Posts Tagged ‘Risk’

Toronto Blue Jays, Pro Sports & Risk Management

December 24, 2016

Sure, it is the day of Christmas Eve and I have not written a blog in quite some time but…why waste time writing several hundred words if I only need 140 characters – sorry Twitter, not this time.

Why title the blog with 1 of my favourite sports teams and link to my occupation? It does catch your attention, right? What is so strange is that I had a full day to think and re-think how the two do link and figured I better include those non-Blue Jays and other teams and pro sports fans in here or I am limiting my potential readership. Besides, I am still seething at the thought of #Edwing (yes, #EE or Edwin Encarnacion as so many in Baseball know him by now) playing for the nearly-world champ Cleveland Indians – not upset with him but with Toronto management for ignoring the fans.

I have been following closely and reading the sports items since the end of the season, following Cleveland’s win over Toronto, and (I have to admit to being a baseball fan but even more a fan of the Jays since their inauguration) blame both sides in the contractual mess-up but more with Jays new management and their lack of understanding of the Toronto market, Canada AND the huge risk with the role of the dice they have played.  Yes, Kendrys Morales is a great catch but to think he is equal to the beloved EE is probably not going to happen.

Cleveland surprised many in reaching the World Series this year – the team had numerous injuries so what will a healthy team with EE look like? The Jays, on the other hand, had a pitching staff that remained healthy and didn’t make the World Series with EE so if injuries plague the team in 2017 (odds are that this will happen) and no EE – hmmm, 3rd, 4th or 5th place in the East division? I know that the 1-dimensional home run concept is not to my liking (it did fill the stands and energize fans) and it appears the team now is focusing less on that fan-drawer and a more multi-dimensional team but…my fear is loss of fans and the income accompanied by them.

What is mind boggling is that Toronto is not just Toronto’s or even Ontario’s team but Canada’s team – as Rogers reminds all of Canada – and not spending money to compete with Boston, New York, St. Louis (compare this city with the GTA and I just don’t see them more a top tier market) and Los Angeles (as a Tier 1 team should) sends a message to the country. The Jays draw fans wherever they go – Seattle, Minnesota, Detroit, etc. – and the past two years have seen more attention and attendance in 20 years! Why? “We” were winning and competing so, unless the gamble this off-season pays off, one can bet the risk will increase and income decrease proportionally. And that might mean the loss of players like Josh Donaldson who ignite the stands. Will Jays fans tolerate that?

The Jays are NOT the Maple Leafs where Toronto fans have been blindly loyal for 50+ years. Leafs fans have been hopeful for a Stanley Cup they have not seen since I was a child and continue to fill the arena and buy memorabilia which is where so much revenue is earned. The Jays learned (I thought) that lesson following the strike-shortened season in the mid-90’s – and sales of their hats, etc. are nation-wide and not just in Toronto so the discussion over whether they are a Tier 1 or Tier 2 market is moot. They are most definitely a Tier 1 market when winning but will be a Tier 2 market if losing. If Rogers and management continue to be like Scrooge then good-bye fans, once again.

Do you now see the link between Risk Management and pro sport and my beloved Jays? I hope Jays management will read this from a long-time fan, a very bewildered and perplexed consultant in risk management they might wish to contract when making such poor decisions on player, fan and attendance risk in the future.

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SURETY – BONDING, BANKING AND INSURANCE

November 11, 2013

After a recent discussion with a contractor who was expanding their business into the Municipal focus, it came to my attention how appropriate it would be to have a discussion of “bonds” in relation to my own experience in banking and insurance.  The reason I feel it is so appropriate is that my focus on Risk Management delves into the areas of risk, identification of your risk, transfer mechanisms to reduce your risk, etc.

By “bond”, I don’t mean to refer to debt instruments that one might invest into or have issued as a source of capital but Construction Bonding or Surety that includes Bid Bonds, Performance Bonds, Labour & Material Payment, Maintenance, etc.  This is a legal “guarantee” from the surety company but not every insurance company issues surety instruments and any business should be assured that the surety company is expert in this area.  My own preference (this is personal preference) is to have an “A” rated carrier or better (as provided by firms like AM Best, Standard & Poor’s, Moody’s, etc.).  Those rating agencies review closely the financial capabilities of the firms issuing a guarantee and, if you’re relying on another party to “guarantee” payment, does it not make sense to know they will be in business to meet all the terms and conditions of the risk transfer mechanism?

Insurance is a legal contract (a “policy”) that transfers risk of a loss to a third party (the insurance company, for simplicity sake) who will reimburse you for a financial loss that has been detailed in your written contract.  Contracts can be used for various types of risk reduction but insurance is a specific type that permits reimbursement following a loss.  Other types of contracts that might mean a reduced need for insurance include an Indemnification Agreement, a Lease or an Insurance Certificate where you may be named as an Additional Insured, etc.

In Banking, a Line of Credit is an Agreement between you and a Lender that permits your business to draw down against a pre-arranged approved limit of funds for various reasons.  The Line has to be repaid, within certain conditions, and brings many legal requirements with it.  Unfortunately, many businesses don’t pay close enough attention to all the legal terms within their “agreements” with the bank and, often, when needing to make a draw will be unable due to the demands of the lender.  I have seen many businesses expect to draw upon their Line and be told “NO”.

What about a Surety Instrument?  A “surety” is difficult to explain without trying to draw comparisons that are better understood.  A Line of Credit is an agreement between you and the bank and an insurance policy is an indemnification agreement between you and the insurance company to repay for a loss upon pre-agreed conditions.  A surety is an agreement between you, the bonding company and another party.  It provides for pre-qualifying, project monitoring, security, etc. to the party contracting to a contractor and guarantees you will meet the commitments you promised and that were ultimately accepted by the other party to your contract. 

A government, whether municipal or any other level, will require as part of the Request for Proposal (RFP) process that contractors “bid” for a job.  Following the review of all bids approval of one bid is made.  What if the contractor is unable to meet the agreed-upon conditions following winning their bid?  This is the reason that contractors request a surety or a Bid Bond because the Bank might offer a Line of Credit for “X” dollars but may not advance funds as needed.  Contractors are likely to need a Bid Bond for Sewer and Watermain Construction, Roadwork, etc. but what about guaranteeing their “performance” after they do win any bid?  Well, another surety instrument is the Performance Bond which will guarantee to the government agency the completion of the construction project.  Any agency asking for “bids” on a project will also require guarantee of performance following the awarding of any contract.  Usually, the Bid Bond and the Performance Bond go hand-in-hand because what good is it to anyone to request a Bid Bond but not qualify for a Performance Bond, right?

The financial requirements, in requesting a surety bond, will be quite similar to asking a bank for a line of credit – preparing an application, submitting personal and corporate financial information, disclosing details you might prefer not to tell anyone but still must.  The time frame will be similar in the processing and approval of the request and surety companies must also have strong financial statements with expert underwriters so don’t think it is any easier or very different from dealing with a bank.  As for your insurance broker/partner, yes, I do use the word “partner”, please ensure it is someone you trust with this very private financial information and someone who understands and relates to both you and the underwriter.  This is one area in which I do have difficulty because too many competitors lack this expertise but are still successful in placing business due to the “trust” placed in them.  Privacy of information, now, is almost a given due to legal requirements but do those individuals understand your finances and can they work with you to your satisfaction?

I hope I have given a general idea of what you should know concerning what a surety bond is and how it can be used to your benefit.  If not, please feel free to contact me on Twitter @WRiskManager

 

Real Estate, Investing, Risk & Insurance

September 10, 2013

Following several meetings I have attended – as an observer – of various Real Estate Investment Forums, I decided that I should blog about some of the information and misinformation that I see being offered by experts in their fields when touching on my own expertise – risk and insurance.  Why?  Being in the business of sales, I must forgive them for trying to convince others to follow in their footsteps at being as successful as they are; I know how important it is to be contagious when selling but their excitement might give someone the impression that they know all and that their views are cast in stone when I know that they’re wrong.

Example, a very well recognized real estate agent recently mentioned about “his” contact and the “group” package for investors he uses.  Yes, it might be a very good program – sorry if I’m skeptical – but following 9/11, I’ve learned to read closely what is and is not included in an insurance policy coverage (from the definitions to exclusions and the legal descriptions).  I also know that any “program” – like the 80/20 rule – might be terrific for 80% of the people, 80% of the time BUT…what about the remainder?  Most insurance professionals tend to know less about risk and more about sales than what the public, business-owner or investor might think, especially those relative novices in the insurance industry (and there are far too many of those). 

When studying the Canadian Risk Manager (CRM) program, would you believe that insurance company underwriters or “risk managers” of companies like The Gap were in attendance but lacking were insurance brokers/agents, those professionals upon whom you rely for your information?  Risk involves understanding about currency, interest rates, market factors, contingent risk, etc. – NONE of which tend to affect the usual insurance policy nor reason for insurance salespeople to want to learn about risk since there isn’t any increased income to them – and not about selling insurance to a client or a prospective client!

Second example, another expert mentioned about the reasons “he” likes the previously mentioned group insurance package – yes, 90 days vacancy might be very important but that doesn’t mean one cannot buy coverage beyond 30 days in any other “in force” insurance policy – and that the buying power of “X” members ensures the best rates in the country?  Well, possibly, but the “X” was nearly 2X what the website for that organization shows as members.  I question where the figure originated since, again, this is misinformation for the insurance-buyer-investor who might be relying on those comments.  This expert is not in the field of insurance and should not be relied upon for that lack of understanding; all investors/buyers should look around and ask questions.  When that expert also downplays the delinquency risk of an investment, I wonder why 90 days vacancy is so important.  I worked in credit so I know this is a significant risk to any investor and one should NOT discount it when encouraging others to buy real estate as an investment – this is WRONG!  If there was never a delinquency risk and/or vacancy risk, would not every real estate investor be a millionaire and be driving up the value of real estate even further by wanting to outbid one another?

Following a phone call with a prospective client, I was surprised to hear that someone had researched the group plan and commented to me about the weaknesses in that policy.  Does everyone else research in this manner?  I know that most people don’t – having recently seen information from an insurance company that indicated nearly 25% of all commercial insurance buyers ask their lawyer or accountant for insurance information!  What accountant or lawyer will know as much about insurance as he/she should?  I don’t know any who don’t rely on an insurance professional friend for the answers because that is not their level of training and expertise.

I also had my eyes opened by a property manager I know; she didn’t realize that Tenants’ Vandalism could be purchased on Rental Units.  That individual commented on a Social Media site to the effect that damage by tenants could never be insured and this is absolutely wrong.  I have learned, with experience, to never say never in this business.  Many times, coverage can be bought – for a price!  Because I emphasize risk and discuss appetite for risk vs. risk transfer with clientele, I do understand what clients need and ensure they understand deductibles and risk retention on any investment of theirs.

Would you not prefer to deal with someone who represents your investment interests by knowing what you need, someone with a career in the financial services industry from banking to lending to insurance?  I have personal experience working with credit risk and currency risk; I’ve consulted with lenders and approved the compliance of insurance policies with loan agreements. 

As an insurance broker with a large and reputable brokerage, I can buy insurance for you – the right coverage for your individual needs – from most of the country’s insurance sources and I have the training of a recognized Risk Management program.  You need to put your faith and trust in someone who will represent you, in good faith, to be as professional as your accountant and lawyer!  Let’s talk!  I can be reached on Twitter @WRiskManager