Employee Health Plans: Assume a Little More Risk for Significant Cost Savings

By Craig Santa Mariaemp health coverage

Health insurance is a key piece
of the total compensation package you provide to your employees. But how many of them actually make significant use of that benefit?

According to Bob Stosick, the employee benefits expert at Santa Maria & Company, the answer is: a very small percentage.

“If an employer is purchasing one of the dozens of off-the-shelf, low-deductible plans, he or she is likely spending a lot more than necessary,” says Stosick. “Insurance carriers price those plans based on the assumption that every policy holder will make significant claims. Knowing that the actual claim rate is much lower makes it a little easier to understand why many of those companies make windfall profits every year.”

In an effort to save money, many large employers self-fund their employee health plans, meaning they act as the insurer paying any claims themselves. Their fixed costs are lower because they are not paying the markup that becomes profit for the traditional carriers. However, the variable costs, the actual claims, present a significant, widely variable risk.

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Bob Stosick

“The good news,” says Stosick, “is that there is another option that could significantly reduce your costs and your variable cost risk, while still providing a low-deductible plan to your employees. That solution is a partially self-funded plan.”

 

By partially self-funding, you purchase a high-deductible plan at a much lower cost and use the savings to fund the benefit difference between the high deductible you purchase and the low deductible you provide (your variable risk). Simply, you provide a low-deductible plan at a lower cost by assuming a little more risk.

Here is a hypothetical example* to illustrate how a partially self-funded plan works:

  • Your carrier offers you a plan with a low annual deductible of $2,000 that will cost you $40,000 per year (80%) and your employee $10,000 (20%)
  • Instead, you purchase a plan with a higher deductible of $5,000 per year that costs you $24,000 (80%) and your employee $6,000 (20%).
  • If the employee uses covered services that cost $18,000, the employee pays her deductible of $2,000, you pay 80% of the next $3,000 up to the $5,000 purchased plan deductible. At that point, you are no longer responsible for additional claims. In a typical plan, the employee will continue to pay 20% of additional charges until reaching her out of pocket maximum, with the carrier paying the rest.

* These dollar amounts are not based on actual plan rates, but are simply used to illustrate the concept.

It is not unusual for an employer to save $1,500-$2,000 per employee on medical costs by employing this strategy. In both fully and partially self-funded scenarios, companies typically use an independent plan administrator (IPA’s) to administer the company’s responsibilities in the plan.

“It’s important to note that each company’s situation is different, so there is no single correct solution for everyone,” Stosick reminds us. “Your best bet is to speak with a knowledgeable and experienced employee health plan broker who can help you determine the best solution for your business.”

 27-artCraig Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.

 

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Doing Business Abroad? Don’t Assume Your Insurance Travels With You

By Craig Santa Maria

It’s easier than ever to conduct business internationally, introducing your products and services to potentially lucrative new markets. With those opportunities come a lot of the same risks you face at home: quality control, supply chain reliability, contract disputes. But in foreign lands you might face different risks and other complicating factors such as political instability or unfamiliar cultural, legal, or economic systems.

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Are You Protected?

You’ve secured all of the right types of insurance to protect you from the various liability risks you might face in your home country. But what if the same things occur while doing business on foreign soil? Do you know if you are covered?

Here are a couple examples of situations that could happen to you or your employees when far from home:

  • A firm’s head of sales was abducted in Venezuela while driving on a rural road between customer visits. The captors demanded from his employer a $500,000 ransom for his return. Local authorities couldn’t help, so the company had no choice but to pay. The employee was released unharmed, but the company was out the $500,000 because its domestic general liability policy did not cover events that occurred outside of the U.S.
  • An expatriate in Poland strikes and killed a local pedestrian and was jailed. After pleading guilty and admitting liability, the judge ordered him to pay the widow $2 million. The expatriate carried no international property and liability insurance, and had mistakenly assumed his employer was providing that protection. When he couldn’t pay the damage award and criminal penalties, the employer was named and attached in the lawsuit. In order to salvage a $30 million investment in Poland, the employer had to pay.

What You Need

In both of these cases, the employers should have obtained separate foreign liability and travel and accident insurance for their employees working or traveling in foreign countries. If you are or will be traveling internationally, you have two primary options, depending on how much you travel:

  • Trip-specific policies cover just those traveling during the specified period they are outside the U.S. Coverage and rates are determined based on criteria such as where they are traveling, for how long, types of employees traveling, and their specific activities.
  • Global general liability is a permanent policy that covers all employees anywhere throughout the term of the policy. This can be a more cost-effective option for companies that regularly travel and do business in foreign lands.

These policies are widely available and will cover common claims, as well as some less common, such as repatriation of an employee’s body in the event of death in a foreign land. Your insurer will also manage the entire process for you, such as hiring security experts in a hostage or threat situation or negotiating with local legal officials or claimants. This is an invaluable service when you are alone far from home.

Whether you are doing business in the U.S., overseas, or both, you should never assume you are covered. Spend the time to review your risks and insurance needs with an expert. A high quality broker will help you secure a comprehensive protection package, where ever you go and whatever your needs, and will be on your side when you need him/her most.

 

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Craig Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.

 

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ERISA Bond vs. Fiduciary Liability: You Need to Know the Difference

By Craig Santa Maria

If you provide a health or retirement plan for your employees, they expect it to be there when they need it. And if the people managing the plan act outside of the law, resulting in plan losses, they can be held personally liable to the plan members. If you are a trustee of your company’s benefits plan, do you know if you and your company are adequately protected?

It’s the Lawnest egg

In 1974, Congress enacted the Employee Retirement Income Security Act (ERISA) to protect plan participants and beneficiaries from fraud, theft or mismanagement by plan managers, or fiduciaries. Basically, ERISA established rules governing how voluntarily-created, private-sector retirement and health plans must be managed and it requires those companies to provide protection to participants in the form of an ERISA Fidelity Bond equal to 10% of the plan value.

For additional information about ERISA Fidelity Bonds, visit the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) website.

Know the difference

ERISA bonds protect plan participants, but many business owners wrongly believe ERISA bonds also protect fiduciaries, those who handle plan assets, from liability against losses arising from breaches of fiduciary responsibilities. That is not true, and it can leave you and your company exposed to costly judgments.

For example:

  • A group of employees sued retirement plan trustees, claiming a new outside plan administrator improperly delayed transferring fund balances, resulting in lost investment income. They were awarded more than $1 million and defense costs totaled $250,000.
  • A manufacturer failed to submit the required forms for an employee’s life insurance policy, but continued to deduct the premium from the employee’s paycheck. When the employee died, the life insurer denied the claim. The employee’s heirs sued the plan fiduciary and recovered $250,000.

Fortunately, in both of these cases the companies had protected their plan trustees with fiduciary liability insurance, which provided legal defense and covered the legal settlements.

3 Critical Considerations

Every employer should carefully answer these three questions to be sure you have the proper protections in place for your employees, your plan fiduciaries, and your company:

  1. Do you need an ERISA Fidelity Bond? If you offer most types of employee benefit plans, you most likely are required to purchase an ERISA Fidelity Bond. There are some exemptions; check the EBSA website for detailed ERISA information.
  1. Is your ERISA Fidelity Bond sufficient? The law requires that the bond cover at least 10% of the plan value in the previous year for each fiduciary, so if your company has multiple people who have fiduciary responsibilities, each must be bonded for at least 10%. The bond must be at least $1,000, but no more than $500,000, for each bonded plan official. Each person is responsible for his own bonding, so if the bond amount is insufficient, that person can be fined by the EBSA.
  1. Do you also need fiduciary liability insurance? Remember that the ERISA Fidelity Bond does not protect the fiduciary from liability resulting from breaches of fiduciary responsibility. Claims against the fiduciary put his personal assets at stake. Even if you have a Directors and Officers (D&O) liability policy, most do not cover fiduciary liability.

If these questions raise any doubt about whether you or your company are adequately protected from claims related to ERISA, speak with a high-quality, experienced broker to ensure your business and personal assets are covered.

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Craig Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.

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Foiling Fraud: 3 Actions to Minimize Employee Theft Losses

By Carl Santa Maria, CPCUemployee theft

How much can trusted employees steal from you before you catch them?

That is a question all business owners should ask themselves to determine if they have the right safeguards in place to prevent, minimize, or recover from employee theft.

According to the Association of Certified Fraud Examiners (ACFE) 2014 global fraud study:

  • The typical organization loses 5% of its revenue each year to employee fraud, with a median loss of $145,000
  • On average, the fraud continues for 18 months before detected
  • The smallest organizations suffer disproportionately large losses due to employee fraud.

Driven to steal

Often the perpetrator is a long-term, trusted employee, maybe even a family member, who has direct access to the financial working of the company. While the person might not fit the stereotype of a criminal, there might be an underlying issue such as drug, alcohol or gambling addiction that can drive him or her to steal.

The fraud can take many forms, but it most often involves taking small amounts of money or products over a long period, with manipulation of financial statements to hide the fraud. While most fraud is committed by low- and mid-level employees, high-level employees are responsible for 19% of fraud, with the highest average loss of $500,000.

A recent example is the conviction and sentencing of former Oklahoma state senator Rick Brinkley who admitted to stealing $1.8 million from the Better Business Bureau (BBB), where he had been an executive for the past 16 years.

Over a 10-year period, Brinkley created fraudulent invoices from fake corporations for services not rendered and then submitted them to the BBB as legitimate expenses, using the money to pay his bills and support his gambling habit.

Take action now

Going back to the opening question concerning how much an employee could steal before you find out, it’s important that you understand your current risk and do these three things to minimize your risk and potential losses:

  • Strengthen anti-fraud controls: Review the checks and balances and other safeguards you have in place to prevent and detect fraud. The better your controls, the quicker you will detect fraud and the lower your losses, according to the ACFE study.
  • Match insurance limits to expected losses: Most commercial package insurance policies cover crime-related losses, but the maximum is typically well below what you will actually lose.
  • Get expert advice: A high-quality, experienced insurance broker will help you determine your maximum potential losses from employee fraud, advise you on strengthening your anti-fraud controls, and help you set adequate insurance limits to protect your business.

No matter how dedicated and honest your employees might appear, it is important that you take these necessary steps to protect the business you have worked so hard to build.

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Carl Santa Maria is Chairman and CEO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.


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Risk Managers: 3 Strategies for Reducing Workers’ Comp Claim Costs

By Craig Santa Maria

If you are sitting through lengthy workers’ compensation claim reviews once or twice a year, that might be a sign that you’re spending too much for workers’ compensation insurance.

You know the routine: Every six to 12 months you sit with your insurance carrier’s claims adjuster reviewing one claim after another. It’s your opportunity to manage the subjective prediction of future costs for open claims, called reserves, which are a major factor in setting your future insurance rates. If you are not working proactively with the adjuster to set accurate reserves, you’re probably paying too much for your coverage.

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What can you do?

You have more control in this process than you might think. First, you should educate yourself about how Workers’ Comp claims are managed and how your insurance rates are set. Check out this primer by The Hartford, which provides a comprehensive overview.

Once you’re up to speed on what it’s all about, there are three things you should be doing to better manage your claims and save money:

  1. Make claim reviews obsolete – Instead of waiting for the claims adjuster to schedule infrequent reviews, you or your broker / advisor should work proactively every month with the adjuster to keep them up to date on your claims status. This will make them much more knowledgeable about each claim, ensuring reserve estimates are as accurate as possible and effectively eliminating the need for the typical claims review.
  1. Close cases quickly – Claims that remain open longer typically result in larger total payouts, which in turn increase your insurance rates. Work closely with your injured employees to get them back to work as quickly as possible.
  1. Work with an expert – Many brokers are reactive or delegate claims management to junior associates who don’t have the skills or experience to advocate for you. Work with a broker who has a team with the right knowledge and skills to advocate on your behalf, questioning the adjuster and holding him accountable to set accurate reserves. By doing this for our clients, we are able to lower their reserve estimates and their insurance rates. For example, on behalf of a food processor client we were able to work with the adjuster to drive reserves down by nearly $150,000 in 2015, a reduction of 31%, which significantly lowered the clients insurance cost.

You didn’t build a strong business by just letting things happen. Take these actions to proactively manage your workers’ comp claims and drive down your costs.

Craig Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com. Follow us on Twitter @SMCrisk.

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Worried About Being Sued by Your Employees? You Should Be!

harassment

By Carl Santa Maria, CPCU

We’ve all heard or seen it around the office. Whether it’s an off-color joke around the water cooler, improper advances by a supervisor, or hiring decisions excluding certain ages or genders, there are many local, state and federal laws that enforce the fair treatment of present, past and potential employees, and even 3rd party contractors.

As an employer, you bear the significant and growing risk of claims for various forms of discrimination, harassment, and wrongful termination. These claims are either made through private attorneys or government agencies, such as the federal Equal Employment Opportunity Commission (EEOC), for investigation and potential action. Whether taken to trial or settled out of court, companies can incur large costs from an employee lawsuit.

A minefield for employers

One of the higher profile cases today involves Texas Roadhouse, a chain of steakhouse restaurants, which was sued by the Equal Employment Opportunity Commission, for what the EEOC claims is systemic age discrimination. In this case, not a single complaint had been filed with the EEOC to prompt the charges. Texas Roadhouse is fighting the charge, spending millions on legal fees to date, with the trial still at least a year away.

In another case, a woman resigned her position after three years with a company and sued four managers/directors for sexual harassment and gender discrimination. A company investigation uncovered clear evidence of the misconduct and dismissed three of the four people involved. As a result, the defendants were personally liable for attorney fees and a settlement totaling nearly $300,000.

With loads of information available online and several high-profile cases in the news, employees today are much more aware of their rights. Even if you treat people fairly and within the law, others that you hire, contract or otherwise work with might not. And if they create an uncomfortable or hostile work environment for those working for you, it’s still your business that gets sued.

What can you do?

In recognition of the growing risk, more and more businesses are providing specific training to managers and employees in an attempt to create a more fair and inclusive culture. However, it is estimated that 60 percent of all companies will be sued over employment-related issues.

Companies should protect themselves with Employment Practices Liability Insurance (EPLI), which covers these specific types of claims. It is inexpensive, easy to obtain, and it can be purchased as a stand-alone policy or as part of a business and management liability package, which can include D&O, fiduciary, crime and cyber coverages. Nevertheless, it is estimated that in 2015 less than half of all employers carried EPLI coverage, meaning most companies are bearing this rapidly growing risk themselves.

You are vulnerable from your first contact with a potential employee through the exit interview, so it is wise to speak with a corporate insurance broker as soon as you decide to hire employees. A knowledgeable broker can help you understand your exposure and provide risk management advice and EPLI coverage as part of a comprehensive risk mitigation solution.

Carl Santa Maria is Chairman and CEO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.

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Experts in Risk Management and Providing Peace of Mind

Attention, execs and directors: Your personal assets are at risk!

By Craig M. Santa Maria

Did you know that corporate exec stress
executives and directors, small business owners, and even volunteer board members at non-profits can be held personally liable in legal judgments against their company or organization? It’s true, and it is a risk that is often overlooked.

Typically when a lawsuit is filed against an entity alleging mismanagement, both the entity and its executives and board directors are named as defendants, and both corporate and personal assets are at risk.

For example, a state attorney general sued a large charitable foundation and its trustees, alleging the trustees were excessively compensated and did not manage the foundation in a manner that supported its intended purpose. In the end, the suit was settled for over $5 million.

In another case, a software developer sued the directors and officers of a partner company in a failed joint venture, for misappropriation of his intellectual property. The plaintiff claimed the defendant firm took his ideas and developed its own software, allegedly retaining and using the IP to create a competing product. Upon settlement, the defendants were liable for hundreds of thousands in attorney fees and settlement costs.

While it’s reasonable to think that personal risk might deter individuals from starting a business or joining a board of directors, that risk can be mostly or totally mitigated by a quality directors and officers (D&O) liability insurance policy. In both examples above, the personal assets were protected by a D&O policy.

D&O vs. E&O

D&O liability is one of several types of coverage available as part of a Business & Management Liability Policy (others include Employment Practices Liability, Fiduciary Liability, and sometimes Crime and Privacy liabilities). D&O is sometimes called “management errors and omission (E&O) liability”; however D&O and E&O are very different. D&O liability is directly related to the performance and duties of management. E&O is concerned with performance failures and negligence related to your products or services. Both are significant risks and it is generally a good idea to carry both policies.

When Do You Need It?

Every organization’s owners, executives or directors are at risk of being held liable for the consequences of their decisions. It is particularly important to have D&O insurance when you establish a board of directors or take on investors. Both potential directors and investors will be unwilling to risk their personal assets to support your organization, no matter how strongly they believe in it.

If you are not covered by a D&O policy, you should seriously consider purchasing one for your business or demand that the organization for which you are a director or officer purchase one. A quality insurance broker can help you decide if it is necessary and design a policy that meets your needs.

 

Craig M. Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultancy and commercial insurance brokerage in the San Francisco Bay area with deep expertise helping companies protect what is most important to them: their assets, their employees, and their futures. Contact SMC at 925-956-7600 or online at www.smcrisk.com.

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