicahn.com/open-letter-to-cigna-stockholders/" target="_blank">letter to shareholders</a></strong>, however, he continued, “These arguments now disappear in light of certain material events of the last month, such as Amazon’s almost certain entrance as a competitor to Express Scripts and the government’s direct challenge to the <span><em>highly flawed</em></span> rebate system. As a result, Express Scripts’ earnings will almost certainly be seriously diminished, but even more importantly, Express Scripts will be existentially challenged, i.e., their very existence might well come into question over the next few years.”</p> <p>To be sure, the <span><strong>pharmacy rebate system is under fire and companies are beginning to make moves toward more transparency</strong></span> in light of criticism from employers, lawmakers, and the Trump administration - which is pushing for lower drug prices.</p> <p>“The current administration is particularly focused on bringing down prescription drug prices for consumers and has specifically targeted PBMs as the part of the supply chain that is overearning relative to the value they produce,” Icahn wrote in his letter. “There is a strongly held belief that<span> <strong>the rebate system, which Express Scripts relies on heavily, is a rigged game with conflicting incentives</strong></span> that might actually be pushing up drug prices”, according to Ichan.</p> <p>"<span><strong>It is our belief that the PBM industry will move to an entirely fee-based model</strong></span> over time, which already exists for some customer groups," Icahn said of the Cigna-Express Scripts deal. "Since rebate customers are among the highest margins for PBMs, this shift is very likely to result in significant margin compression."</p> <h2>How Rx Rebates works with Traditional Insurance Carriers:</h2> <p>To understand how the Rx rebate work, we first must understand the six stakeholders in the supply chain of prescription drugs:</p> <ol> <li>Pharmaceutical manufacturers – (e.g. Pfizer, Roche, AbbVie)</li> <li>Wholesalers – (e.g. McKesson, Cardinal Health)</li> <li>Pharmacies – (e.g. CVS, Walgreens, Wal Mart)</li> <li>Pharmacy benefit managers (e.g. Caremark, Express Scripts, OptumRx)</li> <li>Health insurers (e.g. UHC, BCBS, Cigna)</li> <li>Patients</li> </ol> <p>The pharmaceutical manufacturer pays prescription drug rebates to the PBM, who then shares a portion with the health insurer. Rebate contract terms vary widely among brands, pharmaceutical manufacturers, and health insurers, but tend to be highest for brands in therapeutic classes with competing products. The aim is to incentivize PBMs and health insurers to include the pharmaceutical manufacturer’s products on their formularies and to obtain a “preferred tier” placement.</p> <p>Without further governmental regulation or a disruption in the market (e.g., Amazon Rx), the lack of required transparency between the parties receiving the rebates (manufacturer, PBM, insurer) and the consumer makes cost comparisons of competing brands nearly impossible. This currently sanctioned “black box” of rebates creates a <span>major</span> profit center in the prescription drug distribution chain because <em>consumers do not know the true cost of the drug</em>. Neither the patient nor the employer knows how much the pharmaceutical manufacturers are paying in rebates, or how much the PBMs and the health insurers are withholding. While average rebates are close to 20% of the Rx price, some brands have no rebates, while others offer rebates of over 75%. To add to the complexity, rebate levels change each year as a result of negotiations between health insurers, PBMs, and pharmaceutical manufacturers.</p> <p>All of this has resulted in a rigged system, and is exactly what Express Scripts - and other PBMs - have relied on to beef up its profits. As more employers demand transparency and explore a fixed fee PBM model, the valuation and success of the Cigna/Express Scripts merger is threatened, as predicted by Mr. Ichan.</p> <h2>Transparency:</h2> <p>Companies with 50 full-time employees or more may consider a fully transparent fee-based PBM model. In a fee-based PBM model the employer pays a flat fee for the PBM services and the employer recovers 100% of the Rx rebates. The fee-based model is transparent and more cost effective than the traditional Rebate system. Further, the employer is equipped with Rx utilization reports and true cost data that allow the employer to properly manage and control healthcare costs. With rebates ranging from 20-75% for Rx, the savings can be substantial. Furthermore, with $64 billion in brand drugs becoming available as generics, self-funded employers have never been in a better position to maximize every dollar they spend. In contrast, specialty pharmacy costs and utilization are on the rise for these specialized, high-cost therapies.</p> <h2>Fee-based PBM options:</h2> <p>Some traditional insurers will not allow their insureds to switch to a fee-based model because of the profitability it produces for the insurer. In these cases, companies are looking at programs such as Employee Benefits Captives to drive down healthcare costs. When compared to traditional insurance, Employee Benefits Captives provide a long-term cost reduction strategy for: Rx, medical claims, wellness, case management, stop loss premium, etc. Instead of each of these components being a profit center for the traditional insurer, they function on a fee-based and transparent model to reduce the employer’s total healthcare spend.</p> <h2>Conclusion:</h2> <p>The independent fee-based PBM is just one component of the many costs reduction strategies that an employer can incorporate to reduce healthcare costs. The key for an employer is to partner with <span><em>independent providers</em></span> in a transparent model in which the providers work to reduce costs for the employer. The trio of <strong><a href="https://www.forbes.com/sites/antoinegara/2018/01/30/healthcare-stocks-plunge-as-buffett-bezos-and-dimon-team-up-to-fight-tapeworm-costs-on-economy/#53ebab0d6531" target="_blank">Buffet, Bezos and Dimon</a></strong> are doing exactly that for their employees. As employers demand transparency and explore options for their companies, many will find that its yield could be enhanced thereby partnering with independent providers.</p> <p>If you would like more information on an Employee Benefits Captive, please contact BlueStone Advisors at 630.504.6400.</p> <p><em>Andrew Royce, CIC, CRM, CLCS, CRIS is Co-Founder & President of BlueStone Advisors, LLC, an insurance brokerage and consulting firm specializing in Property & Casualty, Employee Benefits and Captives. He specializes in Captives for P&C and Employee Benefits and has over 15 years of industry experience. Andrew can be reached at <a href="mailto:aroyce@bluestoneadvisors.com">aroyce@bluestoneadvisors.com</a>.</em></p>]] Distracted Driving: Quick Safety Tips Thu, 07 Jun 2018 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=16 http://www.bluestoneadvisors.com/blog/article.html?id=16 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/sw-distracteddriving-clean-1.jpg" class="mceItemNoResize" />Distracted driving is a public health issue that affects us all. The latest statistics show motor vehicle fatalities are up 6% from 2015. Each death is 100% preventable. From cell phones to</p> </blockquote> <p><hr/ ></p> <p>Distracted driving is a public health issue that affects us all. The latest statistics show motor vehicle fatalities<br />are up 6% from 2015. More than 40,000 people were killed on our nation’s roadways last year, and distracted driving is a major contributor. Each death is 100% preventable. From cell phones to dashboard infotainment systems to evolving voice command features—all pose a threat to our safety. Just one second of your attention is all takes to change a life forever.</p>]] Why an Employee Benefits Captive? Tue, 05 Jun 2018 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=14 http://www.bluestoneadvisors.com/blog/article.html?id=14 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/shutterstock_680761051.jpg" class="mceItemNoResize" />Why are middle-market companies looking into Employee Benefit Captives?</p> </blockquote> <hr /> <p>Why are middle-market companies looking into Employee Benefit Captives?</p> <p><strong>Reason #1</strong></p> <p>Employers are frustrated with paying higher premiums while the insurance companies continue to get richer.  The five-year performance for the three largest, publicly traded insurance companies is shown below; notice that each is trading at an all-time high, with astounding growth and market capitalizations. </p> <table style="width: 100%;" class="mceTable"> <tbody> <tr> <th> </th> <th>Stock Price (12/1/12)</th> <th>Stock Price (12/1/17)</th> <th>5-year Increase</th> </tr> <tr> <td>UnitedHealthGroup (UNH)</td> <td>$54.24</td> <td>$224.77</td> <td>315%</td> </tr> <tr> <td>Aetna (AET)</td> <td>$46.31</td> <td>$180.01</td> <td>289%</td> </tr> <tr> <td>Cigna (CI)</td> <td>$53.46</td> <td>$206.55</td> <td>287%</td> </tr> </tbody> </table> <table style="width: 100%;" class="mceTable"> <tbody> <tr> <th> </th> <th>Market Cap (12/1/12)</th> <th>Market Cap (12/1/17)</th> <th>5-year Growth</th> </tr> <tr> <td>UnitedHealthGroup (UNH)</td> <td>$51.8 billion</td> <td>$217.7 billion</td> <td>320%</td> </tr> <tr> <td>Aetna (AET)</td> <td>$15.1 billion</td> <td>$58.7 billion</td> <td>289%</td> </tr> <tr> <td>Cigna (CI)</td> <td>$15.4 billion</td> <td>$50.9 billion</td> <td>230%</td> </tr> </tbody> </table> <p>Health Care Service Corporation, the parent company of BlueCross BlueShield of Illinois and the nation’s fourth largest insurer is registered as a “not for profit” mutual company and therefore is not publicly traded.  Regardless of a ‘not for profit’ registration, HCSC financial results are equally staggering:  </p> <ul> <li>2017 Revenues: $35.7 Billion</li> <li>2017 Gross Profit: $5.3 Billion</li> <li>2017 Net Profit $1.3 Billion </li> </ul> <p>The above HCSC figures do not include fees collected from Self Funded Employers. </p> <p><strong>Reason #2</strong></p> <p>Health insurance costs account for the second largest employee-related expense – second only to wages, according to a September, 2017 study by the U.S. Bureau of Labor Statistics. To control increasing health insurance costs, many employers have had to:</p> <ul> <li>Absorb higher premium rates</li> <li>Raise employees’ premium contributions</li> <li>Increase deductibles</li> <li>Increase out-of-pocket expenses</li> <li>Reduce network options and/or</li> <li>(Re)-introduce HMO plans</li> </ul> <p><strong>Reason #3</strong></p> <p>Perhaps most important, and least known -- Transparency!  For years, health insurance companies have gotten away without being forced to share information – for example, claims data - with their customers, and this has contributed to their recent explosive growth. They do not share their true costs; they embed profit centers in multiple facets of the healthcare system; and they work to keep data from buyers.  Insurance carriers pass along rate increases with a deceptive term called ‘trend’.   A 4% ‘trend’ rate increase might sound like a good renewal if you’re a buyer, but 4% over last year’s premium does not rationalize costs.  The good news is that buyers are starting to push back.  They are looking for innovative options and demanding additional data.  When one compares a traditional health insurance proposal to an employee benefits captive proposal, the true costs are revealed - and the insurance carrier profiteering is startling.<strong> </strong></p> <p><strong>Employee Benefit Captive – An Innovated Employer Strategy</strong></p> <p>A captive insurance program is a strategy that can have a major impact on controlling rising costs and providing higher quality healthcare benefits for employees.  A captive structure allows businesses to ‘unbundle’ the healthcare plan, which is made up of the provider network, third party administrators (TPA), pharmacy benefit managers (PBM), and wellness providers. By unbundling, companies can strip out the excess costs built in by insurance companies.  In a captive, you pay to use the insurance carrier network and for the insurance card, but utilize other providers for the administrative services.  These other providers are independent, and work to serve the buyer in a cost effective and transparent manner.  A captive structure is seamless to the employees - which makes for easy implementation and administration.</p> <p>The captive itself is incorporated as an insurance company that rents a provider network from an insurer (Cigna, United Health Care, Aetna).  Members of the captive have control over who joins, and are smart to create alliances with other like-minded organizations that are dedicated to promoting employee health and wellness.  In doing this, a company’s risk pool is stabilized, costs are reduced, and profits are returned to the captive owners rather than to the insurance companies, as in the traditional market.</p> <p>Additionally, captives allow their member firms to be more agile and responsive than they would on their own. As a collective group, captive members gain access to data and insights that can help steer their employee health insurance programs. Finally, the captive group model allows for significant potential savings on administrative services, health management tools, and network access fees.</p> <p><strong>Who should consider an Employee Benefit Captive?</strong></p> <p>Employee benefit captives are ideal for companies with 100-1000 employees, strong leadership, and that value employee health and wellness. Typically, companies that are a good fit for a captive program pay a minimum of $1,000,000 in annual premium, have acceptable claims history, and a healthy and diverse workforce.</p> <p><strong>Benefits of an Employee Benefits Captive</strong></p> <ul> <li>Members become a part owner (shareholder) of the insurance company formed</li> <li>Opportunity to save up to 45% on medical premiums by unbundling</li> <li>Earn investment income on premiums paid</li> <li>Establish a new profit center</li> <li>Increased transparency which leads to more control over insurance and claims</li> <li>Reduction of pricing volatility and increased budget stability</li> <li>Earn dividends for favorable claims experience</li> <li>Realize important tax benefits</li> <li>Fund estate planning and/or executive bonuses with premium dividends</li> </ul> <p>If you would like more information on an Employee Benefits captive, please contact BlueStone Advisors at <a href="tel:630.504.6400" target="_blank">630.504.6400</a>.</p> <p> </p> <p><em>Andrew Royce, CIC, CRM, CLCS, CRIS is Co-Founder & President of BlueStone Advisors, LLC, an insurance brokerage and consulting firm specializing in Property & Casualty, Employee Benefits and Captives. He specialized in captives for property & Casualty and Employee Benefits and has over 15 years of industry experience. Andrew can be reached at <a href="mailto:aroyce@bluestoneadvisors.com">aroyce@bluestoneadvisors.com</a>.</em></p> <p> </p>]] Grill Safety Tue, 05 Jun 2018 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=15 http://www.bluestoneadvisors.com/blog/article.html?id=15 <p>Seven out of every ten adults in the U.S. have a grill or smoker, which translates to a lot of tasty meals. But it also means there's an increased risk of home fires. Between 2011 and 2015, fire departments went to an average of 9,600 home fires involving grills, hibachis or barbecues per year.</p>]] ACA Compliance Causing Employers Headaches Fri, 22 Jan 2016 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=13 http://www.bluestoneadvisors.com/blog/article.html?id=13 <p>The Affordable Care Act (ACA), Healthcare Reform, Obamacare…it’s known by many things, but easy isn’t one of them. The ACA brought with it many changes not only to the healthcare system, but it also ushered in many new compliance issues that employers are required to address.</p> <p>By now, most employers that are considered Applicable Large Employers (ALEs) are aware that they are required to report certain information about its health plan offering to the IRS. Using Form 1095-C, employers must report to the IRS and provide each full time employee this report that outlines if the coverage they provided covered Minimum Essential Benefits and was affordable based on the 9.5% test.</p> <p>The reporting of Form 1095-C is regularly scheduled to follow the same timeline as the end of year W-2. It’s based on calendar year reporting and must be provided to employees no later than January 31 each year. Of course, to provide employers more time to gather data and ultimately report, the Administration has delayed the deadline of 1095 Reporting to March 31, 2016.</p> <p>So we know that reporting must be provided, but we’re finding most employers are still struggling with “HOW?” Do we use our payroll vendor? Do we use our accountant? Our HRIS system? Our internal staff? A simple web search will deliver copious results of companies offering to handle this reporting dilemma. The question is: who do you use? And more specifically, what are they going to do for me? What does it cost?</p> <p>First, there are many companies that have developed sophisticated software programs designed to assist companies with data collection, form auto-population, and some will even handle the printing and mailing for you. Important to note is whether or not they will also E-file the forms, along with Transmittal Form 1094-C directly with the IRS. These are all questions that should be addressed when selecting a software program.</p> <p>But what happens if you have questions? Not only about the reporting, but other ACA requirements like FTE Tracking, ALE Determination, Penalty Assessment Analysis, Measurement and Stability Period Tracking? Do you have a resource for that? Most software providers provide excellent, state-of-the-art software. It’s based on sophisticated algorithms, fancy HTML code, but what about core understanding of the law itself? Before you decide, check the boxes that are going to deliver your company meaningful results AND protect you from liability. For example, not filing Form 1095-C will cost you $500 per form. If it’s late or inaccurate, it’s $250 per form.   It’s big money, and this time, the IRS is serious!</p> <p><em>BlueStone Advisors is a full service consulting and risk management company. Contact us today learn more about the ACA and how we can help you manage your compliance risk. </em></p>]] Company Holiday Parties & Liquor Liability Mon, 23 Nov 2015 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=12 http://www.bluestoneadvisors.com/blog/article.html?id=12 <blockquote> <p style="max-width: 500px; width: 100%;"><img src="/content/images/cms/shutterstock_521656633.jpg" class="mceItemNoResize" />Does your Liability policy cover your company from the risks arising from your holiday party?</p> </blockquote> <hr /> <p>It is that time of year again -- when many companies host holiday parties for clients and colleagues.  While holiday parties can be a lot of fun, they can also expose the company to additional liability.  Does your Commercial General Liability (CGL) policy cover your company (and you personally) for catastrophic events arising from your holiday party?  Below is an overview of Liquor Liability coverage and the coverages provided under most Commercial General Liability policies.</p> <p>The good news is that most commercial general liability policies DO cover your company for incidents resulting from serving alcoholic beverages -- as long as you are not in the business of selling, making, storing, or distributing liquor.  As a result, if someone from the party gets injured - or injures others - as a result of being over-served, your commercial general liability policy is likely to respond.  If you are in the business of selling, making, distributing, or furnishing alcohol, you will need to purchase a separate liquor liability policy.</p> <p>Bear in mind that <em>having</em> coverage and <em>having enough </em>coverage are two separate issues.  If an accident occurs, it will likely be catastrophic in nature and higher limits will be needed for adequate protection.  If you have not had a recent discussion with your insurance broker regarding your liability insurance limits, it would make good sense to place that call <strong>BEFORE</strong> the event!  Another way to further protect your company, colleagues, and clients is to hire a professional bartender who carries their own liquor liability insurance coverage; most catering companies offer this service.  This keeps employees from pouring their own drinks and works well to prevent over-consumption. </p> <p>Keep in mind that if you are selling liquor by the drink, or charging admission for an event, it can create a situation where coverage is excluded under a CGL policy, which would require separate Special Event coverage.  Again, it is a good idea to connect with your insurance broker to verify coverage for your specific event.  </p> <p>If you are a landlord with a tenant whose business involves alcoholic beverages, be sure that they have adequate coverage. In some states, the landlord can be held liable for actions of a tenant.  While naming a landlord on a CGL as a form of indemnification is often part of a commercial lease, a CGL will not provide liquor liability protection for a landlord due to the exclusion. The landlord will also want to be named on a liquor liability policy with adequate limits provided.</p> <p>Your personal liability limit on your homeowner’s policy can vary from $50,000 up to $500,000. For increased limits, you should consider a personal excess liability (umbrella) policy.  While a company will likely indemnify its executives if a claim occurs, it is a good idea to make sure the executive’s homeowners policy also extends coverage.  Further, it is a good practice for executives to have higher personal liability limits for hosting events outside their capacity as an executive.</p> <p><strong><strong> </strong></strong></p> <p><strong>Additional Steps to Protect Yourself and Your Guests</strong></p> <p><strong>Make sure you understand your state laws.</strong> Before sending out party invitations, familiarize yourself with your state’s social host liability laws. These laws vary widely from state to state. Some states do not impose any liability on social hosts; others limit liability to injuries that occur on the host’s premises.  Some extend the host’s liability to injuries that occur anywhere a guest who has consumed alcohol goes. Many states have laws that pertain specifically to furnishing alcohol to minors.</p> <ul> <li><strong>Consider venues other than your office for the event. </strong>Hosting your event at a restaurant or bar with a liquor license will help minimize liquor liability risks. </li> </ul> <ul> <li> <p><strong><strong>Hire a professional bartender.</strong> Most bartenders are trained to recognize signs of intoxication and are better able to limit consumption.<strong> </strong></strong></p> </li> </ul> <ul> <li> <p><strong>Encourage guests to pick a designated driver </strong>who will refrain from drinking alcoholic beverages so that he or she can drive other guests home. </p> </li> <li> <p><strong>Be a responsible host/hostess.</strong> Limit your own alcohol intake so that you will be better able to judge your guests’ sobriety. </p> </li> <li> <p><strong>Offer non-alcoholic beverages and always serve food.</strong> Eating and drinking plenty of water, or other non-alcoholic beverages, can help counter the effects of alcohol. </p> </li> <li> <p><strong>Do not pressure guests to drink </strong>or rush to refill their glasses when empty. Never serve alcohol to guests who are visibly intoxicated. </p> </li> <li> <p><strong>Stop serving liquor toward the end of the evening.</strong> Switch to coffee, tea and soft drinks. </p> </li> <li> <p><strong>If guests drink too much or seem too tired to drive home, call UBER </strong>or arrange a ride with a sober guest.</p> </li> <li> <p><strong>Encourage all your guests to wear seatbelts as they drive home. </strong>Studies show that seatbelts save lives. </p> </li> </ul>]] Futures & Funds Firms: E&O Insurance Market Overview Wed, 22 Jul 2015 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=11 http://www.bluestoneadvisors.com/blog/article.html?id=11 <p>A 40-year veteran in the futures industry recently told me what he thought was wrong with insurance: “The problem with insurance is that the underwriters don’t understand our business.” In fairness to insurance underwriters, he went on to say, “…and we don’t understand much about insurance, either”. Historically, there has been a communication gap between insurance professionals and fund managers, which resulted in a void of relevant insurance products at a suitable premium in the marketplace.</p> <p>The challenge for insurance professionals serving the futures market is often the utter complexity of the risks inherent in the futures & funds industry. A good insurance professional first seeks to understand the insured’s business before capably offering products to protect it. In practice, it is much easier for insurance professionals to insure a widget manufacturer with product liability than to understand the risks and exposures of swaps, forwards, derivatives, Reg. D offerings, etc. - not to mention compliance with regulatory bodies and back office practices and procedures.</p> <p>Prior to 2003, insurance policies for financial services firms were expensive and did not provide adequate coverage, thereby making the entire transaction unjustifiable. Since then, the insurance industry has gained valuable insight into the financial services industry subsequent to the collapse of MF Global, PFG, Lehman and related catastrophic events.  The heightened awareness of risk on behalf of underwriters has resulted in the following improvements to available products for financial services firms:</p> <ul> <li>An ability to properly price insurance policies</li> <li>Creation of customized policies for small to midsize firms</li> <li>Broader coverage available to insureds</li> </ul> <p>This post will provide a brief market overview and detail the current products available to protect the firm, directors, officers and investors from adverse events.  To begin, below are several frequently asked questions and coverage definitions:</p> <p>Q: Will a policy cover Fines and Penalties, including CFTC § 1.35?<br />A: Yes </p> <p>Q: Will a policy cover (formal & informal) Investigations?<br />A: Yes</p> <p>Q: Does the insurance pay for attorney’s fees?<br />A: Yes – if the claim is covered</p> <p>The insurance coverages specific to financial services firms are:</p> <ul> <li>Errors and Omissions (E&O)</li> <li>Directors and Officers (D&O)</li> <li>Employment Practices Liability (EPL)</li> <li>Fidelity Bond (Crime)</li> <li>Fiduciary Liability</li> <li>Network Security Liability (Cyber)</li> </ul> <p><strong>Errors & Omissions</strong><br />This insurance (aka E&O Insurance) protects the firm, its officers, directors, employees and representatives in the event they are sued by clients for any actual or alleged negligent act, error, or omission committed in the scope of performing their professional services. Coverage includes legal defense costs even where allegations are baseless.</p> <p>Lawsuits can arise even if you have not violated any laws; and even if the court rules in your favor, the cost of defending yourself could be expensive. Errors and Omissions insurance provides coverage for legal fees and settlements.</p> <p><strong>Directors & Officers</strong><br />This insurance (aka D&O Insurance) indemnifies directors and officers if they are sued by stockholders, employees, clients, or others in conjunction with the performance of their duties. Coverage extends to claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.</p> <p>Since a director can be held personally liable, most directors and officers will require that their firm maintain D&O Insurance to protect their personal assets.</p> <p><strong>Employment Practices Liability Insurance</strong><br />Employment Practices Liability Insurance (aka EPLI) provides coverage for claims made by employees, former employees, or potential employees concerning discrimination (age, sex, race, disability), wrongful termination, sexual harassment, and other employment-related allegations. The financial services industry has above average claim activity due a number of factors including high employee compensation and employee turnover.</p> <p><strong>Fidelity Bond</strong><br />A Fidelity Bond indemnifies the employer for loss of money or other property sustained through dishonest acts. The scope of acts insured against includes theft, embezzlement, forgery, misappropriation, or other fraudulent or dishonest acts committed by the employee, whether acting alone or in collusion with others.</p> <p>Every fiduciary responsible for managing a profit sharing plan or handling the assets of such a plan is required to obtain an ERISA bond in order to protect that plan’s assets from fraudulent activity. The amount of the bond is fixed at the beginning of each fiscal year of the plan. It must be at least $1,000.00 and never less than 10% of the amount of the funds handled by the fiduciary up to a maximum of $500,000.00 per plan.</p> <p><strong>Network Security/Privacy Liability (Cyber)</strong><br />If the firm is privy to and/or electronically stores personal information, (SSNs, Bank Accounts, etc.), you should consider buying a network security policy.</p> <p>A Network Security Policy provides coverage for:</p> <ul> <li>Privacy injury liability (third party)</li> <li>Network security liability</li> <li>Credit monitoring</li> <li>Breach communication</li> <li>Public relations consulting</li> <li>Pre-incident planning</li> <li>Post crisis response</li> <li>Loss or damages to your network</li> </ul> <p><strong>Alternative Risk Transfer</strong><br />Obtaining one or more of the aforementioned policies is a form of Traditional Risk Transfer: You buy the policy from the insurer, which pays first dollar coverage after the deductible is paid. Alternative Risk Transfer involves a self-insurance component to financing risk. One example of Alternative Risk Transfer is a captive. Firms with $1M in annual net income are generally eligible for captive formation, which can have many benefits such as: </p> <ul> <li>Direct access to reinsurance</li> <li>Earned interest income on premiums</li> <li>Lower premium costs</li> <li>Significant tax advantages</li> <li>More control of coverage and claims</li> </ul> <p>In addition to the above, most firms will also purchase Workers Compensation, General Liability, Property, and Auto. Many of these policies are required by state statute and/or by the bank or real estate leasing company. These policies are relatively straightforward; either a fire happened or it didn’t; a car was in an accident, or it wasn’t. The coverages and claims are typically black and white, and generally do not require advanced industry knowledge or specialization to obtain coverage.</p> <p><strong>Need for Specialization</strong><br />On the other end of the spectrum, E&O and D&O policies are complex because the terms are different between carriers. Moreover, each carrier further negotiates coverage terms with the broker on each policy issued. Specialized brokers will understand which coverage grants to seek on behalf of the insured and how to customize coverage based on the risks of the firm. If the broker does not specialize in the industry, chances are that gaps in coverage exist. </p> <p>Unlike auto claims, E&O and D&O claims have more shades of gray because coverage usually depends on how the claim was filed, the circumstances of the claim, and the policy language. No two D&O/E&O claims are the same - and when a claim occurs, (generally) the first action taken by the insurer’s claim representative is to search the policy for exclusions applicable to the claim filed. Following a claim, the insurer will either deny the claim, send a reservation of rights letter, or accept the claim.</p> <p>Similar to negotiating the terms and conditions of the policy language up front, the claims process can also turn into a negotiation. If you decide to buy the coverage, start with the end in mind. That is, negotiate terms and conditions up front before a claim…when you have leverage. The biggest misconception about E&O and D&O policies is that a $5M limit will provide coverage for <em>all</em> D&O claims up to $5M.   <br /><br />However, when it comes to large D&O/E&O claims, coverage is determined<em>exclusively</em> by the terms, conditions and exclusions of the policy. You could have $50M in limits, but if an exclusion thwarts coverage, you might find that you’ve been paying premiums that reap no benefits. Further, when a D&O/E&O claim occurs, it’s usually because something has gone terribly wrong, and therefore the claims tend to be large. In addition, claims can drag on for years before they settle and litigation fees add up quickly. Filling gaps in coverage is vital to ensuring your premium dollars are not being wasted.</p> <p><strong>Conclusion</strong><br />For the numerous threats faced by financial services firms today, purchasing insurance is a cheap form of capital to deploy when an adverse event occurs. Purchasing insurance will protect the entity as well as the personal assets of the directors and officers that lead it. From a fiscal perspective, insurance will provide:</p> <ul> <li>Increased predictability and sustainable earnings</li> <li>More efficient use of capital</li> <li>Reduced volatility</li> </ul> <p>Each firm has a different tolerance for risk, which has to be taken into account when determining whether to transfer risk (buy insurance) or self-insure (active awareness).   The key is to assess your risk profile and determine the costs to transfer risks so that you can make an educated decision.</p> <p>Benchmarking is not an exact science and each fund is different. The smallest funds can buy limits for $500,000 limit of D&O/E&O coverage while MF Global and Lehman Brothers had $250MM limit of coverage, respectively. The costs can be as low as $2,000 and go up from there.   </p> <p>If you have not had a claim in the past, now is a good time to obtain quotes because credits will be applied to premiums for a clean loss history. Remember that D&O/E&O claims are rare, but black swan events do occur; frivolous claims can happen, and insurance may be a good form of capital to protect your firm and personal assets. </p>]] Where does Workers Compensation Begin and End? Tue, 23 Jun 2015 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=10 http://www.bluestoneadvisors.com/blog/article.html?id=10 <p>To be covered under workers' compensation, a worker must be injured while within the scope of their employment. While this rule seems clear, the term ‘Scope of Employment’ remains the subject of many legal disputes each year.</p> <p>Defining the beginning and ending of the workday is crucial in determining ‘Scope of Employment’ under the workers compensation policy. Work activities can overlap with personal activities, making lines blurred and hard to determine. Questions are often raised when injuries occur during the commute to or from work, traveling for business, occurring in parking lots and sidewalks, or during extracurricular work activities.</p> <p><strong><em>While in the Course of Employment</em></strong></p> <p>Illinois follows the "while in the course of employment" rule. This rule states that regardless of an employee's physical location or the time of day of the injury, if performing assigned job duties, the injury is considered a work place accident and is covered by workers' compensation.</p> <p>Usually, an employer is not liable for providing workers’ compensation benefits for injuries sustained during one’s daily commute. This is known as the “coming and going” rule. However, like most things with workers compensation, there are exceptions.  </p> <p>The exceptions to the “coming and going” rule usually consider whether the travel of the employee was somehow a benefit to the employer and if it was closely related to the employee’s job duties. While there are many exceptions to the “coming and going” rule, they generally fall into four general categories: </p> <ul> <li>The employee has no fixed place of employment and travels for work</li> <li>The employee is injured while traveling to a location different than normal</li> <li>The employee is on a special assignment for the employer; and</li> <li>Travel is a significant part of the employee’s job duties.</li> </ul> <p><strong><em>Parking Lots and Sidewalks</em></strong></p> <p>In most states, workers compensation coverage begins when an employee starts the workday by stepping onto the employer's premises or an area controlled by the employer. It ends when an employee steps off the employer's premises or an area controlled by the employer.</p> <p>The term "controlled by" refers to property an employer either owns, pays a mortgage on, pays a third party (like landscapers) to maintain, or is designated as a common area for which the employer pays rent along with other tenants.</p> <p>An area controlled by an employer is considered an extension of the worker's actual workplace. Examples of areas controlled by employers include sidewalks, parking lots, and any other property an employee traverses on her way to and from the actual workplace.</p> <p><strong><em>Conclusion</em></strong></p> <p>Each state has varying workers compensation laws and interpretations. It is good practice to work with an insurance broker knowledgeable about the laws specific to your company and state(s) that you operate.</p>]] Mitigating EEOC Claims and Employer Risks Thu, 21 May 2015 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=9 http://www.bluestoneadvisors.com/blog/article.html?id=9 <p class="p1">Did you know that the moment your company conducts an interview with a prospective employee that you are at risk of an employment claim?</p> <p class="p1">Regardless of the candidate’s qualifications, the rejected candidate can allege that you discriminated against them in your decision not to hire him/her for the position. In Cook and Dupage Counties, an employment claim for ‘failure to hire due to discrimination’ can cost thousands in attorney’s fees, settlement costs, and potential punitive damages to the employer whether or not the claim has merit.</p> <p class="p1">Current employees can make similar employment related allegations that can fall under the ‘wrongful termination’ or ‘retaliation’ charges within the EEOC, Equal Employment Opportunity Commission. When it comes to employment related claims, all organizations, regardless of size or industry, are impacted and if you think such a claim will never be made against your company you may want to read on.</p> <p class="p1">Since 2009, Illinois has averaged over 5,200 EEOC claims per year against employers. Employment related claim parameters continue to broaden, making it is easier than ever for current or past employees to file a claim against an employer with the EEOC.  The types of discrimination enforced by the EEOC include:</p> <ul class="ul1"> <li>Age</li> <li>Disability</li> <li>Equal Pay/Compensation</li> <li>Genetic Information</li> <li>Harassment</li> <li>National Origin</li> <li>Pregnancy</li> <li>Race/Color</li> <li>Religion</li> <li>Retaliation</li> <li>Sex</li> <li>Sexual Harassment</li> </ul> <p class="p1">For a current or past employee to file a job discrimination lawsuit against the employer, s/he must first file a charge of discrimination with the EEOC. Additionally, if the aggrieved person does not want to be identified, s/he can have an individual, organization, or agency file a charge on his/her behalf. If a claim is filed within the 180-day requirement, mediation may be possible, but if not, an investigation will be opened against the employer. It is then the practical burden of the employers to show that they acted properly and according to the law. Whether the claims are taken to court or settled outside of court, the defense costs and settlement fees can be significant in addition to the time required to adjudicate the claim.</p> <p class="p1">So how can you protect your company from employment claims? For starters, the following actions can be taken to help lower your risk of an employment related claim:</p> <ul class="ul1"> <li>Review the exposures with your insurance broker and consider purchasing an employment practices liability policy. Some policies today will provide the coverage for free. </li> </ul> <ul class="ul1"> <li>Have a clearly defined job description for each position stating the expectations of skills and performance.</li> </ul> <ul class="ul1"> <li>Establish a screening and hiring program to eliminate candidates that are unsuitable on paper <em>prior</em> to scheduling an interview.</li> </ul> <ul class="ul1"> <li>Conduct background checks on all potential employees.</li> </ul> <ul class="ul1"> <li>Institute a zero tolerance policy regarding substance abuse, discrimination, and any form of harassment. It is also good practice to have an “open door” policy in which employees can report incidents without the fear of retribution or retaliation.  A confidential EAP plan may also assist with incident reporting and claim mitigation.</li> </ul> <ul class="ul1"> <li>Develop a record-keeping system to document incidents when they arise as well as what the company did to resolve those incidents.</li> </ul> <ul class="ul1"> <li>Conduct periodic performance reviews of all employees and carefully note the results in the employee file. Employee files should also maintain any reports or incidents involving that employee.</li> </ul> <ul class="ul1"> <li>Create an employee handbook that details your company’s employment policies and procedures for disciplining and/or terminating an employee. Require that all employees read the handbook and a statement be signed to that effect.</li> </ul> <p class="p1"> </p> <p class="p1">Every company in Illinois should consider an EPLI, Employment Practices Liability Insurance, policy that provides coverage for allegations of wrongful acts that can arise from the employment process. The most frequent types of claims are <strong>wrongful termination, discrimination, sexual harassment, and retaliation</strong>. EPLI is usually written on claims-made basis, which means that the incident that resulted in the claim occurred during the coverage period. The policy premium will depend on various factors including the size of your company, the number of employees, the type of business conducted, the location of the business, the number of claims and lawsuits previously filed, and how long your company has been in business.</p> <p class="p1">The premium is considerably less for companies that have never had an employment related claim in the past. For companies that fit into this category, contact a specialty EPL broker and request a quote for the coverage. For companies that have a policy in place, have it reviewed by a specialty EPL broker to certify that it contains the most recent coverage enhancements available in the marketplace today and is priced at today’s benchmark premium.</p>]] One Bourbon, One Scotch, One Beer = Considerable Corporate Liability Mon, 20 Apr 2015 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=6 http://www.bluestoneadvisors.com/blog/article.html?id=6 <p>It is that time of year again -- when many companies host summer events for clients and colleagues.  While summer outings can be a lot of fun, they can also expose the company to additional liability.  Does your Commercial General Liability (CGL) policy cover your company (and you personally) for catastrophic events arising from your summer outing?  Below is an overview of Liquor Liability coverage and the coverages provided under most Commercial General Liability policies.</p> <p>The good news is that most commercial general liability policies DO cover your company for incidents resulting from serving alcoholic beverages -- as long as you are not in the business of selling, making, storing, or distributing liquor.  As a result, if someone from the party gets injured - or injures others - as a result of being over-served, your commercial general liability policy is likely to respond.  If you are in the business of selling, making, distributing, or furnishing alcohol, you will need to purchase a separate liquor liability policy.</p> <p>Bear in mind that <em>having</em> coverage and <em>having enough </em>coverage are two separate issues.  If an accident occurs, it will likely be catastrophic in nature and higher limits will be needed for adequate protection.  If you have not had a recent discussion with your insurance broker regarding your liability insurance limits, it would make good sense to place that call <strong>BEFORE</strong> the event!  Another way to further protect your company, colleagues, and clients is to hire a professional bartender who carries their own liquor liability insurance coverage; most catering companies offer this service.  This keeps employees from pouring their own drinks and works well to prevent over-consumption. </p> <p>Keep in mind that if you are selling liquor by the drink, or charging admission for an event, it can create a situation where coverage is excluded under a CGL policy, which would require separate Special Event coverage.  Again, it is a good idea to connect with your insurance broker to verify coverage for your specific event.  </p> <p>If you are a landlord with a tenant whose business involves alcoholic beverages, be sure that they have adequate coverage. In some states, the landlord can be held liable for actions of a tenant.  While naming a landlord on a CGL as a form of indemnification is often part of a commercial lease, a CGL will not provide liquor liability protection for a landlord due to the exclusion. The landlord will also want to be named on a liquor liability policy with adequate limits provided.</p> <p>Your personal liability limit on your homeowner’s policy can vary from $50,000 up to $500,000. For increased limits, you should consider a personal excess liability (umbrella) policy.  While a company will likely indemnify its executives if a claim occurs, it is a good idea to make sure the executive’s homeowners policy also extends coverage.  Further, it is a good practice for executives to have higher personal liability limits for hosting events outside their capacity as an executive.</p> <p><strong><strong> </strong></strong></p> <p><strong>Additional Steps to Protect Yourself and Your Guests</strong></p> <p><strong>Make sure you understand your state laws.</strong> Before sending out party invitations, familiarize yourself with your state’s social host liability laws. These laws vary widely from state to state. Some states do not impose any liability on social hosts; others limit liability to injuries that occur on the host’s premises.  Some extend the host’s liability to injuries that occur anywhere a guest who has consumed alcohol goes. Many states have laws that pertain specifically to furnishing alcohol to minors.</p> <ul> <li><strong>Consider venues other than your office for the event. </strong>Hosting your event at a restaurant or bar with a liquor license will help minimize liquor liability risks. </li> </ul> <ul> <li> <p><strong><strong>Hire a professional bartender.</strong> Most bartenders are trained to recognize signs of intoxication and are better able to limit consumption.<strong> </strong></strong></p> </li> </ul> <ul> <li> <p><strong>Encourage guests to pick a designated driver </strong>who will refrain from drinking alcoholic beverages so that he or she can drive other guests home. </p> </li> <li> <p><strong>Be a responsible host/hostess.</strong> Limit your own alcohol intake so that you will be better able to judge your guests’ sobriety. </p> </li> <li> <p><strong>Offer non-alcoholic beverages and always serve food.</strong> Eating and drinking plenty of water, or other non-alcoholic beverages, can help counter the effects of alcohol. </p> </li> <li> <p><strong>Do not pressure guests to drink </strong>or rush to refill their glasses when empty. Never serve alcohol to guests who are visibly intoxicated. </p> </li> <li> <p><strong>Stop serving liquor toward the end of the evening.</strong> Switch to coffee, tea and soft drinks. </p> </li> <li> <p><strong>If guests drink too much or seem too tired to drive home, call UBER </strong>or arrange a ride with a sober guest.</p> </li> <li> <p><strong>Encourage all your guests to wear seatbelts as they drive home. </strong>Studies show that seatbelts save lives. </p> </li> </ul>]] Cyber Risks: Best Practices for Board of Directors Thu, 26 Mar 2015 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=5 http://www.bluestoneadvisors.com/blog/article.html?id=5 <p>Global business risks continue to rapidly evolve, in large part due to the cyber risks that are exponentially accelerated by our appetite for new technologies and big data.</p> <p>According to Dave DeWalt, CEO of FireEye, a leader in cyber security, “…97% of all companies are getting breached or have been breached.” [1] FBI Director, James Comey, told 60 Minutes, "There are two kinds of big companies in the United States…those who've been hacked by the Chinese, and those who don't know they've been hacked by the Chinese."[2] JP Morgan Chase spends in excess of $250M every year on network security, which includes hiring “military-grade cyberwarriers” from NSA headquarters. Despite this, they neglected to install a simple security fix on one remote server in a vast network that led to a data breach of over 83 million of its account holders. 2014 included other big name breaches, prompting many board members across the country to fill their reading tablets with Enterprise Risk Management and Cyber Security literature. Here we have compiled a brief summary of best practices to consider when incorporating cyber risk oversight into your organization’s enterprise risk management program.</p> <p><strong>Step 1: Gain a Holistic Understanding of Firm Risk</strong></p> <p>Discuss and prioritize the top risks that threaten the organization. NC State Poole College of Management and Proviti Risk & Business Consulting recently conducted a study of the top business risks for 2015 [4]. One of their findings concluded that directors and senior management are not always in agreement on the top risks that threaten the organization, or they prioritize the risks differently. The board and senior managers must first align risk priorities. Senior management cannot and will not be effective if board priorities and expectations are skewed from their own. Further, because employees can play an important role in risk mitigation, it becomes important for the board and senior management to be in agreement so that a unified tone can be set from the top.</p> <p>Once established, senior management - under the board’s oversight - must seek and reinforce the “everyone is responsible” mantra, meaning that those responsible for each operating unit establish proper communication and reporting channels back to senior management. A fundamental tenant of Enterprise Risk Management is to establish a culture where the unit managers and supporting staff communicate risks up to executive management.</p> <p><strong>Step 2: Understand the Financial, Reputational, and Brand Impact</strong></p> <p>First, establish the immediate financial impact of a breach. Costs following an impact can include:</p> <ul> <li>Notification expenses</li> <li>Legal defense and counsel</li> <li>Public relations</li> <li>Crisis services</li> <li>PCI fines and penalties</li> <li>Regulatory defense</li> <li>Regulatory fines</li> <li>Insurance Costs</li> </ul> <p>In 2014, the average cost for Legal Defense was $698,797 and the average cost for Crisis Services was an additional $366,3834 [4]. Fines and Penalties can be as much as $1,000 per breached account and regulators may adjust the fines to be reflective of the corporation’s risk management efforts. Analyzing the above costs for your own firm will help to gain an understanding of the financial impact to the organization.</p> <p>Will the organization also suffer reputational damage following a breach? Last year, Target suffered over 13% loss in their stock price when it tumbled from $63.55 to $55.12 per share in the 60 days following the data breach. It took 14 months for Target to fully recover, when it finally closed above $82 per share in March 2015. Understand the immediate financial impact and longer-term reputational costs to adequately assess the risk.</p> <p><strong>Step 3: Put the Right Resources in Place</strong></p> <p>Senior management should identify a cyber security and breach response team, inclusive of outside counsel, forensic and investigative consultants, insurance brokers, and public relations. Does your company have a cyber security team on retainer and a disaster recovery plan in place? When it comes to forensic consultants, it is a good idea to negotiate a retainer so that the response team will gain a working knowledge of your organization. In addition, a retainer can provide response time guarantees for your organization, which can be important if resources are limited at the time of a breach.</p> <p>Once on retainer, most forensic teams have the ability to conduct onsite pre-loss mitigation education, webinars, and training to the unit managers and staff. In 2014, 24% of all data breaches arose from staff mistakes and rogue employees. Pre-loss mitigation training and education can work to reduce the threat of cyber breaches originating from internal mistakes. To help prevent a rogue employee from leaking data or stealing valuable corporate property, predictive behavior software can be implemented to provide warning signals to senior management about disgruntled employees. There are additional resources to consider for assistance in preventing a breach and mitigating the damage - if and when it does occur.</p> <p><strong>Step 4: Continuous Risk Evaluation</strong></p> <p>Establish a formal risk oversight committee to give the board and senior management an outlet for dialogue about current and emerging risks affecting the organization. Work to establish a sustainable risk process to address the next big risk before it becomes media worthy. Discuss and prioritize risks and external threats that could endanger earnings, reputation and the brand. An organization’s risk profile and appetite for taking on risk can evolve over time. Be certain to correlate the risks with the organization’s ability to address them.</p> <p>For some boards, Risk Management has other competing priorities on the agenda – below is a short list of questions to assist board members to discuss preparedness, evaluate risks and engage in a dialogue:</p> <ol> <li>Are board members cognizant of management risk concerns?</li> <li>Does the board agree with why these risks are significant?</li> <li>Do directors understand the organization’s responses to these risks?</li> <li>Is there a periodic review of the organization’s risk profile?</li> <li>Does management appraise the board in a timely manner of changes in the organization’s risk profile?</li> <li>Is there a process in place for identifying emerging risks?</li> <li>Is there a board dialogue regarding management’s appetite for risk?</li> <li>Does the organization’s culture facilitate an open dialogue on identifying and evaluating opportunities for risks, including the education of significant risk issues warranting the attention by executive management and the board?</li> </ol> <p><strong>Conclusion</strong></p> <p>The board that commits to addressing risk sets a tone that can filter down through the entire organization. This is a critical first step in a coordinated effort towards enterprise risk management. While a breach seems inevitable for most companies today, the costs of a breach can be mitigated by an organization’s cohesive preparedness for the breach event.</p> <p>__________________________________________________________________</p> <p>[1] <strong>ExecutiveBiz. (12/1/2014). FireEye Study on Attach Data Reveals Vulnerability in 97% of Cases Underground. From</strong><em>http://blog.executivebiz.com/2014/05/david-dewalt-fireeye-study-on-attack-data-reveals-vulnerabilities-in-97-of-cases/</em><br /><br />[2] <strong>Matt Lichfuss. (5/22/2014). 60 Minutes, the “97 Percent”, and the Criminal Underground. </strong><strong><em>Hacksurfer</em></strong><strong>. From</strong><em> http://www.hacksurfer.com/posts/60-minutes-the-97-percent-and-the-criminal-underground<br /></em><br />[3] <strong>NC State Poole College of Management & Proviti Risk & Business Consulting. (2015). Executive Perspectives on Top Risks for 2015” From</strong><em>http://erm.ncsu.edu/library/article/research-report-on-executive-perspectives-of-top-risks-for-2015<br /></em><br />[4] <strong>NetDiligence. (2014). Cyber Claims Study” From</strong><em>http://www.netdiligence.com/NetDiligence_2014CyberClaimsStudy.pdf</em></p>]] Business Income Worksheet: A Refresher Tue, 24 Feb 2015 00:00:00 GMT http://www.bluestoneadvisors.com/blog/article.html?id=7 http://www.bluestoneadvisors.com/blog/article.html?id=7 <p>Consider these odds: Over 70% of businesses involved in a major fire either do not reopen, or subsequently fail within 3 years.  Businesses that do survive plan their response to a disaster <em>before</em> it strikes.  Today, every business is vulnerable to unpredictable events; whether or not they <em>become</em> disasters is up to the executive’s disaster recovery planning process.  This requires an understanding and completion of the Business Income worksheet.  The purpose of business income protection is to put the insured in the same place - financially speaking - that s/he would have been, had no loss occurred. </p> <p>Lost business income results from the interruption of normal business operations due to  direct physical damage of property under a covered cause of loss. The business either shuts down or continues operations in a reduced capacity. In most instances, revenue declines or ceases while some expenses continue. The insured seeks compensation under the lost business income provisions of its policy.  Below is a refresher on business interruption coverage meant to help understand and complete the business income worksheet.</p> <p><strong>Business Income (BI) Insurance </strong>insures the net profit (or loss) and continuing expenses you (the insured) would have had if there had not been any covered loss.  Any expense that is not necessary to continue will not be paid.</p> <p><strong>Continuing Expenses</strong> are normal operating expenses - including payroll - that may continue during the period of restoration and extended period of indemnity.   </p> <p><strong>Non-Continuing Expenses </strong>are normal operating expenses that do not continue during the period of restoration and extended period of indemnity.</p> <p><strong>Extra Expense</strong> <strong>(EE) </strong>insures those necessary expenses over and above your normal operating expenses that you pay in an attempt to reduce the BI loss and/or return to business more rapidly than if such extra expenses were not paid.</p> <p><strong>Business Income Including Extra Expense Combined Limits:</strong> If the combined BI/EE form is purchased, values for BI and EE should be established and combined.  Too many times only the BI value is calculated. At the time of loss, the combined BI/EE limit of insurance may be used entirely for BI; entirely for EE; or any combination of BI/EE.</p> <p><strong>Period of Restoration</strong> is the period of time that payment of the covered losses will continue.  This period ends when:</p> <ul> <li>The property is restored;</li> <li>For manufacturers, plus the time it takes for them to restore their manufacturing production facilities; or</li> <li>The limit of insurance is exhausted, whichever is first.</li> </ul> <p><strong>Extended Period of Indemnity</strong> insures the difference between what the business is doing following restoration of property and what it would have done had no loss occurred.  Most companies grant 30 days coverage for the extended period of indemnity with the option to purchase a greater time frame up to “unlimited”.</p> <p><strong>Waiting Period is </strong>an amount of time, represented by normal business hours, which must elapse before the insurance company will start calculating a Business Income (BI) loss.  The BI coverage starts after the waiting period is exhausted.  The waiting period does not apply to extra expense.  This is so you may use Extra Expense (EE) dollars immediately so as to return to business quickly.</p> <p><strong>100% Business Income</strong> amount is determined by completing a BI Worksheet. The worksheet sets forth what constitutes the 100% BI for the 12 months of the policy year.  In theory, if you were out of business for 12 months, and you determined the 100% BI correctly, you would have insurance for 12 months.  If you determine that recovery will take a period longer than 12 months, you will need to calculate an increased BI limit.  You must be conservative in estimating how long it will take you to return the business to where it would have been had no loss occurred.</p> <p>If you estimate recovery time to be:</p> <ul> <li>9 months (optimistic), you'd require 75% of the 100% BI;</li> <li>12 months, you'd require 100% of the 100% BI; or</li> <li>18 months, you'd require 150% of the 100% BI</li> </ul> <p><strong>Ordinary Payroll</strong> is automatically covered under BI insurance.  If you do not want to cover ordinary payroll, it must be excluded or limited by endorsement.  Non-ordinary payroll or executive payroll may not be excluded, as these individuals are essential for the insured’s return to business.</p> <p>Failure to insure the ordinary payroll may cause problems in returning to the marketplace because trained employees may not be available.  In such cases, training costs are not insured and may represent a considerable amount plus a delay in returning to business.</p> <p>There are two types of payroll:</p> <p>Executive Payroll</p> <ul> <li>officers</li> <li>executives</li> <li>department managers</li> <li>employees under contract</li> <li>any additonal person(s) the insured wants to decree as executive payroll either by job classification or by individual name</li> </ul> <p>Ordinary Payroll</p> <ul> <li>payroll</li> <li>benefits</li> <li>government pensions paid by the insured</li> <li>union dues paid by the insured</li> <li>Workers' Compensation premium</li> </ul> <p>Even though it is not advisable to exclude ordinary payroll, you have the option to exclude it entirely or insure the ordinary payroll for 30, 60, 90 or 180 days.  </p> <p><strong><em>Steps you can take to help resolve your claim favorably:</em></strong></p> <ul> <li>Do your best to read your policy carefully. If you do not understand how the insurer will calculate the income loss, ask for an explanation and insist that the method of calculation be consistent with policy terms and applicable laws and regulations.</li> <li>Start gathering data immediately following the incident.  Don’t throw anything away, even if it’s damaged, until you determine whether it may be needed to support your claim, including your claim for the physical damage.</li> <li>Involve your accountant or other financial expert in any significant financial loss.</li> <li>Keep accurate records of sales and operational expenses that continue after a loss. Lost revenue and extra expenses caused by the interruption should be tracked from day one. You may want to track extra expenses in a separate ledger or account. Get professional help if necessary.</li> <li>Take photographs of the damage before you make any repairs or remove any damaged items.</li> <li>Take reasonable steps to avoid or minimize your loss. For example, you may consider re-opening your business at a temporary location, outsourcing some operations to other organizations, or continue to operate using only part of your business space, etc.</li> <li>Keep a log of all communications with the insurance company during the claims process.  In addition, keep copies of all letters and emails you receive from and send to the insurer or its representatives.</li> <li>Avoid misunderstandings; ask the insurance company for all documents in writing.</li> <li>Consider hiring an independent insurance adjuster or insurance attorney (at your expense) to deal with the insurance company and advise you regarding how best to prove your claim and maximize your recovery consistent with policy terms.</li> </ul> <p><strong>Conclusion:</strong></p> <p>Accurately calculating business interruption values is a critical part of an organization’s pre-loss planning process.  Having an accurate valuation greatly improves the recovery process and the organization’s probability of surviving a catastrophic event.</p>]]