Insurance Insights: The Cleary Insurance Blog
The Cleary Insurance blog covers insurance, risk management, and financial planning for New England businesses and individuals. Our team of licensed advisors and specialists publishes regular articles on commercial and personal coverage, employee benefits, life and financial planning, and insurance compliance. Browse recent articles below, or use the category filters to find topics relevant to your business or personal situation.
Can Your Business Survive an Interruption?
Every year, after nearly every natural disaster, thousands of small businesses face a true acid test: Can their business survive an interruption? Hurricanes Andrew, Katrina and Sandy and the tornados that struck Joplin, Missouri in 2010 didn’t just affect structures: They knocked thousands of small and medium-sized businesses out of commission for days, weeks and sometimes months.
These business owners were caught in a double whammy: First, they lost out on the revenues from sales and operations at affected locations. Second, they still had ongoing expenses to pay. If your business were to be hit by a disaster, do you have the cash on hand to continue making the following payments:
- Your own salary as an owner-employee
- Salaries of key people whom you can’t afford to lose
- Salaries and hourly wages of workers helping with clean-up and recovery
- Insurance premiums on company vehicles
- Payroll taxes
- Fringe benefits
- Health insurance premiums
- Lease payments on critical equipment
- Marketing and advertising expenses – many of which are done on a forward contract?
- Temporary office and warehouse space
- Utilities
- Deductibles from other insurance coverage
If revenues from operations came to a halt, and you had to add up all these expenses and keep things going, how long could your business run? Would you be faced with the loss of key salespeople and staff? Would valuable institutional memory be forced to go to other employers because you can’t pay them for an extended period of time?
You may be at an elevated risk of severe economic harm from business interruption if the following conditions apply:
- You have substantial business overhead in general
- You rely on leased equipment or vehicles to operate, or if you have financed equipment subject to repossession if you don’t apply.
- You rely on vendor financing.
- You have key employees that are not easily replaceable
- You have one location, or if you have multiple locations within the same geographic area
- You cannot operate without electric power and generator power is not realistic or cost-effective for you.
- You rely on being able to purchase gasoline or diesel locally.
- You rely on your income from the business to get through each month.
- You will have to rent computers, vehicles or capital equipment on a temporary basis to continue to function.
- You are locked into forward purchasing contracts for materials, inventory or advertising
- You rely on income from e-commerce operations that would vanish in the event of a sustained power outage.
We are available to discuss and help you evaluate your business interruption insurance and business overhead insurance exposures. It is important to tailor your coverage to account for considerations specific to your industry. For example, some industries are seasonal: Damages from an unexpected shutdown in operations during tourist season or at some other critical time would be much more damaging than shutdowns at other times during the year. Your coverage should take this into account.
What About Non-Disaster-Related Shutdowns?
Not every business shutdown is due to a natural disaster. Sometimes you may have a shutdown due to the illness or disability of a key employee. Depending on the circumstances, you may need to wait things out until a partner/owner or key employee is able to return to work. In other circumstances, you will need to recruit and train a replacement. In some instances, the business could come to a near halt until this is accomplished. To ensure your business stays on solid ground, you might consider getting life insurance for key employee so that you’ll be compensated in the event of an unfortunate circumstance.
Ordinary key-person coverage should provide some point-blank protection, for example, to pay the costs of recruiting and training a new key salesperson, executive or other vital individual. But you may need additional coverage, called business overhead insurance, to keep your business’s key functions running while you deal with your personnel changes, or buy time for your key individual to recover from the illness or injury that took him or her out of action.
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.
Patient Protection Affordable Care Act and SCA
Federal Contractors must focus on how the Patient Protection Affordable Care Act (PPACA) may soon affect their bottom line. As the changes brought about by the PPACA Act approach, many Federal Contractors are unaware of the potential cost increases bearing down on them.
According to Cloud Business Advisors (an innovative employee benefits brokerage and consulting firm) and Proskauer law firm for Employee Benefits and (ERISA) law. There are four key components to PPACA:
- Individual Mandate (delayed to 2015)
- Subsidies
- Penalties
- Insurance Mandates
- State Mandates
- Employer Mandates
Companies must also adhere to the following PPACA mandates:
- Individual Annual Penalties for Not Maintaining Coverage
- Premium Assistance Tax Credit
- 2013 Federal Poverty Guidelines
- Exchanges: What the states are doing and not doing and how exchanges work
- What is a Large Employer
- Parent- Subsidy Controlled Group
- Brother- Sister Controlled Group
- Who do you have to offer coverage to
- What are the Penalties and how to avoid them
- Affordability Safe Harbors
- 90 Day Waiting Period
- Timing and Determination of Eligible Employees
- Taxes and Fees
When the Department of Labor, Wage and Hour Division, Washington, DC was asked a question regarding how they would be involved in integrating the PPACA with the Service Contract Act (SCA); they responded that both the PPACA and Service Contract Act are separate and must be handled individually.
For example: If a contractor does not offer fringe benefits and pays cash in lieu of benefits to service contractor employees (which is permitted by SCA), is this a violation of PPACA since no benefits are offered?
This is just one example of many questions relating to SCA and PPACA that must be resolved by individual contractors and companies prior to 2014.
If you violate the SCA Act, you may face a DOL Compliance Officer who will investigate; but if you violate the PPACA Act you can face the IRS or another Federal Administrative Agency.
These investigations are time consuming and complicated, and take an experienced individual from your company to handle them. Under SCA you may face penalties and or debarment; however we have yet to see what penalties may be handed out for PPACA violations.
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 fringe-benefit obligations and provides your employees with valuable benefits.
What is a “Preliminary Physical Audit”?
Preliminary Physical Audit
At the beginning of your policy year, an on-site audit may be performed to review operations, classifications, and exposures. The auditor will review a representative base period in order to project exposures for the full policy term.
We are starting to see an uptick in preliminary physical workers compensation policyholder audits. Rather than waiting until the policy year-end audit to address any potential classification or payroll issues, carriers are looking for corrections at the beginning of the policy year.
Why are they doing this?
There are two main reasons. The first is to make sure that the insured is using proper classifications and the second is to make sure that appropriate payroll amounts are being attributed to the correct classifications. Both of these reasons collectively, decrease the amount of uncollected premiums as a result of improper classifications or underreporting of payroll.
Most “voluntary” workers compensation carriers do not perform preliminary audits, although they are permissible according to the policy terms & conditions. We are seeing most of them carried out by the servicing carriers of the various state “Assigned Risk” workers compensation programs. These servicing carriers are also known as the residual market, for those companies who for one reason or another have trouble getting voluntary coverage. (Hazardous industries, having higher than usual loss history or having poor safety and loss control programs are some examples of companies that use the residual markets.)
Most payroll and employee hour tracking reports are automated and readily available through payroll processing companies. These reports help to ensure that companies eventfully pay the correct amount of workers compensation premium. However, it is not unheard of for underreporting to take place during the year. Some insurance carriers are trying to collect the proper premiums at the beginning of the policy year instead of waiting until the final audit.
Employee classifications can have a drastic impact on workers compensation premium as the rates are significantly different from class to class. For instance, the Massachusetts “Clerical” (code 8810) rate per $100 of payroll is $.09, whereas the rate for “Iron or Steel Erection” (code 5040) is $54.08 and there are hundreds of classifications with rates in between. Purposeful misclassification is a criminal act. However, there are many ways to interpret what an employee does as his “governing” classification. It is natural for the policyholder to want a lower rated class and for the carrier to want a higher rated class.
If you have any questions as to what the proper payroll run rate should be or how to properly classify your employees please reach out to us and we would be happy to assist you. It is important to keep in mind that you can and in certain instances should have your broker at any audit, not just a workers compensation preliminary audit. We are always available to assist you.
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.