|
|
|
Bonding For ERISA
Employee dishonesty coverage (a.k.a. "bonding", a.k.a. "fidelity insurance") is required by the U.S. Department of Labor and Internal Revenue Service for any organization that has a qualified pension or profit sharing or welfare plan. Every person and fiduciary who handles funds must be covered. A minimum limit of coverage of 10% of the funds handled is required, subject to a maximum of $500,000 coverage per plan. Many employers overlay fund balances when calculating their required limits for compliance, but this can lead to under-insured funds and non-compliance with the regulations. While a separate bond per plan may be excessive, a conservative approach provides a single bond with a limit of 10% of the sum of all subject funds' balances.
As of 12/1/07, an amendment in the regulations will increase the maximum required ERISA bond to $1,000,000 for funds with plan years on or after 1/1/08 that include any assets invested in employer securities, but disregarding stock held in any broadly diversified mutual or index fund.
Today many employee health insurance plans are self insured and use the services of a Third Party Administrator (TPA) to handle payment of claims. We find that included in these agreements with TPAs is language requiring the "Company" to maintain a fidelity bond covering the "Company" and any of its agents or employees who may collect, disburse, or otherwise handle or have possession of any funds of the Plan or who may have authority to authorize or order disbursements of claims or operations expenses on behalf of the Plan. Conversely, it is also recommended that a Fidelity Bond be required of the TPA in order to protect against the theft of assets in your plan by the TPA.
Fidelity Bond limits should be routinely reviewed to be certain they are sufficient to cover the requirements of ERISA for any Pension or Welfare plans, the requirements of any contracts with Third Party Administrators for employee benefits plans and to protect against other employee dishonesty losses.
|
|
|
|
|
Severity Trends - Is Your Coverage Keeping Up With Your Exposure?
The insurance industry is currently in a soft market premium reduction trend, which is partially fueled by a reduction in frequency of losses. This is largely credited to an increased awareness and commitment by businesses to safety and loss prevention practices. Yet, at the same time we see a clear trend to increasing severity, rising costs to close the worst, largest claims. The first time we saw a $1 million verdict in the U.S. was in 1962. In less than a half-century, the trend has increased so rapidly that 15% of all jury awards now exceed $1 million. A typical paralysis verdict today is $9 million. Many factors drive the current trends to ever-increasing jury awards.
- Sophisticated, innovative plaintiff's bar-lawyers are not waiting for plaintiffs to hire them, they solicit plaintiffs on TV and by other aggressive means.
- General inflation-a dollar just isn't worth what it used to be.
- Venue-some states are very unfavorable places in which to be sued, especially if you are from out-of-state and seen by the local jury pool as being an outsider who has come into their state and inflicted harm on their neighbors.
- Class actions-settlements for many can be realized with less effort and expense by this group effort, making the collectively huge settlements of class actions very appealing to lawyers who are commonly receiving 40%.
- Erosion of the concept of tort-we're moving away from determining who it is reasonable to hold responsible based on negligence and instead looking to shift blame to whomever is unfortunate enough to be within range whether blameless or not.
- Fictional or factual-TV shows and tabloid reports of multi-million dollar judgments, whether fictional or not, put notions of massive jury awards in the minds of jurors.
- Concern over corporate image-companies may need to protect their reputation by making payouts to a plaintiff who has, rightly or wrongly, garnered public sympathies.
- Corporate wrongdoing-when a company has misbehaved, jurors tend to inflate awards as a reflection of their disdain for the behavior of the "big, bad, corporation" on top of punitive damages they may also impose.
- Culture of fault/blame-as a society we've come to expect that someone else should always be blamed for that which goes contrary to our desires.
- Social inflation-a million dollar prize on a TV game show or the lottery is so commonplace today that it takes much more than that to impress the average American.
The risks are real. Fully 8% of American businesses will experience a loss in excess of $5 million every five years, and not just those with inherently risky operations or products, but all businesses. Consider these six points before you decide whether or not your Umbrella limit is adequately keeping up with your exposures.
- Severity is up. The 6th largest verdict in 2004 was larger than the largest verdict in 2003. The median award in 2004 was twice any in the prior seven years.
- The list of emerging hazards to watch is lengthy, with no indicators of the severity these trends may yet develop - toxic mold, arsenic treated lumber, construction defects, electronic identification tagging, fast/fattening foods & obesity, avian influenza, welding rods & equipment, generic drugs, pharmaceuticals & medical devices, genetically modified foods and labeling, nanotechnology, latex, mad cow, medical malpractice, privacy, diacetyl flavorings, electromagnetic radiation, security exposures, workplace violence, post-911 issues, silicosis.
- $1 million is worth much less than it used to be. For example, the value of a $1 million underlying limit in 1996 was equal to only $292,438 in 2001.
- Juries are behaving like Santa Claus and giving huge awards which may or may not be set aside by judges.
- The lag time to settle Umbrella losses is often very long, sometimes fifteen to twenty years. The limit you buy today needs to be adequate to cover the settlement you make in twenty years.
- During the hard market after 9-11, insurance costs soared. Many businesses lowered their Umbrella limits to save money. Most have not restored those limits since the return to a flat market.
Now, during the soft market when pricing is at its most competitive, is the time to review, restore, and increase your company's Umbrella limits.
|
|
Employee Theft - Could It Happen To Your Business?
When most business owners think about employee theft, they envision someone taking money from a petty cash box or stealing office supplies. They don't consider loss scenarios which are far from "petty", large loss scenarios which should be contemplated when selecting the limit of coverage you buy for protection from Employee Theft.
- A manufacturer of products for the apparel industry discovered that an employee had stolen brass eyelets valued in excess of $100,000 and sold them to a scrap yard.
- A manufacturer of plastic parts learned of discrepancies during an audit and uncovered that the Bookkeeper had issued company checks to herself totaling over $100,000.
- A manufacturer/distributor of electrical connectors caught a warehouse worker loading spools of wire into the trunk of his car that he had parked outside the dock. Over time he had stolen over $150,000 of materials.
- The Bookkeeper of a country club had issued checks to petty cash, forged the required second signature and deposited the checks into her personal bank account. Before being discovered, she had stolen $315,000.
- The Accounts Payable Clerk for a stainless steel wholesaler issued checks in payment of her personal credit cards over a three year period totaling over $250,000.
- A Purchasing Manager accepted kickbacks from vendors selling parts which amounted to 2% of each sale made to the manufacturer. Upon discovery, the employee had received over $3 million in kickbacks.
- A Controller issued accounts payable checks to vendors and obtained the required second signature on the checks. Once signed, he erased the vendor's name and made the checks payable to himself. Over a period of six years he had stolen $7 million.
- A CFO of a manufacturing company, in collusion with two accounts payable employees, wrote checks to a company the CFO set up. Over the course of almost 10 years, the three employees stole in excess of $34 million.
- A multi-national law firm discovered that a Payroll Clerk had maintained terminated employees and ghost employees on the payroll and arranged for paychecks issued to those non-existent employees to be direct-deposited into his personal bank account. The payroll clerk stole more than $13 million from the law firm.
Could any of these scenarios happen to you? If so, do you have the right type and right amount of coverage to protect your business?
|
|
International Air & Ocean Cargo Insurance
Many insurance buyers are unaware that a separate cargo policy should be a part of their insurance program, because they believe their property insurance policy, or their freight forwarding company, protects them from cargo losses.
The problem is that most standard property policies do not cover goods in transit. Those that do, provide limits that may be inadequate. Furthermore, the company hired to transport goods may not cover losses - unless insurance is purchased from them. No cargo carrier is obligated to pay for losses which occur beyond their control. Additionally, international law typically limits the liability of ocean carriers to $500 per package and the liability of air carriers to $9.07 per pound. Even truckers and warehouses can limit their liability for loss according to tariff.
Cargo Insurance - A Business Lifeline
Manufacturers, retailers, wholesale-distributors, import and export companies - what do they have in common? In today's global marketplace, chances are that businesses in these industries have some level of international shipping exposure and need cargo insurance for their goods.
The extreme rigors of transit - long extensive lifting, theft, motion, shifting and bad weather - almost guarantee that some goods in transit will suffer damage. In fact, approximately 30 percent of losses in transit are unavoidable, due to forces over which neither the owner nor the carrier of the goods has control. To put the need for cargo insurance in perspective, consider a recent report from one of the world's leading marine underwriters. Lloyds of London, that on average, a ship sinks every day. Many of those ships carry cargo - maybe even cargo shipped to or from one of your clients. Losses may also occur to goods shipped internationally by air transport.
The Pitfalls of Protecting Goods through a Freight Forwarder
Insuring your goods in transit through a freight forwarder may be the easiest, fastest, or cheapest way to go, but in most instances this coverage doesn't provide the same protection that an ocean cargo policy does. If you're currently buying coverage from a freight forwarder, the risk of loss may be greater than you realize. Here are some questions you may want to ask:
- What is the value of your typical international air or ocean cargo shipment? How many shipments do you have in a year?
- Does the freight forwarders' coverage meet your specific needs or is it designed for general coverage for a wide range of commodities and trades?
- Are insurance costs specific to your commodity or are you being charged a higher rate due to the general nature of the freight forwarder's calculations?
- Is the freight broker providing first party coverage or only assuring that there is liability coverage in place for the cargo carriers?
- Does the freight forwarders' coverage include protection for warehousing worldwide, domestic transit, installation, salesmen's samples and exhibitions? Are there additional premiums for these risks - if they're covered at all?
- Who will you call if you have a claim or loss?
- Are there restrictions or coverage limitations in the freight forwarder's policy that could have adverse effects on your shipment?
- Is the coverage extended even after the goods reach the consignee? Is the policy continuous until it is cancelled?
- Is there protection if the end buyer declines to make payment for or accept the shipment due to damage that occurred during shipping?
- Is there enough coverage to make you whole in the event the entire shipment is damaged or irretrievable?
|
|
|
|