More D&O Answers

I previously posted a short summary of D&O insurance HERE

The following is a more in depth description of Director and Officer Insurance coverage and what types of things you might ask and look for when you consider purchasing it.

You Should Ask Before Buying D&O Insurance Morrison & Foerster LLP - JDSupra

The Buckner Company

It is not my primary intention to market myself or the company I work for on this blog. I simply hope it is a resource for my clients and others to find valuable information on various topics affecting their business and I use it as a place for me to write down (and hopefully retain) the things I learn along the way.  In this post however, I would like to give a small plug for The Buckner Company.

Some may say that it does not matter which Agent/Agency you work with but I believe that there is a TON of value in working with a qualified agency to place your insurance through.  Rather than getting specific on what you should look for, I would just like to emphasize a few important aspects which set us apart from the competition:

1.  Our Agents have served the Independent Insurance Agents and Brokers of America (IIABA or Big "I") in the highest local and national leadership positions.  Translated- We are very involved in the Insurance Industry and are familiar with the most current topics afffecting insurance legislation and reformation.
2.  The Buckner Company has been named a Best Practices Agency by Reagan Consulting for multiple years.  Translated- We are among the top insurance agencies in America as far as our standards for professional practices.  For more on Reagan Consulting...http://bit.ly/9atAQI
3.  We have one of the top CFO's in Utah according to Utah Business Magazine.  Translated- Our accounting department is well organized and we are financially stable.  http://bit.ly/dxukRA
4.  The Insurance Journal, considered the most read national property and casualty publication for agents and brokers, honored The Buckner Company as one of the Top 60 Independent Property/Casualty Agencies in America!  Translated- Do you know how many agencies there are in America??
5.  We continue to be on the list of the fastest growing companies in Utah formulated by the MountainWest Capital Network.

These are only a few examples of the recognition we have received lately.  Our agents are very involved in their communities and other organizations.  You will find us at Rotary Clubs, Exchange Clubs, Chamber of Commerce, University Organizations, Networking Events/Organizations, AGC and other industry groups, and many others!  Almost every agent is working toward some sort of professional designation and there are several who have achieved many.  In short, we have the experience to do the job right, the stability to be around through the tough times, the staff to provide information when needed, the markets to provide you with options, and the accolades and reputation to back this all up.  If you want to learn more, there is a link to our website on the right side of this page.  Thanks for choosing to do business with The Buckner Company!!

When Reputation Is At Stake

As a business owner, how often do you think "what would I say if I was the one on the news or the one being interviewed because my company did something wrong?"

This is definitely something to think about.  An insurance company can respond by paying claims and helping to rebuild but they won't stand in for you when there is a crisis and the media wants information.  What if one of your workers ignored certain warnings and started a fire that burnt down another business or someone's home?  What if your product didn't do what it was supposed to do and someone gets hurt?  What if one of your workers wasn't trained properly and was injured on the job?  Who will be the spokesperson for your company? 

There are what if's that apply to every business and it might be worth some time to occasionally consider what they are in your business and how you would respond to them.  A reputation can be killed because someone is unprepared to speak up in the event of a crisis and they do it anyway.  I found the article below in the Wall Street Journal and thought it was worth sharing.

 

When Reputation is at Stake

Managing Reputational Risk in an Age of Accountability

By Bill Coffin
Warren Buffett famously said that a reputation takes twenty years to build and five minutes to ruin, and that notion is truer today than ever before. Many executives consider their enterprise’s reputation to be their most valuable intangible asset, even more than intellectual property.
And why not? Manufacturers, food processors, retailers, energy companies, service firms: All have a reputation to uphold to their clients, their internal stakeholders and a public that passes judgment on their daily behavior. Every year, we see a major firm suffer a serious test to its reputation. Some fare better than others, riding through an operational setback or public embarrassment with relatively little lasting reputational damage, while others lose customer confidence, strategic partners and market share. The difference is having a good reputational risk management program in place, but this is easier said than done.
A few points to consider:
Embrace enterprise risk management (ERM). Managing a firm’s reputation does not rest with any single department or team, but with the entire enterprise. Any function of the company can impact the overall reputation positively or negatively, whether it is maintaining operational standards, behaving appropriately to meet regulatory expectations or working across departmental lines to ensure that no risk goes unnoticed. In times of reputational crisis, even if certain departments take the lead on handling the situation, everyone in the enterprise has a vested interest in making sure the company’s standing with the public and its stakeholders survives intact.
Have a crisis team in place. A reputation in crisis needs immediate triage by a team that knows exactly what to do and can spring into action the moment it is needed. Typically, this falls to corporate communications, legal counsel and the executive leadership, but in reality, representatives from every element of the enterprise should be represented. Once the plan is designed, it does no good for it to collect dust until the moment of truth. The plan should be rehearsed at least once a year. The more authentic the exercise is, the better.
Engage the media. In many cases, the media will make or break a reputation under fire. This includes traditional media outlets, but also the blogosphere, Twitter feeds and social networking. The key is providing access quickly and in such a way that provides actual content and insight to the situation at hand, rather than pat answers and spin. A contrived response is nearly as bad as no response at all. Bear in mind that the need for fresh content will be intense, especially during the first 48 hours of the crisis. There should also be a continuing plan for media outreach strategies to carry through the first week and first month. Even after the initial media blitz, there will still be opportunities to contribute to the story and to help deliver a happy ending for it. It goes without saying that for many firms, having a friendly and open relationship with the media beforehand can be key in helping engage those same sources when it is needed most.
Make the required sacrifices. Depending on the nature of the reputational crisis, doing what is needed to fix it — including purchasing media time and space — can be extremely costly, especially in the case of a product recall or product tampering situation or in a case where any kind of refund is involved. Do not fixate on these costs; consider them a down payment on the reputation’s rescue effort.
Be a leader first, and a manager second. Executive leadership everywhere is expected by the public to take personal responsibility for their firms’ shortcomings, and this is especially true when a reputation is in crisis. Having executive leaders get out in front of the story and engage the public in a meaningful way is critical. Make sure they are comfortable in front of a camera and under fire from an interviewer. History is replete with gun-shy chief executives who look uncomfortable on camera, which only makes the situation worse. Overall, there needs to be a genuine sense of contrition and a willingness to address the crisis: False sincerity or an attempt to shift blame by the top leadership of a firm in trouble will always compound its reputational problems. Be the leader the public expects and deserves.
Know when to get help. Some firms have reputation problems that are more chronic in nature, or their reputational crisis is more significant than first imagined. In such cases, it always pays to know the firm’s limitations and bring in outside branding experts who can help salve a reputational wound and get the enterprise back in good standing with its most important stakeholders.

Common Insurance Myths

“It’s better to pay small liability claims out-of-pocket rather than report them to the insurance carrier.”

“Statute does not require me to have workers’ compensation, thus you (a higher tier contractor) can’t require it either.”

“I pay him with a 1099. He’s an independent contractor, not an employee.”

“If a workers’ compensation injury is less than a certain amount, I do not have to report it to the insurance company.”

“Flood insurance is only for those in ‘flood zones.’

“If I don’t have anything, they can’t get blood out of a turnip.”

“There is no need to purchase liability limits higher than my net worth.”

“That’s why I buy insurance (no need to implement risk management or loss controls).”

“Corporate status will protect me from liability, I’ll just declare bankruptcy and shut down.”

“Insurance is all the same.”

For more info on these myths read the article here....http://www.mynewmarkets.com/articles/103193/insurance-lies-clients-believe-and-pass-on-to-others

What Can A Soft Insurance Market Do For YOU?

For several years now the Insurance Industry has been pushing through a Soft Market.  Cycles of growth and decline exist within every industry.  In the Insurance world, the soft market is a period marked by low premiums, shrinking profits, high capital base, and fierce competition.  For now, we are not seeing any indication of entering into a Hard Market which normally follows.  From the Insurance Journal, "Abundant capacity coupled with diminished demand keeps downward pressure on rates.  As things now stand, insurance buyers can anticipate another year of favorable insurance prices, although catastrophe claims are always a wild card in the pricing cycle."  A widescale catastrophe can cause underwriting standards to become more rigid which causes premiums and profits to increase while competition loosens.

So what can a soft insurance market do for you?  The soft market is a very beneficial time for consumers because it is ideal for finding the lowest rates and best coverage on most lines of insurance.  This means that now is a great time to be buying insurance!  I faithfully market every client's insurance program about 90 days ahead of renewal time because I realize there is alot of competition out there between agents and also insurance companies and now is a good time to find lower rates and better coverage for you!  The recession has drawn out the soft market and will likely continue to do so as far as I can see.   

I hope this is a beneficial brief look for you of the Insurance industry.  Some agents complain about diminishing volume, heavy competition, and losing business.  I however see this as a great opportunity to save my clients some money and improve their insurance program; and when the market turns I will continue to do my best at saving money for my clients while finding the best coverage available in the marketplace.  Because of these fluctuations, I would rarely if ever allow my clients insurance policy to renew without approaching several markets to be sure we are getting competitive rates and coverage.   

Surety Bonds

I have had many clients come to me recently asking about Surety Bonds and what the requirements would be to obtain a bond. My purpose here is to briefly address the what's, why's, and how's of bonding. Because insurance companies are the primary issuers of surety bonds in the United States, there is a common misperception that bonds and insurance policies are one in the same. That is certainly not the case. Most sureties are large insurance companies primarily because they have the capital necessary to make large commitments in the form of surety bonds. Surety is much more like obtaining credit than purchasing insurance. Unlike insurers, surety companies do not expect to suffer any losses, and if they did they would demand reimbursement from the principal.

What is a Surety Bond?
It is a promise to pay one party (the obligee) a certain amount if the second party (the principal) fails to meet an obligation. Usually set forth in a contract. The surety bond protects the obligee should the principal fail to meet their agreed commitments. As a practical matter, a bond is also an instrument of prequalification, representing that the principal has been examined by the surety and found to be qualified to complete their obligations. There are many types of surety bonds, following are a few examples:

Owner/Contractor- Generally used to guarantee proper performance/completion of contracted job. Might include: Bid Bonds, Payment Bonds, Performance Bonds, Maintenance Bonds, Subdivision Bonds, etc.

Government Entity/Company or Individual- Generally used as a guarantee that they will comply with certain underlying statutes, state laws, ordinances, or regulations. Might include: License Bonds, Customs Bonds, Tax Bonds, Broker's Bonds, ERISA Bonds, Motor Vehicle Dealer Bonds, Health Spa Bonds, etc.

Public Official Bonds- Sometimes required for Notaries, Treasurers, Commissioners, Judges, Law Enforcement Officials.

Misc. Bonds- Often support private relationships and unique business needs.

As you can see, there are a wide variety of bonds available that can be used in almost any type of business to assure completion of a project, compliance, fidelity, and other responsibilities between multiple parties.

Why are Bonds required?
Normally to assure one party of anothers ability to pay, perform, or comply with the conditions of a contract.

How do I obtain a Bond?
Depending on the purpose of the bond, it may be as simple as providing test results or other proof of compliance with licensing procedures or it could be a much more detailed and information intensive underwriting process. In the case of contractors, some requirements to obtaining a bond might include: Financial Statements, Bank Letters, Work Schedules, Tax Returns, Questionnaires, References, Business Continuity Plans, Resumes, Credit History, and Personal Indemnification. This can be an intense underwriting process that the surety will use in determining that your company is well-managed, profitable, deals fairly, and fulfills promises and obligations.

I hope this short explanation will provide some insight into Surety Bonds for those who might need to obtain or require bonds for other people. The decision to take on bonded projects might require a change in how your company does business and manages cash flow. The Buckner Company writes more construction bonds than any other agency in our region and we look forward to helping you with all your bonding questions and needs.

Workers Compensation Insurance

Why do we have to purchase Workers Compensation Insurance? Well, before Workers Compensation Laws were established, the only way for an employee to collect compensation was to pursue their employer in a lawsuit. In which, they would have to prove negligence on the part of the employer which could be a difficult task. So, for employees who were truly injured in the workplace, they could go months or even years with no compensation and limited ability to work which can be a huge problem for society as a whole. Workers Compensation laws were enacted to limit the employees ability to pursue a lawsuit against their employer which also provides the employer a better way of managing and estimating their costs for employee injuries.

Worker’s Compensation Laws are enacted on a state by state basis so it is a good idea to look into what the laws are when considering expanding your work operations into other states. Some states require you to buy insurance from their state fund, others permit your to buy it in the open market, and there are others that don’t require you to purchase it at all. (Texas)

Workers Compensation is a very structured system giving certain values to different types of sustained injuries and disabilities. Each employee is grouped into a classification based on their type of work which assigns an insurance rate to their amount of payroll. Also, individual companies are given credits/debits based on their claims history as it compares to other companies in their same industry. But what can be done to contain my costs??

There are several things that can be done to ensure you are only paying for legitimate injuries from the time the injury occurs until they injured employee can return to a productive task. Consider the following:

• The best thing you can do is show the insurance company that you are committed to managing and preventing claims as best you can.
• Have a safety program in place and a return to work program
• Respond quickly to claims and work with the insurance company and clinics to reduce the costs.
• Maintain a clean and organized work environment
• Train Supervisors on employee safety and regularly check to make sure safety devices/restraints are used properly
• Implement a reward program for employees who follow safety rules and help others to be safe
• Do your own investigation and documentation of the claim as soon as it happens
• Implement a drug testing program to avoid unnecessary injury and Liability while employees are at work
• Attend safety meetings and ask for recommendations from your insurance company. They want to and are very willing to help you keep your costs down
• Identify the risks involved with your line of work and make sure the employees are aware of those risks and are trained properly