Terrorism Insurance

Before the 9/11 attacks, insurers didn’t charge for terrorism insurance, but now reinsurers believe they cannot price the risk. The Terrorism Risk Insurance Act (TRIA), enacted a year after the 9/11 attacks, makes the Federal Government the backstop for private insurance companies in the event of such catastrophes.  A terrorist act that is eligible for coverage under TRIA must be certified by the Secretary of the Treasury.

Since TRIA’s passage, the private industry’s willingness and ability to cover terrorism risk have increased. According to industry surveys, prices for terrorism coverage have generally trended downward, and approximately 60% of commercial policyholders have purchased coverage over the past few years.

Each time a business renews its commercial insurance policy, terrorism coverage is offered. Policyholders have the option to elect the coverage or decline the coverage.  (Workers Compensation policies automatically include terrorism; you can’t opt out of it!)  Prior to the April 15, 2013 Boston Marathon bombings only about 50% of Mike Regan’s commercial property clients actually purchased terrorism insurance.  Whether or not the bombings are deemed a “terrorist” act could have enormous financial implications for the businesses that suffered damages or closed during the police investigation.

It may seem obvious to many that the bombing was an act of terrorism, but whether it is certified as such means a great deal to the property owners affected by it. Think of this; a bomb damaging your building is not an excluded peril from “Special” (used to be called All Risk) property coverage’s. You would be covered even if you didn’t purchase terrorism coverage.  However, if it becomes a “certified” act of terror and you did not purchase the terrorism coverage you will not be covered! Multiple property claims from the bombing are in limbo until such time as the Secretary of the Treasury does or does not certify the event.

Mike Regan was recently quoted in a Boston Business Journal article titled “State of Exposure”.  The article discussed the resurgence of terrorism coverage in the wake of the Boston Marathon bombing.  “It’s definitely opened people’s eyes to having it”.  “After 9/11 it was a big item.  But, like most things, over time people tend not to think about it the same way and then some people stopped asking what it is, what it means, whether events are covered or not.  Now they’re starting to ask that again.”

At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700.

Workers Compensation Audit Issues – Sole Proprietor

The Massachusetts Workers Compensation Rating & Inspection Bureau has updated audit guidelines related to the hiring of sole proprietors and/or partnerships. These guidelines will have a greater impact on the construction field, but will impact other industries as well.

It is critical that businesses obtain Certificates of Insurance from contractors or firms hired to work on their behalf. If a hired subcontractor does not carry Workers Compensation coverage, then an injured employee of that subcontractor would collect on your coverage. For this reason auditors will ask about contractors, 1099’s and subcontractors you have hired and request to see the Certificates of Insurance which you have collected. The labor cost you paid to any uninsured parties will be added as payroll to your audit and generate additional premiums.

The Bureau has also clarified the audit guideline regarding the use of subcontracted sole proprietorships or partnerships. Sole proprietors and partners are not required to carry Workers Compensation coverage if they do not have any other employees. They can elect to obtain coverage on themselves, but are not legally required to do so. They are legally required to purchase the coverage if they have any employees, even if the workers are part-time. A Certificate of Insurance provided by a Sole Proprietor / Partnership that has Workers Compensation but has not elected coverage for the owners will be noted as such. The Bureau’s new guidelines stipulate that the auditors will pick up the payroll for the “uninsured” sole proprietor / partner if the Certificate states that they are excluded from coverage. Exceptions to this rule can be found in the following three-part test:

The individual/partner is free from control and direction in connection to performance of the service, both under his/her contract for the performance of service and in fact; and
The service is performed outside the usual course of the business of the employer; and
The individual/partner is customarily engaged in an independently established trade, occupation, profession or business.

Here is an example of how the rule would apply:

John Smith Carpentry, Inc. hires Stanley Jones dba Stanley Jones Plumbing to perform work on three projects over the course of the year. Stanley does not have employees at the time of the work but does have a Workers Compensation policy in case he needs a worker for larger projects. Stanley has elected to be excluded on his Workers Compensation policy. Stanley provides a Certificate of Insurance to John Smith Carpentry that shows Workers Compensation is in place but that he is excluded on the policy.

John Smith is insured with Boston Harbor Mutual. The auditor has requested copies of all insurance certificates for subcontractors hired during the year. A review of the Stanley Jones certificate shows that the sole proprietor is not insured. Boston Harbor Mutual’s auditor adds the payroll cost of the three projects to John Smith’s premium. John smith is unable to provide sufficient evidence relative to the “three-part test” to Boston Harbor Mutual that would reverse the charge. John Smith now must pay additional Workers Compensation premium.

It is important for businesses to be aware of this issue. The issue is more common with construction operations but is certainly applicable to any business that hires other businesses to provide a service or operation on their behalf, such as an insurance agency hiring an individual to clean the office. Be aware of these issues before you hire the business or individual so you can understand what insurance is in place and the potential cost in the future if their coverage is not sufficient or is in question.

At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700.

The History of Insurance Throughout the World

Insurance has a history that dates back to the ancient world. Over the centuries, it has developed into a modern business of protecting people from various risks. The industry has been profitable for many years and has been an important aspect of private and public long-term finance.

First forms of insurance

In the ancient world, the first forms of insurance were recorded by the Babylonian and Chinese traders. To limit the loss of goods, merchants would divide their items among various ships that had to cross treacherous waters. One of the first documented loss limitation methods was noted in the Code of Hammurabi, which was written around 1750 BC. Under this method, a merchant receiving a loan would pay the lender an extra amount of money in exchange for a guarantee that the loan would be cancelled if the shipment were stolen. The first to insure their people were the Achaemenian monarchs, and insurance records were submitted to notary offices. Insurance was also noted for gifts of substantial value. These gifts were given to monarchs. By recording their gifts in a register, givers would receive help from a monarch by proving the gift’s existence if they were in trouble.

As the ancient world evolved, maritime loans with rates based on favorable seasons for traveling surfaced. Around 600 BC, the Greeks and Romans formed the first types of life and health insurance with their benevolent societies. These societies provided care for families of deceased citizens. Such societies continued for centuries in many different areas of the world and included funerary rituals. In the 12th century in Anatolia, a type of state insurance was introduced. If traders were robbed in the area, the state treasury would reimburse them for their losses.

First documented insurance policy

Standalone insurance policies that were not tied to contracts or loans surfaced in Genoa in the 14th century. This is where the first documented insurance policy came from in 1347. In the following century, standalone maritime insurance was formed. With this type of insurance, premiums varied based on unique risks. However, the separation of insurance from contracts and loans was a major change that would influence insurance for the rest of time.

The first book printed on the subject of insurance was penned by Pedro de Santarém, and the literature was published in 1552. As the Renaissance ended in Europe, insurance evolved into a much more sophisticated form of protection with several varieties of coverage. Until the late 17th century, many areas were still dominated by friendly societies that collected money to pay for medical expenses and funerals. However, the end of the 17th century introduced a rapid expansion of London’s importance in the world of trade. This also increased the need for cargo insurance. London became a hub for companies or people who were willing to underwrite the ventures of cargo ships and merchant traders. Lloyd’s of London, one of London’s leading insurers, is still a major insurance business in the city.

Insurgence of modern insurance

Modern insurance can be traced back to the city’s Great Fire of London, which occurred in 1666. After it destroyed more than 30,000 homes, a man named Nicholas Barbon started a building insurance business. He later introduced the city’s first fire insurance company. Accident insurance was made available in the late 19th century, and it was very similar to modern disability coverage. Nowadays, one can find different forms of disability insurance throughout the world. One such example could be the national disability insurance scheme (NDIS) of Australia. Such insurance can extend support to people with permanent or significant disabilities and might not require people to purchase an insurance policy. This form of support can be availed by both registered and unregistered NDIS providers. One can also start a business by applying to become a Ndis provider (you can click here to learn how to become an unregistered ndis provider).

In U.S. history, the first insurance company was based in South Carolina and opened in 1732 to offer fire coverage. Benjamin Franklin started a company in the 1750s, which collected contributions for preventing disastrous fires from destroying buildings. As the 1800s arrived and passed, insurance companies evolved to include life insurance and several other forms of coverage. No type of insurance was mandatory in the United States until the 1930s. At that time, the government created Social Security. In the 1940s, GI insurance surfaced. It helped ease the financial difficulties of women whose husbands died while fighting in World War II. It wasn’t until the 1980s that the need for car insurance grew enough that steps were taken to make it mandatory. Although insurance is an established business, it is still changing and will change in the future to meet the evolving needs of consumers.

Health Care Reform

On March 23, 2010 President Obama signed the health care reform bill, or Affordable Care Act (ACA) into law. Aca’s health care reforms which are primarily focused on reducing the uninsured population and decreasing health care costs will continue to be implemented over the next several years. Cleary Insurance has been working with our existing benefits clients to manage health care reform. We will continue to work with our clients through the final implementation as the requirements and obligations continue to evolve.

If you are not currently an employee benefits client and are interested in a health care reform business analysis please contact us today.

At Cleary, we know how important a comprehensive benefits package can be to your continued success. Give us a call today at 617-723-0700 and we will work with you to create a plan that meets your business objectives, takes into account state and federal laws, and capitalizes on incentives and innovative solutions now being offered.

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