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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Experts in Risk Management and Providing Peace of Mind

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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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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Insider Advantage: Three Reasons Former Underwriters Make Better Brokers

By Craig M. Santa Maria

I’m sure you’ve heard the old proverb: “Walk a mile in another man’s shoes before judging him.” It’s a good lesson in empathy and tolerance and certainly helps prevent a lot of misunderstanding and conflict.

The basic tenet that shared underwriterexperiences create greater understanding is relevant in all types of personal interactions, even purchasing insurance coverage for your business. In my experience, a broker who has “walked in the shoes of” an underwriter has a significant advantage in putting together the most appropriate coverage solution with the most
favorable terms.

In my eight years as an underwriter and 14 years as a risk adviser and broker, I’ve found there are three key advantages underwriters-turned-brokers have when negotiating on your behalf:

  • They present your business more favorably – The job of an underwriter is to measure risk exposure and determine the premium that must be charged to insure that risk. With intimate knowledge of how business risk is measured, former underwriters are best able to improve the underwriting process in a way that addresses concerns and makes your risk profile most attractive.
  • They use their experience and knowledge to suggest terms and pricing – Underwriting experience enables a broker to proactively develop a cost and coverage model that has a high probability of success.
  • They use time to your advantage – The underwriting process can require considerable time and resources. Underwriters are stretched for time and capacity, so your company must compete for adequate attention. Many times the process is mismanaged, resulting in reflexive rejections or last minute offerings, leaving you little time to review and negotiate. A seasoned broker with an underwriting background will have strong, trusted relationships with carrier decision makers. This will eliminate inefficient uses of time, good will, and resources, resulting in a better negotiation and more agreeable terms.

When the time comes to renew your existing coverage or make changes to meet the needs of your business, talk with a broker who has solid underwriting experience. I think you will clearly see a positive difference in their ability to meet your risk insurance needs.

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

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