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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Experts in Risk Management and Providing Peace of Mind

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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Experts in Risk Management and Providing Peace of Mind

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

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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

El Niño is Coming! Have You Protected Your Business?

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By Carl Santa Maria, CPCU

After five years of drought, the risk of flooding is not likely top of mind for business owners in the Western U.S. But with a wet El Niño weather system on its way, flooding is a very real risk this year.

According to FEMA’s National Flood Insurance Program (NFIP), individuals and business owners should prepare for the possibility of flood damage caused by the heavy rains typically associated with El Niño. The fact that we have been in a prolonged drought actually makes the risk greater as the ground is hard and parched, making it less able to quickly absorb moisture. This increases the chances of flash flooding during heavy rain storms. And in areas damaged by wildfires, the risk of mud slides is increased because the plants that stabilize soil have been destroyed.

If you haven’t acted to protect your business, here are some facts to consider:

  • Between 2010 and 2014, the average commercial flood damage claim was $89,000, according to NFIP.
  • Of all businesses affected by disasters such as floods, 25 percent never re-open.
  • More than 20 percent of claims on NFIP policies are for properties outside of mapped high-risk areas.

FEMA recommends the following actions to prepare for flooding:

  • Purchase a flood insurance policy if you do not already have one.
  • Review your current insurance policy; become familiar with what is covered and ensure the limits adequately protect your building(s) and equipment.
  • Make an emergency kit, plan evacuation routes, and keep important papers in a safe, waterproof place.
  • Itemize and take pictures of possessions.

All basic flood insurance is underwritten by the U.S. government through NFIP, with excess coverage available through commercial carriers. As with any type of insurance, risk is a primary cost factor. To understand your risk, check FEMA’s Flood Insurance Rate Maps (FIRMS). FEMA has mapped the entire country based on flood risk, and these ratings heavily dictate insurance rates. Another pricing factor is the FEMA Community Rating System (CRS), which sets rate discounts based on individual communities’ actions to prevent flooding. Both FIRMS and CRS are easily searchable on NFIP’s FloodSmart.gov website.

Forecasters are predicting a very wet season that will provide some relief from the drought, but will also increase flooding risks. Regardless of your risk profile, talk to your insurance broker as soon as possible about protecting your business from flood damage.

Carl Santa Maria is Chairman and CEO of Santa Maria & Company (SMC), a risk management consultant and commercial insurance broker 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.

Santa Maria & Company:  Experts in Risk Management and Providing Peace of Mind

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Know Your Risks When Serving Alcohol at Company Events

By Craig M. Santa Maria

With Halloween behind us and shorter, colder days ahead, it’s time to begin planning for the festivities of the holiday season. For many companies, that means hosting an employee holiday party. Whether it’s snacks and drinks in the office or a gala dinner at a nice restaurant, this holiday tradition can expose your business to significant risk.

alcoholWhile alcohol is a part of American culture, especially during the holidays, over consumption can precipitate illegal or injurious behavior between guests, such as sexual harassment, and injuries or deaths resulting from drunken driving accidents. And if your company sponsored the event at which the offender was served alcohol, you could be held liable for damages.

James Wu, an employment attorney with Wu Castillo, P.C., in San Francisco and Walnut Creek, CA, notes that a California appellate court recently found an employer liable for the actions of an employee who became intoxicated during a company-sponsored holiday party, drove home safely, but later was involved in a fatal automobile accident when driving a co-worker home. “The appellate court overruled the trial court that originally determined the company was not liable, agreeing with the company’s contention that the person was able to drive home safely after the party,” says Wu. “However, the victim’s family appealed and the appellate court agreed that the man’s intoxication due to the alcohol consumed at the work party was a causal factor, so the company could be held liable for the fatality.”

This risk is not exclusive to holiday events. A few years ago, a company provided alcohol to employees during a company picnic, after which one clearly intoxicated employee was severely injured in an automobile accident. Others at the picnic attempted to prevent the individual from driving, but were unsuccessful. While the company was not held liable for the employee’s insurance claim, it did incur a significant cost in settling a civil lawsuit.

What are your risks?

As a business owner, you should understand your legal risks. While these laws differ from state to state, generally employers who provide alcohol at company-sponsored events are expected to exercise reasonable care to avoid serving minors and to prevent injuries or improper behavior by intoxicated guests.

Some employers avoid this risk by serving only non-alcoholic beverages at their employee events. But if you do choose to serve alcohol, Wu recommends the following things you can do to protect yourself and your guests:

  • Make the event voluntary and purely social. Avoid any business related activities, such as award ceremonies or business-focused speeches.
  • Ensure guests understand that rules governing employee conduct apply also at the event. These rules should be detailed in your employee handbook.
  • Limit the number of drinks served to guests by using drink tickets or a similar system
  • Offer a wide selection of equally attractive non-alcoholic drinks and plenty of food
  • Plan a program of activities to minimize the focus on drinking
  • Consider hiring a professional bartender to run the bar or host the event at a bar or restaurant with a liquor license. These professionals are typically trained to identify those who are intoxicated and limit consumption. They also incur some of the liability if an issue does arise, so be sure they are properly trained and insured.
  • Close the bar at least an hour before the party ends
  • Have plans in place to provide transportation home for intoxicated guests and/or hotel discounts/arrangements.
  • Do not encourage or organize any “after-parties” where guests might continue to drink after the company event has ended

What if something bad still happens?

If, despite your best efforts, a liability claim does arise from an incident caused by an intoxicated guest, your property and casualty insurance coverage will likely help defray the financial costs. Because policies, laws and circumstances can vary widely, it is important that you talk with your insurance broker about your risks and coverage before your event to be certain you are protected.

 

Craig Santa Maria is President and COO of Santa Maria & Company (SMC), a risk management consultant and commercial insurance broker 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.

Santa Maria & Company:  Experts in Risk Management and Providing Peace of Mind

Will Your Business Survive When It is Hacked?

By Carl Santa Maria

Image courtesy of chanpipat at FreeDigitalPhotos.net
Image courtesy of chanpipat at FreeDigitalPhotos.net

In 2014, JP Morgan Chase lost control of data in a cyberattack affecting 76 million households and seven million small businesses. Also last year, cyber criminals broke through the firewall at Sony Pictures Entertainment and stole employees’ personal data and corporate correspondence. Between recovery costs and lost business, the cost to mitigate the damage was staggering to both companies and continues to mount as they work to rebuild trust and regain customers.

These are high profile examples, but if you think a data breach can’t happen to you, think again; every company in every industry is at risk.

According to Ponemon Institute’s 2015 Cost of Data Breach Study, sponsored by IBM, in which 350 companies from 11 countries participated, the cost to recover from a data breach is highest for U.S. companies at $217 per lost record.  Of the 62 U.S. companies participating, nearly 43% (27) experienced a data breach in 2014 with an average total cost of $6.53 million. The cost to recover is substantially higher in some industries, such as healthcare, with an average cost of $363 per record lost.

While your business isn’t likely as data rich as JP Morgan Chase, your data is equally valuable, your defenses likely are not as strong, and you are less likely to have the resources to recover from a significant breach. So what should you do to protect yourself and your company?

Minimize Your Risk – A breach can occur through the intentional acts of insiders and outsiders, as well as security lapses and employee errors. Assess these three layers of protection and close any gaps:

  • Administrative – These are policies and procedures that limit access to confidential data and information and dictate their usage. As technological protection gets stronger, hackers are increasingly targeting the weakest link in the protection chain: humans. Make sure everyone in your organization knows how to detect and prevent what is termed social engineering fraud.
  • Physical – How do you securely store or dispose of paper and electronic devices containing confidential data? Your trash can be a criminal’s treasure. Even an old cell phone can be a hacker’s key into your system. A recent study by Kroll Ontrak and Blancco Technology Group found that used electronic devices sold on popular e-commerce sites still contained residual data that could be used to victimize individuals and companies.
  • Technical – These are the safeguards within your electronic network: firewalls, intrusion detection, encryption, etc. Every time your IT security team closes a gap in your protection, criminals are finding new ways to slip through. If you are not monitoring your security constantly, you will quickly lose control.

Prepare to Respond – While your administrative, physical and technical safeguards will minimize your risk, odds are you will be victimized at some point. Do you have an incident response plan in place to quickly respond and minimize the damage? More importantly, have you trained your team and tested your plan regularly to ensure it is sufficient?

Protect Yourself – As cybercrime has increased, insurance carriers have introduced coverage to help victims minimize their overall cost and increase the likelihood they can recover. This coverage is still very affordable, however coverages vary widely. It can be very difficult to sort through the nuances between policies. A high-quality risk consultant and insurance broker can help you assess your risks and build a coverage plan that will keep you in business.

The catastrophic consequences of cybercrime end the dreams of unprepared business owners every day, in every industry, in every part of the world. Don’t risk a lot for a little. Protect your valuable data, prepare to respond, and insure what you’ve worked so hard to build.

Carl Santa Maria is Chairman and CEO of Santa Maria & Company (SMC), a risk management consultant and commercial insurance broker 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.

Santa Maria & Company:  Experts in Risk Management and Providing Peace of Mind