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Alternative Risk Financing: Spotlight on Large Deductible Programs

For employers looking at alternatives to traditional insurance programs and the cost of financing risk, large deductible programs should be included in the discussion. Large deductible insurance programs are designed for medium to large employers and typically cover casualty insurance lines such as workers’ compensation, commercial auto and general liability. Generally speaking, the deductibles vary from between $100,000 to $1 million per claim. The policies are designed so that the insurer assumes full statutory liability for all coverage under the policy terms while the insured assumes a contractual obligation to reimburse the insurer for any claims paid under the deductible.

The two most common types of large deductible programs are insurer-funded and policyholder- funded. The insurer-funded program is set up so that the insurer will pay all claims within the deductible and then bill the insured for the reimbursement. The policyholder-funded program allows the insured to fund its own claims within the deductible by providing funds to a third party administrator (TPA) who then administers the claim(s).

By implementing a large deductible program, an organization is taking a calculated risk that their loss control and claims management efforts are going to meet or exceed their historical loss experience and outperform similar companies in their respective industry. The expectation is that the insurance premium saved by choosing a higher deductible will exceed that of the claims cost in a given policy year. With this in mind, a company will develop annual operating budgets that project the direct and allocated costs of its expected claims, including excess insurance. However, what is often overlooked in this analysis is the cost of collateral that will be required by either insurer-funded or policyholder-funded large deductible programs.

Please contact your WGBCO representative today to determine if a large deductible program is a good fit for your company and its insurance funding needs.

Filed under: Classic — Manager @ 12:02 am January 15, 2014

D&O Rates on the Rise Due to ACA

As health care companies work to meet the demands of the Affordable Care Act (ACA), their directors and officers are facing a variety of new risks. Subsequently, companies both large and small are seeing a spike in their directors and officers (D&O) insurance rates.

Ninety-one percent of health care organizations renewed their D&O policies with rate increases, according to Marsh, a risk management research firm. Midsized to large companies saw a 9.6 percent increase, while smaller organizations saw a 12.7 percent increase in the third quarter of 2013.

One major concern of D&O insurers is antitrust issues that may arise as health care companies consolidate to form accountable care organizations (ACOs) and other joint ventures and provider networks to improve the quality of patient care. In an effort to block some hospital mergers and promote competitiveness, regulatory agencies, such as the Federal Trade Commission, identified health care as one of their main areas of focus for pursuing antitrust cases.

Besides the risk of antitrust allegations, other health care D&O exposures include contractual liabilities and lawsuits from customers and competitors, in addition to risks associated with payer contracts and the pricing of services, contract mismanagement and more.

Contact Warren G. Bender Co. today to discuss D&O risks for your health care organization and how to protect yourself.

Filed under: Classic — Manager @ 11:55 pm January 14, 2014

2014 Cyber Security Outlook

Bitcoin exchange house impersonators, CryptoLocker ransomware, watering-hole attacks—cyber criminals found a multitude of crafty ways to infiltrate companies’ data in 2013. And if history is any guide, 2014 will be no different.
New York-based risk mitigation firm Kroll recently released its 2014 Cyber Security Forecast, which provides insight into emerging cyber security trends for 2014:

– Companies that have lax cyber-security standards will be urged to comply with various National Institute of Standards and Technology (NIST) and International Organization for Standardization (ISO) frameworks or face potential action by regulators and other legal repercussions.
– Insider cyber attacks will become more prevalent. Kroll predicts that almost half of all data breaches will come from a company’s employees or people who work with the company.
– Companies will become better and more efficient at responding to cyber-security events. While being 100 percent safe from an attack is impossible, companies can save a lot of money and headaches in the future by preparing for an attack and responding as soon as possible to limit the damage.

To manage the always-evolving landscape of cyber threats, many businesses are purchasing or renewing their cyber liability insurance coverage for the new year. Contact Warren G. Bender Co. today to learn more about this type of insurance protection.

Filed under: Classic — Manager @ 11:50 pm

Flood Changes Coming June 2014

The NFIP has released the next round of reforms to the flood program that will be implemented as of June 1, 2014 unless amended by Congress.  Most of these changes were part of the Biggert Waters Flood Reform Act of 2012 and are summarized below.

Wright Flood will be hosting webinars in January to review these changes in detail and provide clarification.

NFIP Program Changes Effective June 1, 2014

1.  Increase to the Maximum Building Coverage Limit for Other Residential Buildings (5 or more units) – but not Residential Condominium Building Association Policies (RCBAPs)
– Effective June 1, 2014, the maximum building coverage limits for Other Residential occupancies only (5 or more units) will be increasing from $250,000 to $500,000 per building.  This coverage increase does NOT apply to condominium buildings rated as an RCBAP or to a condo unit-owner located in a residential condominium building which has 5 or more units.
– The maximum contents limit will remain at $100,000.
– A letter will be sent out to all policyholders who are eligible and their agents no later than March 3, 2014 informing them that they can increase their building coverage limits at any time on or after June 1, 2014.   Don’t forget, there is a 30-day waiting period to increase coverage limits (unless in connections with a loan closing), therefore, if the policyholder wants the increase to be effective on June 1, 2014, the endorsement must be signed no later than May 2nd, and the signed endorsement and premium must be received at Wright Flood no later than May 11th  for the increase to be effective on June 1st.

2.  Deductible Changes:
The minimum deductible limits below will be implemented for all New Business and Renewals effective June 1, 2014 or later.

3.  Policy Forms (Dwelling, General Property and Residential Condominium Building  Association Policies):

Due to Section 100234 of the Biggert Waters Flood Insurance Reform Act of 2012, all conditions, exclusions and coverage limitation stated in each NFIP policy now must be in boldface type and with the font size twice the size of the body of the policy.  The new forms must be sent to policyholders for all new business effective on or after June 1, 2014 and upon the first renewal for existing policies on or after June 1, 2014.

4.  Renewal Notice Instructions:

Effective June 1, 2014, all renewal notices will include a message about the advantage of using certified mail to submit premium payments.

5.  Clarification of Grandfathering Rating Procedures:

A policy for a condo unit-owner under the Dwelling form may NOT use an existing RCBAP policy for either grandfathering purposes or to show eligibility for continuing pre-FIRM subsidized rates.

6.  Revised Primary Residence Definitions – For Rating Purposes (Not Claim Settlements), Pre-FIRM Subsidized policies:

Effective June 1, 2014, NFIP the definition of primary residence will be revised to, A building that will be lived in by the insured or the insured’s spouse for more than 50 percent of the 365 days following the policy effective date”.  This definition will only affect pre-FIRM risks rated with subsidized rates effective June 1, 2014 (Renewals and including Rollovers/Renewal Conversion from one WYO to another effective on or after June 1, 2014).
Wright Flood will notify affected policyholders and their agents advising them of this change along with a listing of acceptable proof of primary residency.

7.  One policy per building requirement:

Excluding residential condominium buildings, NFIP-insured buildings can have only one policy with building coverage.  BW-12 clarifies that the total and aggregate liability for a non-residential building or non-condominium building designed for 5 or more families is $500,000 per structure and for a 1-4 family building or condominium unit it is $250,000 per policy.
If a tenant is purchasing building coverage, the building owner must be named on the policy.
NFIP will be providing a list to all Write Your Own Companies where NFIP indicates more than one policy for building coverage.  Wright Flood will notify affected policyholders and their agents for clarification or amendment.

8.  Tentative Rates:

When rating a Pre-FIRM risk based on full risk rating and the mandatory EC and pictures have not yet been provided, the policy may be rated using tentative rates for one year.  If the Pre-FIRM building is elevated with an enclosure or crawlspace, use the non-elevated, no basement building rates.
Tentative rates can also be used to rate Pre-FIRM RCBAP policies pending receipt of the EC, Photos and replacement cost estimator.

9.  Changes to the Declaration Pages:

This section affects the mandatory wording on the declaration pages. As of June 1, 2014, it must now state if the policy is rated based on Pre-FIRM subsidized rates and/or if the rating is based on the new “primary” residence definition.

Filed under: Classic — Manager @ 4:57 am