Insurance, Risk and Valuation

This is something I simply don’t understand – insurance professionals who are reluctant to advise – just because of their Errors & Omissions exposure?  If they’re the professionals, why not use their expertise and training for their clients’ best interests?

Are they afraid that their clients may see them for what some salespeople truly are?  A salesman/saleswoman and not a professional advisor!

Maybe they would prefer their clients approach us first – for Risk Management advice.  This definitely helps avoid that observation, doesn’t it?

Recently, I spoke with an insurance broker who refused to assist a client in the determination of adequate Business Interruption insurance – afraid of a loss on their E&O!  He felt that the worksheet sent to a client should be completed with their accountant but mentioned that he doesn’t know any accountants who feel comfortable completing these insurance forms.  I then offered our firm’s experience and services to the broker.

We’ll be happy to review Financial Statements and Contracts/Leases/Franchise Agreements and advise on issues like Business Interruption losses, Employee Dishonesty limits, Trade Credit Insurance, etc.  We can assist in working on “replacement cost” determination/evaluation so that you are adequately insured!

Have you ever experienced a loss where you felt you were protected and found out otherwise?  Let your CFO, Controller, Accountant and Lawyer know about us!

We are very pleased to work alongside your other professional advisors and work with you and for you – not against you.

Our costs are always very reasonable.  Why not contact us now for further information?

Commercial Loan Agreement Compliance – Lenders, are you concerned or not?

We’re really upbeat on our thoughts for 2010!

It seems like the new decade has arrived with a huge bang after the whimper of 2009 left with such a bad memory.

We have added 2 new Commercial Lenders, including another bank (3 of Canada’s “Big 5″ Chartered Banks are using our firm’s services) and we have already exceeded January’s 2009 Loan Review volume in the first half of January, 2010!  WOW – now that is a terrific start to a new decade, isn’t it?

Who else is lending Commercially and who needs outsourcing of Borrower Loan Agreement Compliance? I can give many important reasons for considering outsourcing this task, as opposed to trying to perform an adequate job in-house, but will not do that now.

Why not, simply, leave it to the experts to ensure that your Borrowers meet the terms of their Loan Agreements when they obtain Property/Casualty insurance? Whether you’re in Canada or the USA, outsourcing to reduce your firm’s own risk while knowing that experts in the insurance and risk management field can be relied upon to protect your firm’s balance sheet should be paramount in your decision-making.  That makes us your answer!

As your loan institution cannot be expected to have the knowledge of insurance professionals, why would you not consider allowing a third-party provider that has this expertise to work with you?  You are the experts in Lending, Commercially, and rely on Attorneys to provide legal assistance.  Is this any different from outsourcing insurance documentation skills to those who know the industry?

I look forward to your feedback and have a prosperous, healthy and happy 2010!

Brand Reputation – How Important to you is Managing Media Risk to prevent the damage from Negative Press?

I won’t take credit for this since my morning e-mail from RightNow Technologies is a promotion of their upcoming webcast and their firm’s services but…do read.

It is a very interesting article re Media Risk and much of what I have been recently stating on my various WRiskManager platforms on Plaxo, Facebook, etc.  I know that a market capitalization reduction of $180 Million caught my attention – how about you?  It could be a much smaller business but how much effort will now be required to rebuild the reputation you have lost?  How much revenue and profit has been foregone by some needless act?  How will your bankers react?

“RightNow Webcast: United Breaks Guitars with Dave Carroll

Dave Carroll’s story depicts the value of great customer experience and illustrates that spending a little can save millions when it comes to your brand’s reputation.

In 2008, Dave was flying United Airlines with his band Sons of Maxwell when a passenger sitting next to the window exclaimed that the baggage handlers were “throwing guitars out there.”

Carroll’s guitar was broken. He spent the next nine months in a service maze pursuing compensation. Eventually, customer service at United Airlines told him they were closing the incident and would not respond to any further emails.

Carroll vowed to write three songs about the experience and post them on YouTube, hoping to achieve a million views with all three combined. But he did much better. He hit one million on the first song within one week, and is at six and a half million views at last count. A media frenzy ensued and United’s market capitalization dropped $180 million over the next three weeks.

Register for this live webcast and hear Dave Carroll tell his remarkable story. He will be joined by Jason Mittelstaedt, RightNow’s CMO and Bruce Temkin, Vice President & Principal Analyst at Forrester Research, for a discussion on customer experience in the age of the social web.

There’s no better way to understand how powerful the voice of the consumer has become than to attend this webcast.

View the United Breaks Guitars video.

Join us:

Thursday, December 10, 2009
11:00 a.m. – 12:00 p.m. Pacific
2:00 p.m. – 3:00 p.m. Eastern

Register Now!

See you on the 10th,
RightNow

136 Enterprise Blvd. | Bozeman | MT | 59718 | 866.630.7669 | “

http://www.rightnow.com/summit/Americas/2009/presentations/dave_carroll_tues.php

What else can I say about managing media for both positive and negative reaction – the value of ensuring positive images will definitely outweigh the negative as seen here from the views of YouTube and what someone has now done.  Am I not correct in emphasizing managing positive media as opposed to the damage done from something like this?

There are countless examples of companies who do not emphasize the importance of “perception” and how the public perceives their image of one’s business.  Not training your staff to contemplate the damage that can be done by one little act will cost so much more in lost revenues and profits than any employee will ever realize.  Can this cost be managed?  You bet!  But not by standard Risk Transfer – Insurance!  Only by better training, support, etc. can you ever manage media risk which, in my mind, is a very worthwhile investment in your business.

Use expert Risk Management to reduce the consequences of a similar occurrence happening to you!  Contact the WRiskManager today – larry.wettlaufer@riskreview.ca 

How Much Employee Dishonesty Insurance Should Any Business Owner Or Non-Profit Organization Purchase?

EMPLOYEE DISHONESTY COVERAGE (FIDELITY BONDS)

A USUALLY OVERLOOKED COVERAGE!

One of the most severe crime problems any business owner or non-profit organization can face is that of a loss from employee dishonesty.  Amazingly, this insurance coverage is often overlooked!  The loss of merchandise, valuable records, accounts receivables, and money and securities from dishonest acts of employees has been estimated to cause 30% of business failures!  For every dishonest employee caught, it’s estimated that another 100 are not and, thus, get away with their crime!

Insurance coverage for Employee Dishonesty is usually purchased in one of two forms:

1. Commercial blanket coverage, which provides a blanket limit covering all employees.  The amount of the bond is an aggregate or all-inclusive limit.  It is the most that could be paid in any one loss.
2. The blanket position bond also covers all employees, but the difference is that the limit of the bond applies to each employee separately.

For example…a firm suffers a loss of $30,000 caused by three employees acting in collusion.  If the firm carried a $10,000 commercial blanket bond, total recovery would be limited to $10,000.  This is the maximum for one loss, regardless of the number of employees involved.

If the firm carried a blanket position bond of $10,000, recovery would be the full $30,000.  The $10,000 limit applies separately to each employee involved.

There is a formula that was developed and tested by two reputable American organizations who know all about dishonesty and its financial consequences.  It provides the best basis available for determining the amount of coverage needed per loss and can be accessed by contacting the WRiskManager to work with you.  Do you need to review the amount and kind of coverage you have?  We will be happy to assist at a very affordable cost!

For any business-owner, non-profit, lawyer or accountant – why not communicate with us for a simple and inexpensive means of protecting against a potentially significant financial loss?

We are just an e-mail away—an e-mail that might save you from a catastrophe.

Larry.wettlaufer@riskreview.ca  aka WRiskManager

Multi-National Business and Risk

Does a corporation overlook proper “due-diligence” when expanding their operations and, if so, how often might this occur?  I don’t mean the normal, everyday analysis, but a significant Risk Management concern; the legal framework one must consider when crossing borders!

European businesses have become very familiar with establishing new ties with various professional services when they open subsidiary operations in the northern part of North America, particularly in their understanding that Canada is completely different from Europe (and, again, different from the USA).  They locate legal, accounting, banking and insurance specialists who, many times, do not have direct ties with their European operations.  They realize that NAFTA (North American Free Trade Agreement) can benefit their Canadian subsidiaries in allowing an opening into the greater American marketplace, a major advantage to locating in Canada, and then look for the most suitable expertise to assist them.

Examples that I have seen include the contacts made through the various European-Canadian Chambers of Commerce with one lawyer (friend of mine) being especially adept at being able to obtain clientele in this manner.   There are numerous other examples but I will only provide one to whet the appetite for connecting with me.

Why do they like to enter America through Canada?  Many Europeans realize that Canada is significantly closer to our European “roots”, as opposed to our American “neighbours”, in areas like politics (should I term it “social democracy” and multi-party governing, as opposed to a true 2-party form?).  Maybe, for them, it is a gradual change from Europe to America.  And yes, many Europeans do love America.

Now what about American corporations; do they prepare themselves in the same manner?  Do they understand that Canada is not the 51^st state?  Reality tells us that many American corporations do not fully comprehend that Canada has distinct laws, particularly in the areas of Health & Safety, Workers’ Compensation, Vacation/Paternal Benefits, Unionization, the “Duty to Accommodate” in areas of Disability and, surprisingly, “Francophone” issues, among many others.  They do, however, realize that we have a “Government Health Care” system in place, unlike their home country (and, yes, there can be major cost savings from that associated with employer provided “group medical insurance”).

Sure, Canadian media is driven by American news events (CBC often reports items faster than CNN, by internet) and Americans residing in Canada don’t recognize that they’re living in a foreign country because of so many similarities (we also watch the same television programs and movies) but there are, in fact, major differences!

What is the significance of some of these issues that can be so different?  An example mentioned to me, over a recent coffee meeting, gave rise to an item that was publicized significantly in Canada not too many years ago.  See the following for one example: http://www.ogilvyrenault.com/files/unionfreespeech01oct04.pdf

Knowing that some corporations do not see the “negative press” (“Reputation Risk”) as something to be of concern may be one issue to debate at another time but as a “new employer” in a different country it should give rise to discussions in the Board room, should it not?

Or, what about language issues or a “Napoleonic Code” legal system which should also be Risk Management concerns?  You may ask what the Napoleonic Code is but it heralds back to the times of Emperor Napoleon and still is the legal system in use, today, in the Province of Quebec, a part of Canada that is also the reason that we are a legally “bi-lingual” country.

There are a large number of differences between Canada and the USA that cannot (or should not) be overlooked by an American subsidiary operating in Canada.  Anyone who recommends that their subsidiary operate as a “branch” of the parent will be confronting many major issues never contemplated at home.  Quite possibly now, a majority of American firms operating here, treat their operations in this manner without fully realizing the many Risk Management issues they face.

The most significant, in my mind, was Bill C-45 and the debate it caused in 2003, when Directors, Officers and Management could be fined and imprisoned for the most serious of health and safety violations!  I had clients who wanted to buy insurance protection which was not available because these are considered “uninsurable” (criminal) events.  What could they do?  We provided training and consulting from a Risk Management capacity which lessened their concerns.  This needs to be an ongoing function.

To conclude, it may be better to obtain the expertise of local consultants when expanding multi-nationally.  Good Risk Management practices would indicate that, instead of assuming that everything is the same as to what one has become accustomed, businesses should take a few moments to contact us.

Total Cost of Risk (TCOR) – What costs should be included, really, when determining your Cost of Risk when operating your business?

Many companies and business people relate the terms “insurance” and Risk Management (RM) as being nearly synonymous.  It is necessary to realize that this is like comparing a banana with a watermelon (everyone always talks about apples and oranges so I want to be different, OK?).

Insurance, often, is considered to be a means of RM.  However, it is a means of “Risk Transfer”, solely – transferring an identified or (in some cases) unidentified “risk of loss”.  What about that “bad debt” suffered because your customer – a manufacturer, for example – just filed for bankruptcy protection that was never anticipated or that sudden devaluation of currency and the impact on your cost of imports?  Risk Transfer to a 3^rd party, as in an insurance company or other similar firm, e.g. captive, pool, futures market, hedge fund, etc. for means of reimbursing a loss, after it has occurred, or reducing the impact of a catastrophic incident are all effective means of RM but are not all insurance acquisitions.

What is RM, though?  Is it a method of minimizing or reducing a loss, all the time?

This is where TCOR is involved – determining the

• “direct costs” involved with insurance (premiums, deductibles, retentions, etc.),
• “indirect costs” (how much time and money is involved in preparing your claims reports, meeting with the lawyers and accountants, etc.?) and
• “prevention costs” (those Health & Safety meetings should be included in your TCOR and the costs of hiring a new employee because you just terminated someone – oh, yes that may have also been a direct cost, too).

RM includes identifying and establishing your goals in business, differentiating them based on the “certainty of managing your risk” i.e. accidental vs. speculative, etc.  It may also involve outsourcing some (yes, Commercial Lenders even give their Loan Agreement Reviews to people like us to minimize their risk of error; Lawyers don’t always have all the answers regarding Contracts and must refer to us; Accountants don’t always have the best suggestions either and do call us) questions and/or routine work for which one is not adept at handling.  Taking steps to control those risks through various cost-effective means should involve someone with RM training and experience, from Financial to Information to Operational Risk.

Many insurance agents and brokers will attempt to fill this role but, unless being paid on a fee basis (as opposed to their earning a commission on the sale of those insurance policies to you), you may be placing him/her in the potential position of a conflict of interest, are you not?  How are you able to truly trust that individual to save you money (insurance costs may decrease but there is no guarantee) in the short-term or the long-term?   I have heard this comment on numerous occasions.

Have you ever argued with that insurance broker/agent over the added cost of improving your company’s security system, e.g. sprinkler upgrade, or the effectiveness of that Business Continuity Plan in reducing a Business Interruption claim and why you’re being charged such exorbitant (in your mind) premiums?

There may be excellent reasons and the insurance company may insist, or dispute, but why not request a 2^nd opinion (better yet, why not ask for our help from the start)?

This is all part of TCOR!  Surveys have indicated that much of a company’s true Cost of Risk of being in business is “non-Insurance premium” and one major international insurance company’s survey results indicate that less than 50% of all business losses are reimbursed by insurance.

This is exactly my reasoning for the emphasis on TCOR, RM and the need for consulting with an expert in the field.

Legal Agreements and Risk Management – Franchising, Leases, Contracts, etc. & Compliance or Non-Compliance

Have you ever really given any thought to that legal agreement you have signed or are about to sign?  Have you thought about the insurance and risk management consequences you have or are about to assume on behalf of your business?

An example is a lease that requires $X Million in Liability Insurance – do you have adequate protection currently?  If you are non-compliant with your Landlord’s lease, what consequences might you face?  I know of an instance, several years ago, where the seller of a business had previously provided me with a copy of his lease; the requirement was for $5M (they were serving alcohol) and, to nobody’s surprise, the cost of the insurance was significantly more than it would be for $1M in Liability coverage.  The buyer of that business refused to purchase the mandated insurance from me – and went elsewhere for less cost because his choice of insurance providers did not request to see a copy of the lease.  What happened?  When the lease was to be renewed, the Landlord did not renew it, having chosen to replace the Tenant with a National Franchisee that provided an insurance policy in compliance with the terms of their lease.  And yes, the tenant was required to vacate, not relocating, thus risking the closure of the business.

What about Contracts?  Have you ever contemplated the consequences of a “Hold Harmless Agreement” or an “Indemnification Clause”?  Are you aware that you may be assuming the risk of a supplier or a customer by agreeing to those terms and driving the cost of your insurance policy higher?  Examples abound here with Property Managers, Contractors, etc.

And we all love Franchises, correct?  Did you know that some firms will require that your policy have coverage that may be difficult to find, on a “stand-alone” insurance policy?  This means that you should investigate what conditions are being required and how easy it might be to purchase a policy on your own as opposed to that of the “Master/Franchise” policy.  What about terms relating to the Financial Strength and Rating of your Insurance Carrier?  That “B” rating that your insurance company carries may not be sufficient to retain your franchise.  Or, what if you have a “protected territory” where your risk could be that you face the introduction of another Franchisee into your region because you were in default of the conditions of your Agreement?

Don’t just assume that what you have is the “norm” and that everyone must sign the agreement.  I have seen Loan Agreements with terms that can be amended, no different than Leases, etc.  The best Risk Management decisions should only be made when discussing your risks and options with an expert in the field.  Don’t assume that your present insurance provider can handle your business adequately and don’t be afraid to ask for a 2nd opinion – from a Risk Management consultant like ourselves.  We are not paid a commission to sell but a fee to offer our professional advice, including to lawyers and accountants who are not trained in insurance issues but their own expertise.

Directors’ & Officers’ Liability Insurance general information

What is Directors’ & Officers’ Liability Insurance?  What does it do; who does it protect; why buy it?  These are just a sample of questions anyone in the business of D&O (buyer or seller) will have heard throughout their years of working in this particular specialty of insurance.

I once heard an esteemed partner in a well-recognized law firm offer that, in Canada, if there were 100 insurance companies that sold this form of insurance policy one would not find 2 identical policies anywhere in the country – can you imagine that this might be any different in the USA?  I can’t.

Who sells Directors’ & Officers’ Liability (more commonly called D&O) today?  Many insurance companies will offer the coverage but some will only write the “non-profit” market or Not-For-Profit Organizations, Associations, etc.  Others will write both classes (“For Profit”, as well) of business and still, other sources might include the “wholesale” marketplace or Managing General Agents (MGA’s).  These MGA’s attempt to access markets (e.g. Lloyds’) and design a policy specific to an industry or sector, in some cases.

What might be the Purpose of D&O insurance?  A simple response might be “good corporate governance” but nothing will truly be simple in a discussion of D&O.  Why is D&O necessary?  Legislation and the many decisions of the world’s Judicial System have required that anyone in the place of a Director and/or an Officer of any Corporation be protected due to the large personal risk that one faces – the loss of “personal assets” of a director/officer.  In the case of a “volunteer” director on a board, can you imagine explaining to your spouse that your family may face the loss of your home, business, savings, etc. when you have been volunteering for a church, service group, social activity, or other worthwhile cause and are named in a lawsuit?  Absolutely ridiculous!  Correct?  NO!  What about those individuals who served as Directors or Officers in prior years?  Yes, past and future directors can be covered by the insurance policy, as well as current directors.

What is covered by a normal policy?  Legal and Defense Costs (have you recently asked a lawyer who specializes in this area, how much their hourly rates are?), Damages, Settlements and Judgments are normal and, most people will agree, can be quite substantial.  Actual or “alleged” wrongful acts are covered but what will not be covered (nor should it be) are Fines, Penalties and other charges deemed uninsurable (e.g. profits or gains realized due to insider information).

Some of these acts may be “negligent”, “errors”, “omissions”, “misstatements”, “misleading statements”, “neglects or breaches of duty”, etc.  but will NOT cover “acts of bad faith”, “bodily injury or property damage” (that is what other Liability insurance covers), “claims relating to employee pension or welfare plans”, “environmental claims” (again other Liability insurance can be obtained for that), “claims resulting from facts known prior to the inception of coverage”, “failure to maintain insurance:, etc.

Claims can be brought by shareholders, creditors, employees, suppliers, competitors, government bodies, etc. – can you think of anyone who is not included here?

What about the corporation that no longer exists due to wind-up or other reasons?  Yes, the policy can have an “extended reporting period” whereby the insurance company will extend coverage for an additional term for additional premium, usually less than the full term’s cost.

Examples of claims could include any of the following:

• Class action lawsuits against a Board of Directors for alleged mismanagement – hindsight will definitely be 20/20 so who is to determine that there was actual mismanagement?
• Damages against various directors and officers of a firm for alleged non-disclosure of financial conditions and performance (I have an example where a bank claimed this from a Borrower);
• Shareholders questioning whether their interests were adequately represented by the Board of Directors;
• Corporate Governance issues which have become a major source of concern to the financial markets and to governments;
• A suit against a group of directors over a dispute about the value paid by one company for another (and the odd item of note, here, was that the D&O insurance did not survive the takeover);
• A public offering of stock where directors are quoted as touting the prospects where the stock fails to perform in a manner consistent with those statements and shareholders subsequently sue for damages, “alleging that they were induced to buy at an inflated price because of the excessive promotion of the stock by its directors”;
• A wrongful termination of an employee, whereby an employee argues that a “sales decline was due to a weak economy and failure of the company to keep its prices competitive”;
• The directors of a struggling company were unaware that management was using Sales Tax collections to finance the day to day operations and when the company took bankruptcy with unremitted tax monies, the government assessed the directors personally for outstanding tax liabilities;
• Unpaid wages in the event of a bankruptcy;
• Sexual harassment and discrimination;
• And the list can go on.

What makes “non-profit” so different from “for-profit”?  Many of the above examples are strictly for profit, right?  Yes, most are but a non-profit organization can have instances of termination, harassment and discrimination, too!

One of the differences is that a non-profit may need and benefit from a “duty to defend” clause in their policy whereby the insurance company is required to defend the lawsuit, as opposed to participating or reimbursing an Insured following a judgment.  Some companies will even cover for administrative errors and omissions and not have a specific exclusion for “failure to maintain adequate insurance” (WOW!).  This may be a small benefit to a non-profit but is an example of a major difference from insuring a “for-profit corporation”.

There will be many other questions that a reader may have but this information should give an overview of Directors’ & Officers’ Liability insurance, the importance of obtaining and some of the differences between the two types of coverage available.

Please feel free to comment or ask further questions.

Facebook, XING, Ecademy, LinkedIn, Twitter, etc.

It is truly amazing what results are beginning to be seen in posting to a blog and a “Fan Page” on Facebook with all the accompanying Social Media sites in which I participate.

Yesterday, I had contact with 2 individuals who were solely a result of my online efforts.  One was a Restoration Contractor who had questions about “mold” and I referred them to one of my sources of expertise; they’ve now subscribed to that firm’s newsletter, a sign of the value of my extensive network.  They also inquired about issues surrounding the “Chinese drywall” situation in North America.  I have read some on this new and growing issue and would appreciate any feedback from my readers re their thoughts, questions, etc.

The other individual was sourcing a blogger on Directors’ & Officers’ Liability insurance and I have agreed to prepare an upcoming blog on this issue – the whys of buying the coverage and the issues surrounding a policy for D&O.

It is now Friday afternoon and I know that my next blog will be quite lengthy so this will be much shorter.  Everyone have a great weekend and for those who are using Facebook, please become a fan of WRiskManager .

Another update to my exciting week!

What is of special interest this week, my friends?  Well, let’s begin by thanking the online friends I have south of the Canadian/USA border.

One terrific connection provided me with the contact information for 50 lenders he uses in his brokerage business.  Where did this lead?  I always like to return the favor (favour here in Canada) and am now trying to introduce him to another friend who has a very interesting concept to discuss where I will relish helping both of these fine gentlemen.

This evening, I spoke with another American friend who has connections to Lenders, Accountants, Lawyers and the Franchise Industry – meaning I can emphasize Lender Reviews with the Commercial Lenders, financial issues (including employee dishonesty with CPA’s), suggested/recommended(?) insurance requirements for contracts, leases and Franchise Agreements – 3 of my enjoyable aspects of Risk Management consulting.

I also had 1+ hour of wonderful “free” motivational consulting from “Linda” today and I so appreciate that.  I’ve set-up a “fan page” (is that what it is termed?) on Facebook now – WRiskManager – just like here!  I hope these efforts to “brand” me as the North American “expert” (sorry but my competition is reluctant to utilize the internet and find it a waste of their time ) will pay huge dividends (and I am very optimistic).

Well, that appears to be it for a Thursday evening.