Archive for the ‘Multi-National Risk’ Category

Is YOUR Business selling to RETAIL?

April 24, 2017

It wasn’t that many years ago when a manufacturer didn’t really worry about Accounts Receivable (A/R’s) if one sold or supplied to a BIG NAME firm, e.g. General Motors (GM), Chrysler, Delphi, Kodak, Blockbuster, Schwinn Bicycle, Marvel Entertainment, Hugo Boss, Reader’s Digest, Trump Hotels, Sears, Radio Shack, etc., because they always paid you and you really didn’t worry the same as the neighborhood “Mom & Pop” operation, right? Even if you gave 30 or 60 day terms and didn’t get paid for 90 days, it just meant you waited but why would you really need worry.

Unfortunately, today’s world has changed substantially and auto makers like GM had to restructure with governments bailing them out, Radio Shack went under and Sears recently said there was “substantial doubt” as to their long-term operating ability. WOW! Many of the names listed above have all had to restructure and that meant unsecured vendors were not very happy.

So how do YOU manage your business to ensure that you will be paid and remain afloat? I have met so many companies, through the years, that would often have 80% of their sales from a small number of customers and I would always recommend prudent Risk Management – “don’t put all your eggs in 1 basket” – and suggest they consider diversifying their markets and considering options for transfer of their risk, e.g. trade credit insurance. Some clients neglected to follow any or much of my advice and I do know of several who are no longer in business.

Trade credit insurance is often used by firms in Europe but not so often in North America. Why? Europeans may have been less reliant on one’s reputation, perhaps, but my own banking background tells me that North American banks don’t suggest the option, don’t know enough about it and don’t vary credit terms adequately to encourage YOU obtain this. I also hear that terms are much more favorable in European banks for those companies who do purchase the option so many of you don’t feel the savings warrant the added expense.

Where I do find many Canadian (can’t say the same is more or less frequent in the US) companies using Trade Credit Insurance is in their Export Financing but why only for those types of deals? Perhaps you Factor your A/R’s but I just read “Wells Fargo & Co. is among the firms no longer providing Sears vendors with factoring — short-term financing that helps gives them a cushion.” Imagine then what I seem to hear more often than not – insurance works when you really don’t need it but often doesn’t respond when you truly have the need. Do you feel that way or have you heard this said?

This is why I continue to preach Risk Management and supplementing with a suitable Risk Transfer mechanism (insurance should not be solely price-driven when purchasing but knowing what is and is NOT covered and buying the policy from a reputable agency/brokerage with adequate Errors & Omissions insurance of their own and a suitably rated (I tend to like AM Best A-ratings or better) underwriter for your General Liability, Trade Credit, Cyber, Crime, Specialty and Directors’ & Officers’ Liability policies.

I do hope you realize that insurance buying may be 1 of the most important business decisions you make each year but I do know that you overlook this importance because of the trust you place in your providers and the lack of understanding of what is really behind an insurance contract.

 

Let’s discuss today! I can be reached on Twitter (@WRiskManager), on LinkedIn or Facebook and by e-mail – larryewinsurance@gmail.com

 

Info derived from http://www.msn.com/en-ca/money/companies/sears-payless-woes-push-retail-vendors-to-get-more-militant/ar-BBAcFIC?li=AA54rW&ocid=spartanntp and other online material.

Advertisements

Commercial Insurance (for a wide range of industries and business classes)

January 18, 2011

Discussing insurance and thinking of selling insurance always seems easy for me, natural, but when I review the many different types of risks that can be insured, I almost stop in bewilderment!

For example, I was just reviewing an e-mail from one of our markets and here is a sampling of the unique classes they insure for us:

  • Individual personal trainers;
  • Fitness studios;
  • Mixed martial arts;
  • Injectable treatments like botox and collagen;
  • Lipo-laser operations;
  • Laser hair reduction;
  • Teeth whitening;
  • Tanning salons

If that is not a diverse enough sampling, I am happy to try:

  • Demolition contractors;
  • Environmental remediation and abatement;
  • Restoration and emergency spill response;
  • Environmental consulting and assessment.

Or maybe:

  • IT consultants;
  • Website developers;
  • Network support services;
  • Software developers;
  • Data storage/retrieval services;
  • Web hosting services;
  • Computer training.

And if that is not your “cup of tea”, how about:

  • Builders risk and wrap-up liability;
  • For-profit and not-for-profit directors and officers liability;
  • Professional errors and omissions/malpractice liability;
  • Environmental liability;
  • Surety including bid and performance bonds;
  • Trade credit/accounts receivable;
  • Employee dishonesty/fidelity bonds;
  • Product recall expenses;
  • Umbrella liability;
  • Contingent business interruption of a customer or supplier;
  • Franchising, nationally and internationally.

If you are operating a business in Ontario, CANADA – why worry about finding a suitable insurance provider? Avoid worry, save time and guarantee yourself peace of mind by dealing with knowledgeable and reputable providers – broker(s) and insurance companies. Don’t look further than here – A-rated insurance carriers with Canada’s oldest insurance brokerage. We specialize in Commercial Insurance so you don’t need to do the same!

If you operate a franchise in Canada that has franchisees in Ontario, we can provide coverage nationally and internationally, for you. There are many different types of policies available and we have the necessary experience to recommend the one best suited for you.

I can be reached at larryewinsurance@gmail.com

I hope you have as wonderful a year as possible. I am certain to do the same.

Multi-National Business and Risk

November 9, 2009

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 51st 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.

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

October 29, 2009

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

October 27, 2009

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.