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Mar

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017

1Policy Language

is Critical

It’s Not Your Fault...It’s DEFAULT

2

3PROS and CONS of

Going to DIY Insurance Funding (Captive)

Open EnrollmentPost Mortem Review

4

Ask any business owner about their insurance policy, and they will say that aside from the limits and premiums, it is standard. This assumption has the potential to cause serious problems when it comes time to make a claim. Most business owners fail to understand that the policy they see year after year contains “conditions” and requirements for coverage to trigger like they think it will. You, the business owner, must closely follow the rules the carrier provides or they can deny coverage for a claim.

The conditional insurance policy is a contract, with obligations from the insurance carrier and from the policy holder (the business). The business owner has requirements that must be adhered to if they wish to file a claim.

For example, a policy requires: “You (“insured”) must see to it that we are notified as soon as practicable of any occurrence, claim, etc...” This is problematic as the term “you”

encompasses quite a few parties. Flip a couple pages back in that policy you’re looking at and “you” is defined as the named insured listed on the declarations page. This sounds simple enough until you define who is an insured. This starts to open Pandora’s Box and that’s the heart of this issue. “You” isn’t just you- it’s any of your employees, your volunteers, the temporary workers, the partners, their spouses, your spouse. So, the conditions of the contract apply to anyone in your business, at any time.

Putting this into perspective, let’s say a customer slips and falls in your lobby and the only one to witness it is one of your employees. The customer gets up and says they’re fine, so the employee never tells anyone. For two years nothing comes of it, until one day you receive a claim for injuries. Your insurance company has grounds to deny the claim as the employee who witnessed the accident is encompassed in the term “you”.

This might seem like a mere technicality, but these are the types of things that will determine whether a claim is paid or not and whether a business survives a loss. It doesn’t require a high-level degree to fix, often it just take a process to identify, a willingness to look. Most surprising of all, fixes like this are often complimentary, requiring the agent to simply ask the insurance carrier to tweak the contract language. Keep this in mind next time you sit down to go over your insurance policy and demand better from your insurance contract.

by Ryan Wellman, Commercial Insurance Agent

Policy Language is

C R I T I C A L

2 Brown & Brown of Detroit

It’s Not Your Fault… It’s DefaultBy Todd Piersol, Executive Vice President

“This is how we’ve always done it,” Carl exclaimed as he prepared a neatly typed cover page to accompany his facsimiled client applications. Weeks later, he had not received any responses from underwriters, most of whom did not even know where to find facsimiled applications. Pete lost all his business and wound up starting his own buggy whip manufacturing firm called “Carl’s Carriage Companions”. He’s very optimistic.

I know, it’s a pretty ridiculous story. Perhaps a career as a novelist is not in the cards for me. However, what isn’t ridiculous is the prevalence of “Default Settings” in most offices across the country. A default setting, to me, is when an operation or procedure is preset or established and isn’t challenged. Now, to be clear, many default settings become such because they were great ideas at some point. Yet, any office culture that does not promote challenging these ideas may find themselves struggling to find innovation and efficiency.

Today, for the Carl in all of us, I thought I would highlight a few common “warning signs” that default settings are amongst us.

Warning Sign #1:“This is how we’ve always done it.”This statement is a classic marker for potentially terminal default settings. It may seem innocuous enough, even factual, but it can be lethal if not treated. Luckily, the treatment is simple: add the phrase “and here’s why” and then justify it. If it can’t be justified, change it to something that can.

Warning Sign #2:“My boss/parent company makes me do it this way.”The connotation here is that there is, indeed, a better way but your boss/parent company absolutely prohibits improvements. If followed by “and I don’t have the energy or gumption to try and fix it,” at least you know you are dealing with an honest person battling default settings AND chronic apathy syndrome. Left untreated, this warning sign can turn into terminal “this is how we’ve always done it.”

Warning Sign #3:“Garbage in, garbage out.”Why would anyone accept a procedure that allows garbage in? This is a default statement that is meant to cover up a lack of concern over quality. If it is okay to allow garbage, discontinue the practice all together. Otherwise, clean it up. Please note, this warning sign does not apply to the waste management industry.

Warning Sign #4:“There must be a better way.”This is a very good opportunity to catch a default setting before it metastasizes. If this warning sign is followed by 20 years of silence and inaction, it will naturally give way to potentially terminal “this is how we’ve always done it.” However, encouraging people to find that better way, and even incentivizing it can turn this warning sign into a very positive action point.

Warning Sign #5: “If I ran (fill in name of company)I would...”It is a warning sign if you DON’T ever hear that statement. Everyone on your team should be encouraged to contemplate what they would do differently and then, most importantly, feel comfortable sharing that idea. This type of thinking will inoculate the company from default settings.

It is easy to get caught in a rut, where it’s simpler to go through the motions than it is to justify actions and challenge norms. Trust me, I battle it constantly. The key is to have a culture that doesn’t allow that to settle for too long. A culture that encourages ideas from all corners of the offices. A culture that encourages everyone to have their brain engaged. It is easy to talk about, hard to do, but worth the effort.

Now, I’m certain by now you are clamoring for an update on our friend Carl. Well, I don’t have one, it’s a made-up story. For fun, I will let you choose your own alternative ending.

1. Carl sold 25 whips to Mackinac Island and then went bankrupt.

2. Carl timed America’s return to old-fashioned travel methods perfectly and became the first buggy whip manufacturer to eclipse $1 billion in annual sales, before selling out to Westinghouse.

3. Carl saw a hypnotist, who convinced him he was very tech-savvy. He ended up producing a mobile app/game where players tried to snap flies using a buggy whip. It sold 30 million copies in two months and Carl used his earnings to build the world’s biggest hammock made of buggy whips.

That’s enough fun for now. Remember, challenge all norms!

The Advisor – March 2017 3

Home Depot and Lowes, along with an HGTV binge, can make one feel like undertaking a full kitchen renovation. Gut the kitchen, go buy the materials and your new makeover is ready to unveil!

Reality – it’s not as easy as it looks. Gutting the kitchen? Well, that’s not too tough. Putting it back together is what often leads to frustration, wasted time and money, and, ultimately, a phone call to a professional.

In many respects, Captive Insurance programs are like DIY insurance. These programs are now much more readily available to the traditional, middle-market client. What used to be a large company alternative to traditional risk transfer (insurance purchase), is now being considered by businesses of all sizes.

Recently, I was at a client’s office and I heard a fellow business owner ask the client to “join my captive” program. These conversations are happening all over the business landscape. In many cases, we (agents) are bringing the idea to the table for consideration. Just as frequently, other business owners or consultants are discussing the idea at the country club, the bar, or in the board room.

Should a company consider one? What are the pros and cons of a captive?

Captive Insurance has a few different structures. A single-cell or single-parent captive is a traditional captive program. These programs remain exclusive to larger, well-capitalized businesses who can essentially become their own insurance company.

Group captive programs pool together multiple companies (heterogeneous or homogenous industries) to form an insurance carrier. Each member of the group is responsible for funding their own losses and share in the catastrophic losses, profit and expenses. Ownership of the captive is typically an option, with mandatory board representation and decisions within the captive.

What are the pros and cons of “going to a captive?”

by Brian Pilarski, Commercial Insurance Advisor

8 Pre-funding of potential losses and collateral necessary each year

8 Total losses may exceed projected and the costs paid could far exceed guaranteed cost options

8 Loss funds may be “assessed” due to high claims or claims of others

8 Loss funds and claims held for 3-5 years for development and other potential factors

8 Mandatory participation in board meetings and risk control assessments

4 Total spend on loss funding and excess insurance may be less than fully-insured options

4 More control over claims administration and outcomes

4 Opportunity to receive money preserved for losses not incurred returned with interest

4 Dividend and equity of the captive insurance company

4 Tax savings and better tax rates on flow-back of unpaid loss money

4 Costs are truly based on an individual performance, not subject to market fluctuations or systemic pricing issues

of Going to DIY Insurance Funding (Captive)

PRO

S

CO

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The ease of entering a captive is sometimes downplayed. The commitment is a long-term strategy that should be carefully considered by your advisors, including your accountant(s) and attorney(s). Just like the “DIY” kitchen project, it is important that companies consider the entire process, not just the initial allure. With the right guidance and the proper controls, both the DIY kitchen project and the DIY insurance project save money and provide long term satisfaction.

Open enrollment can be a confusing and stressful process for employees and employers alike. In 2015, 89% of employees expressed interest in having more support and decision-making tools available to them, per Aflac. For 65% of employers, January begins a new benefit year and the dust has begun to settle. How did you fare with this past season’s open enrollment?

Here’s a quick and easy post-enrollment checklist you can use to get a head start on making next year’s experience the best ever for your team and your employees.

Open EnrollmentPost Mortem Review

by Lily Palaj, Employee Benefits Advisor

4 Brown & Brown of Detroit

A good place to start is to look at the volume of calls and emails that came into the benefits office during open enrollment. Was it a slow trickle? A steady stream? How much time did you spend answering questions each day? Then you can ask why.

3. Input from Employees 

Your employees are your greatest source of insight - listen to them.

There are several comprehensive online survey tools we at Brown & Brown can use to solicit anonymous employee feedback on your benefits communications, as well as on the enrollment experience.

4. How Did Your Broker Do? 

Were they a part of the process? Did they orchestrate employee meetings? Were enrollment apps implemented? Was a BenAdmin System incorporated to improve the overall process and reduce the number of “touches” on an employee profile? Did they facilitate carrier transitions and assist in overcoming any hurdles? Was a marketing campaign developed?

Employee benefits play a large role in employee retention and recruitment. It behooves the employer to complete a thorough post-enrollment assessment to ensure they are maximizing their return on investment.

1. The Cold Hard Facts 

Who enrolled in what?

Determine participation rates for your various core medical, ancillary and voluntary benefit plans, along with any wellness programs and/or contributory savings opportunities that were available to employees. Did your employees submit evidence of insurance forms for additional life insurance?

Next, compare that data to the goals you set for this year’s open enrollment. Target goals could be things such as increased participation or increased engagement. This comparison between goals and reality provides one of the most important measures on the success of your open enrollment campaign.

2. Self-Assessment 

How do you think you did?

You may have had conversations about what was going well (and not so well) as open enrollment unfolded. However, it’s important to hold a formal discussion and critique of your collective performance.

We were pleased to bring you the latest issue of The Advisor. We hope you found this newsletter interesting and informative. If you have any questions or topics that may interest you for our next issue, please contact us at:

Brown & Brown of Detroit35735 Mound Road

Sterling Heights, MI 48310

Ph: (586) 977-6300

www.bbdetroit.com