Why Risk Transfer?

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Presented by Christopher F. Hawthorne, CPCU, CIC

Insurance premiums fluctuate annually due to sales and payroll activity of a contractor and also due to loss history.  The insurance policy provides money to rebuild damaged property, to defend in a liability suit, to pay settlements as well as take care of employees when they are injured on the job.  These combined costs are labeled as losses.

An insurance loss has the potential of driving insurance premiums up for four or five years as well as limiting which carriers will wish to work with a contractor. When an insurance carrier is determining what it will offer in term of premiums, it will incorporate the prior four years of losses as part of the pricing mechanism.  The fewer and smaller the losses, the more carriers will be interested and the carriers can justify offering lower premiums.

An available risk management technique to lower the size of a contractors losses arising from working with a sub-contractor is Risk Transfer.  Risk Transfer can protect one party’s insurance program and future premiums by transferring the cost of a loss to another party. Conversely, it can increase the future costs of the other party’s insurance program.

The major types of protection in risk transfer agreements are as follows:

Hold Harmless-Party A holds Party B harmless for a loss when Party A has caused part or all of a loss.

Indemnify– Party A agrees to reimburse Party B for damages (settlements and judgments).

Defend– Party A agrees to pay the cost to defend Party B after a loss if Party B is named in a claim or suit.

Additional Insured Status– Party A provides coverage for Party B under Party A’s insurance program for Operations and Completed Operations.

Primary Coverage-Party A states that it’s coverage is primary should Party B be brought into the suit.

Non-Contributory– Coverage-Party A states it’s policy disallows Party B’s policies from sharing in the loss.

Waiver of Subrogation-Party A disallows its insurance company from pursuing Party B’s insurance carrier for any amount due to Party B’s negligence that may have contributed to the loss.

In short Party A is highly protected by Party B.

When is it appropriate for one to agree to these terms? While this question is to be answered on a case by case basis, in general if accepting work from a General Contractor (GC), it is the norm that the GC will expect the terms to be agreed to, to some degree. The economic value of the relationship should be considered before agreeing to adding this exposure to one’s liability.

When is it appropriate to ask for these terms? Whenever possible, as it greatly enhances the protection for an operation.

Not all agreements are the same and not all insurance policies can back them up. It is critical both parties involve their attorneys as well as their agents before signing. As always, a team approach and communication will put everyone is a better position to succeed and survive a loss.

New Healthcare Assessment for Massachusetts Employers

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We want to make you aware of an important law that will impact Massachusetts-based employers beginning January 1, 2018. Under a law signed recently by Governor Baker, employers with six or more employees will begin paying a new health care assessment to support the Commonwealth’s Medicaid program, MassHealth.

Highlights of the new law

  • It increases the existing Employer Medical Assistance Contribution (EMAC) from $51 per employee to $76.50 per employee.
  • It establishes a new assessment on employers for any employee who enrolls in MassHealth or subsidized insurance coverage offered through the Massachusetts Health Connector. The assessment is $750 per employee, per year.
  • Employers will most likely pay the assessment on a quarterly basis–just like they do for unemployment insurance.
  • Employers who hire any worker for at least one day during any 13 weeks in a calendar year, and who pay at least $1,500 in wages per quarter, will be required to contribute.

The Massachusetts Department of Unemployment Assistance and the Health Connector are still finalizing regulations to implement the assessment. The regulations are expected to be completed before the end of the year. The assessment is expected to generate $200 million annually; it is scheduled to end on December 31, 2019.

Law also reduces unemployment contribution rates
To help offset the impact of the new assessment on employers, the law also reduces Massachusetts unemployment contribution rates for two years. For more information on the employer contribution schedule, visit  the link below:

https://www.mass.gov/service-details/changes-to-employer-medical-assistance-contributions-emac-effective-january-1-2018.

5 Questions to Ask Clients Who Are Considering a 401(k) Loan

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Presented by Douglas W. Greene CFP® CLU®

Advisors may suggest to their clients that they never take a loan from their 401(k) plan, but things happen, and happen more often than you might think.  According to Morningstar, at the end of 2012, 21% of 401(k) plan participates who were eligible had loans outstanding against their 401(k).  50% of people who borrow against their 401(k) will do so more than once.

Here are five key questions to ask clients:

  1. Does your intended use of funds promise a higher rate of return than leaving the money be?
    – Steering borrowed funds to an investment with an uncertain payoff is much less compelling than paying off high interest debt.
  2. Is your job secure?
    – If you leave your employer with a loan outstanding, you will usually be forced to pay back the loan soon, usually within 90 days.
  3. Can you realistically pay this back?
    – Because there is no credit check, the client is the one responsible to deciding if the loan is financially viable.  Make sure household budget is considered as interest will increase the payments.
  4. Are you prepared to lose the benefit of your tax deductions?
    – A 401k provides an employee federal and state income tax deductions on contributions.  If a loan is taken, it must be paid with after-tax dollars thus offsetting the benefit of the deductions.
  5. Do you feel like you can afford to delay your retirement saving?
    – Their budget may not be able to support the loan repayment and current 401(k) savings.  Also, the money withdrawn does not have the opportunity to grow with the market.

Is Your Business Prepared for a Natural Disaster?

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While all businesses should have a plan in place to protect their employees and their bottom line when a natural disaster hits, they should also consider their location and the insurance that is necessary to keep their doors open after a catastrophic event.

For a detailed disaster plan you can visit  the link:  https://www.fema.gov/pdf/library/bizindst.pdf

Reviewing the insurance plan:

Businesses should review their insurance plan to reduce out of pocket expenses.  Make sure you have significant coverage to pay for the indirect costs of the disaster, disruption to your business and the cost to repair or rebuild your premises.  Most policies do not cover flood or earthquake damage and you may need to buy separate insurance for these perils. Be sure you understand your policy deductibles and limits.  New additions or improvements should also be reflected in your policy. This includes construction improvement to a property and the addition of new equipment.

For a business, the costs of a disaster can extend beyond the physical damage to the premises, equipment, furniture and other business property. There’s the potential loss of income while the premises are unusable. Your policy should include business interruption insurance and extra expense insurance. Even if your basic policy covers expenses and loss of net business income, it may not cover income interruptions due to damage that occurs away from your premises, such as to your key customer or supplier or to your utility company. You can generally buy this additional coverage and add it to your existing policy.

Basic commercial insurance to consider:

  • Building coverage provides coverage up to the insured value of the building if it is destroyed or damaged by wind/hail, or another covered cause of loss. This policy does not cover damage caused by a flood or storm surge nor does it cover losses due to earth movement, such as a landslide or earthquake, unless added by endorsement.
  • Business personal property provides coverage for contents and business inventory damaged or destroyed by wind/hail, or another covered cause of loss.
  • Tenants improvements and betterments provides coverage for fixtures, alterations, installations, or additions made as part of the building that the insured occupies but does not own, which are acquired and made at the insured’s expense.
  • Additional property coverage provides for items such as fences, pools or awnings at the insured location. Coverage limits vary by type of additional property.
  • Business income provides coverage for lost revenue and normal operating expenses if the place of business becomes uninhabitable after a loss during the time repairs are being made.
  • Extra expense provides coverage for the extra expenses incurred, such as temporary relocation or leasing of business equipment, to avoid or minimize the suspension of operations during the time that repairs are being completed to the normal place of business.
  • Ordinance or law provides coverage to rebuild or repair the building in compliance with the most recent local building codes.

Best Agency to Work For

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Cleary Insurance Believes in Embracing Risk

by Elizabeth Blosfield

about-cleary

When William J. Cleary III and his father, William J. Cleary Jr., decided to take a risk 25 years ago, Cleary Insurance, a Boston, Mass., based insurance agency, was born with just four other employees.

Its team of employees has grown nearly six times its original size and represents 42 different insurance companies today. Now, the firm strives to encourage its clients to embrace risk as well.

“I see Cleary Insurance continuing to grow within our current model, encouraging our clients to embrace risk, to live their lives knowing that we are providing them with the best advice and coverage options available,” President William J. Cleary III said. “We want to protect our clients and manage their risks so that they will grow and go forward with us.”

An appetite for risk and a collaborative culture help to set Cleary Insurance apart from its competition and earned it this year’s Best Agency to Work For – East Gold award. More than half of its 25 employees nominated the firm through an online survey, emphasizing the agency’s client-focused approach as one reason it stands out above the rest. By doing the right thing for clients, the needs of the agency are naturally met, one employee wrote in the survey.

“I’m continually impressed at management’s and the owner’s natural reactions to step back and focus on doing the right thing,” the employee wrote. “The conversation from the top is always about what’s right for the customer, what’s right for our role as agents, and that often seamlessly falls into line with what’s right for our agency.”

In addition to serving clients individually, the firm seeks to give back to its community as a whole through volunteering, employees stated in the survey. Each year, the agency selects a charity to volunteer with for a day. This year, the agency volunteered with Cradles to Crayons, a non-profit organization that provides children living in homeless or low-income situations with needed items. “It really feels like a change is being made in the community,” one employee wrote about the volunteer work.

The secret to Cleary Insurance’s success in serving clients, however, are its employees, Cleary said. It may seem as though independence and teamwork are opposites, but the firm strives to make the two work hand-in-hand by building a strong team to serve clients and the community on the outside while encouraging a culture of independence within the agency.

“We ask our folks to think for themselves, act independently and create the culture here at Cleary Insurance,” Cleary said. “I think the structure, or lack thereof, is what truly sets us apart. We try to hire the best possible people, keep them highly educated within the insurance world and then just get out of their way so that they can do their jobs as they see fit.”

This strategy seems to be working, as one of the original four employees at the agency’s onset is still with the firm today, while two others remained until retirement, Cleary said. Through a business model that allows its staff to develop professionally without micromanagement, the firm aims to encourage each employee to grow independently while remaining part of a team, he added.

“I want to work hard for this organization because it feels like family,” one employee said.

Indeed, the motto that appears on the front page of the Cleary Insurance website says that “life is worth the risk” — a statement that appears to reflect the spirit of the family that started it all 25 years ago.

“Like many of my insurance colleagues, I entered into the insurance world due to a family connection, but I have stayed in the industry because I love what I do,” Cleary said. “The fact that the staff here nominated our firm for this award is a tremendous source of personal pride, but mostly it is a reflection on the people that work here.”Click here to download article.

Insurance for Your College Student

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Renters Insurance
So you’ve kicked off your kid’s college career with a new laptop and some other expensive high-tech gadgets. Now it’s time to follow up to ensure his or her property is safe in the event of theft, fire or other mishap.

In general, protecting a student’s personal property boils down to a simple rule: If your child is living on campus and going to school full time, your homeowners, renters or condo insurance policy (including liability protection) will cover his or her gear. But if he or she moves off campus, your policy most likely won’t protect his or her assets. Ditto if your students starts taking fewer classes.

Kids who change their permanent home addresses on such legal documents as driver’s licenses or tax returns (say, to qualify for in-state tuition at a public university) are no longer considered official parts of your household. They’ll need their own renters insurance.  Students who rent a shared apartment will need insurance, too, but be aware that they might have a tough time getting it. That’s because insurers might not sell a policy to a student unless everyone in the household has his or her own policy, too.

Auto coverage
Congratulations if your college student left the car at home. You might have some savings coming to you. But to get it, your student’s school needs to be at least 100 miles away. If you meet this criterion, give your insurer a call. You’ll generally receive about 10 percent off your premium.

Did your child leave with the car?   It is important to call your insurance broker and discuss your options.  The insurance carrier could conceivably raise your rates if the vehicle’s moved to a different location.

New OSHA Incident Reporting Rules

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Effective January 1, 2017; certain employers are required to electronically submit injury and illness data that they already record on paper and retain onsite. Electronic date will enable OSHA to quickly analyze injury data and use its enforcement and assistance resources more efficiently. The data will also be available to the public. OSHA believes that allowing for public disclosure on incident reporting will encourage employers to improve on workplace safety and provide invaluable information for job seekers, customers and the general public.

The reporting requirement will be phased in over two years. The timeline depends on the number of employees, but generally speaking employers must submit information from 2016 on form 300A by July 1, 2017. The same employers will need to submit Information from 2017 using forms 300A, 300, and 301 by July 1, 2018. Beginning in 2019 and thereafter all information must be submitted by March 2.

You can view which establishments are effected by the new reporting rule by clicking here.

Understanding the Commercial General Liability Coverage Form (CGL)

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The CGL (Commercial General Liability) covers companies from third party liability due to negligent acts, actual or alleged, committed by the insured or by someone working on their behalf.

There are 3 coverage sections under the Commercial General Liability policy:

Coverage A: Bodily Injury and Property Damage Liability

Coverage A provides protection against losses from the legal liability of insured’s for bodily injury or property damage to others arising out of non-professional negligent acts or for liability arising out of their premises or business operations.  Mental injuries and emotional distress can be considered bodily injuries, even in the absence of physical bodily harm.

Depending on the size and nature of the company different endorsements should be included that are not typically covered under a standard CGL policy.  Workers compensation and employment practices liability insurance are excluded but can be purchased as separate policies.  Liquor liability, professional liability and other risks may also be excluded.

Consult an insurance professional to determine which coverages are right for your type of business.

Coverage B: Personal and Advertising Injury

Personal and advertising injury liability protects an insured against liability arising out of certain offenses, such as:

  • Libel
  • Slander
  • False arrest
  • Copyright infringement
  • Malicious prosecution
  • Use of another’s advertising idea
  • Wrongful eviction, entry or invasion of privacy

Coverage C: Medical Payments

Limited coverage for medical payments includes payments for injuries sustained by a non-employee caused by an accident that takes place on the insured’s premises or when exposed to the insured’s business operations. Medical payments coverage can be triggered without legal action. This provides for prompt settlement of smaller medical claims without litigation. It is included in the CGL policy and pays for all necessary and reasonable medical, surgical, ambulance, hospital, professional nursing and funeral expenses for a person injured or killed in an accident taking place at the insured’s premises or arising from business operations. There is no defense or legal liability coverage—as there is with bodily injury and property damage (Coverage A) and personal and advertising liability (Coverage B), since coverage is provided on a no-fault basis.

Market Stabilization Final Rule Issued

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On April 14, 2017, the Department of Health and Human Services (HHS) issued a market stabilization final rule under the Affordable Care Act (ACA). The final rule includes new reforms intended to help lower premiums, stabilize the individual and small group health insurance markets and increase choices for the 2018 plan year.

Specifically, the rule includes a variety of policy and operational changes to existing standards to stabilize the Exchanges, including changes to the annual open enrollment period and special enrollment periods.

Action Steps
The rule does not directly impact plans in the large group market. Instead, it aims to stabilize the individual and small group health insurance markets in light of pending changes that may be made to the ACA.
The changes made under the final rule are effective for the 2018 plan year.

Overview of the Final Rule
The market stabilization final rule for 2018 includes new reforms that are aimed at stabilizing the individual and small group health insurance markets. Specifically, this rule makes changes to:

  • Special enrollment periods;
  • The annual open enrollment period;
  • Guaranteed availability;
  • Network adequacy rules;
  • Essential community providers; and
  • Actuarial value requirements.

HHS also issued separate guidance concurrently with the final rule to update the qualified health plan (QHP) certification timeline.

Open Enrollment Period for 2018
The rule shortens the upcoming annual open enrollment period for the individual market (for the 2018 plan year). Under a previous final rule, HHS established an open enrollment period for the 2018 plan year that runs from Nov. 1, 2017, through Jan. 31, 2018. However, that final rule sets a shortened open enrollment period for the 2019 and later plan years.

Under the market stabilization final rule, this shortened open enrollment period will apply beginning with the 2018 plan year. Therefore, for the 2018 plan year, the open enrollment period will run from Nov. 1, 2017, through Dec. 15, 2017. This change is intended to align the Exchanges with the employer-sponsored insurance market and Medicare, and help lower prices by reducing adverse selection.

This shortened open enrollment period applies in all Exchanges. However, HHS recognizes that some state-based Exchanges may have operational difficulties this year in transitioning to the shorter open enrollment period. As a result, HHS notes that existing regulatory authority allows state-based Exchanges the option of supplementing the open enrollment period with a special enrollment period, as a transitional measure, to account for those operational difficulties.

Special Enrollment Period Pre-enrollment Verification
The final rule expands pre-enrollment verification of eligibility to individuals who newly enroll through special enrollment periods (SEPs) in Exchanges using the federal platform. Previously, HHS allowed individuals to self-attest eligibility for most SEPs—and to enroll in coverage without further verification of eligibility—in an effort to minimize barriers for individuals to obtain coverage. However, this practice led to abuses of SEPs, allowing individuals to enroll in coverage that they would not otherwise qualify for.

To curb these abuses, the final rule requires HHS to conduct pre-enrollment verification of eligibility for all categories of SEPs for all new consumers in all Exchanges using the www.HealthCare.gov platform. According to HHS, this change will help make sure that SEPs are available to all who are eligible for them, but will require individuals to submit supporting documentation—a common practice in the employer health insurance market. This is intended to help place downward pressure on premiums, curb abuses and encourage year-round enrollment.

Guaranteed Availability
The final rule also addresses potential abuses of the ACA’s “guaranteed availability” rules, which require insurers to offer coverage to any eligible consumer who applies for coverage. HHS previously interpreted this requirement to mean that an insurer cannot refuse enrollment to an individual even in cases where the individual has failed to pay outstanding premiums for any prior coverage. According to HHS, issuers have complained that some individuals are taking advantage of this provision by, for example, declining to make premium payments for coverage at the end of a benefit year, and then enrolling in new coverage for the next year, thereby avoiding having to pay outstanding premiums for the previous year’s coverage.

The final rule attempts to curb these abuses by allowing issuers to collect unpaid premiums for prior coverage before enrolling a patient in the next year’s plan with the same issuer. This is intended to incentivize patients to avoid coverage lapses.

Determining the Level of Coverage
The ACA requires QHPs offered through an Exchange to meet certain levels of actuarial value, referred to as “metal levels.” HHS regulations have allowed for a de minimis variation in the actuarial valuations used in determining the level of coverage of a plan to account for differences in actuarial estimates.

The final rule adjusts the de minimis range that is used for determining the level of coverage, allowing a variation of -4/+2 percentage points (rather than +/- 2 percentage points) for all non-grandfathered individual and small group market plans that are required to comply with actuarial value (except bronze plans, which can vary -4/+5 percentage points). As a result, the final rule provides greater flexibility to issuers in the actuarial value de minimis range to provide patients with more coverage options.

Network Adequacy
The final rule provides greater flexibility to states in the review of QHPs. Under the final rule, beginning with the 2018 plan year, HHS will defer to the states’ reviews in states with the authority and means to assess issuer network adequacy. According to HHS, states are best positioned to ensure their residents have access to high quality care networks.

Qualified Health Plan Certification Calendar
Finally, HHS issued separate guidance concurrently with the final rule to update the QHP certification calendar and the rate review submission deadlines. In light of the need for issuers to make modifications to their products and applications to accommodate the changes finalized in the market stabilization rule, the updated calendar and deadlines are intended to give additional time for issuers to develop, and states to review, form and rate filings for the 2018 plan year that reflect these changes.

 

Source: U.S. Department of Health and Human Services,
 Centers for Medicare & Medi