In our opinion, there is no better time to consider alternative risk transfer as a strategy to get more cost-efficient with respect to your current commercial property insurance, commercial liability insurance, workers compensation insurance, & commercial auto insurance.
As I write this the country and the world are about to exit the covid pandemic. If we frame the current conditions in terms of where we are in the property insurance, liability insurance & workers compensation insurance buying cycle; conditions couldn’t be more favorable to give your company a significant competitive advantage.
Taxes :
Since all 3 branches of government have changes hands in the last several years there are strong tailwinds pushing for significant tax increases which will erode corporate resources. We suggest utilizing a Captive Insurance strategy can give you significant tax efficiencies allowing you to keep the dollars inside your company to help reduce your variable cost structure. DOWNLOAD our Guide to Utilizing Captives by CLICKING HERE.
Coverage Availability & Rates :
Currently, we are in the through of a “HARD MARKET”; where conditions favor the insurance carriers as they restrict coverage and increase rates. Insurance buyers are frustrated because they have limited options. Further, they feel squeezed, and rightly so. The carriers are pointing to the “Social Inflation” of liability and commercial auto claims due to the insane jury awards. Buyers are pointing to “profits” earned and surplus growth to counter that claim. We think the buyers have a legit gripe.
Risk As Strategy :
Smart forwarding thinking CFO’s and C-Suite Executives understand that if they can leverage their balance sheets by increasing their retentions EFFICIENTLY, they can gain significant cost advantages that they can bake into their COGS (Cost of Goods & Services). If done properly they can reduce their insurance program costs by 35% which allows them to grow profits, market share, or both. Remember every dollar you save in your insurance program falls directly to the bottom line.
To understand if your company could benefit from a partial or full-on program restructuring CLICK HEREto schedule a 15-minute call. In 5 questions we can figure out if the strategy has legs for your org.
Have you ever wondered how utilizing captives, a high deductible insurance program, alternative risk transfer, self-insured retentions, or retrospective rating plans could further reduce your commercial insurance costs off your already low commercial insurance rates?
Too often business owners are chasing the wrong rabbit. They think that by purchasing their commercial insurance for less than they spent the year before is they accomplished their goal. We get it, it’s an easy benchmark to measure. If you succeed it’s a win; all be it a hollow win unless you really understand what you gave up to get that cheaper price.
Their real goal should be to lower their “Costs”, not the price of their insurance program. Nothing is more expensive to your balance sheet than cheap insurance.
The second huge mistake we see is that although their company has grown, sometimes significantly over the years, they are in essence the same insurance program they were when they were 20 employees; now they are 250, a thousand employees, and yet the commercial insurance is structured in the same way as when they first started.
This is a huge mistake because they are not leveraging their size and scale to reduce their insurance costs. I’m not talking about getting a lower rate because your sales are now at 100 million versus 10 million. That’s actually the illusion the commercial insurance market is selling. They are letting you feel like your reducing costs because of your scale; except they are holding back the best stuff only if you are smart enough to ask. We did a whole piece on the WHY they hold this information back in our “MISALIGNED GOALS” segment. Go there if you want to understand why.
For our purposes focus on the “HOW. First off we are assuming you have strong financials and a solid balance sheet. If you compare your balance sheet today with what it was 20 years ago, it’s probably night and day. Assuming you have solid free cash flow, credit lines, and cash reserves the question becomes, why are we buying so much insurance in the first place? To be clear I’m not talking about insurance limits. That stays the same due to your contractual obligations to your customers and lenders.
Leverage Your Balance Sheet To Reduce Costs At Scale
By leveraging your balance sheet you could restructure your present insurance program to incorporate some “risk-sharing” through higher retentions than by purchasing a “first-dollar plan. In a “first-dollar plan” the insurance carrier funds the loss from the “first dollar”. Any smart CFO worth their salt knows that any insurance coverage accessed for claims is essentially a credit line in reverse, except the interest rate on that credit line is crazy-expensive.
By increasing your retentions you score a lot of runs with one swing of the bat, pardon the baseball analogy. It’s called a grand slam. As your retentions increase the insurance marketplace looks at you entirely different than simply a purchaser of insurance products. You become a “Risk Partner” with them. This is important because the smart insurance carriers know that when you the end-user has “skin in the game” you generate significantly more underwriting profits than those that simply purchase first-dollar insurance plans. For this risk partner relationship, they give you significant discounts off the total premium for your risk sharing. A first dollar or low deductible insurance plan can never discount their rates low enough to get to the risk-sharing discounts.
Retaining Your Risk
Secondly, you purchase less coverage; the same limits, because you’re retaining some of the risks through deductibles or retentions. How you structure that retention matters. That’s another article. You can check out our quick piece on The Difference Between a High Deductible v.s. Self Insured Retention Since you are purchasing less your costs drop far more than just fighting for a lower rate. By taking higher retentions you can lower your costs by magnitude over just getting a lower rate.
Lastly, you can get access to a whole other section of the commercial insurance marketplace that caters to “Alternative Risk Financing” than you would otherwise have access to. You would never see a quote from this marketplace at the lower retention limits because that is not their appetite. They want larger, middle-market companies that want to be risk-sharing partners and not just insurance product providers.
Once you get a taste of what this looks like and how it can benefit you, then you will be tugging at our shirttails for a CAPTIVE STRATEGY.
So if you have been swimming at the same watering hole for years, with the same broker, and the same insurance carriers quoting you every 3 years we suggest you seek a whole new oasis. Call a Risk Advisor today, with 5 simple questions we can test whether this is an option for you.
How much does it cost to start and run a captive insurance company? It’s the most frequent upfront question we get from organizations that are looking at starting their own captive insurance company for their organization. The short answer is zero, but when we tell business this they’re left in shock. After we walk them through the process of how we got zero as the price, it makes perfect sense.
Let’s start at the end and work back; reverse engineer this. First off it’s an investment that yields an ROI, not an expense like your current insurance program. A well-run captive generates has gross savings of at least 30% off your current insurance program on average; irrespective of what structure you’re coming from; unless of course, it’s another captive. That’s because the captive shares in the underwriting profits would typically go 100% to your insurance carrier. Curious about Captives? If you want a better understanding of what a Captive is, and how it could fit in your organization CLICK HERE to download our free ebook.
Further, the risk-sharing mechanism is designed to reduced your upfront premium outlay. Your betting on yourself that your losses will be less than your premium & admin costs. In a well-designed, well-run Captive the results are undeniable. You can only generate & retain these profits, with tax efficiency, in a captive structure. Thus if you back out the cost to run and administer the captive from the profits you generate the cost is ZERO! Someone smart told me years ago that you have to spend money to make money.
In order to consider a captive structure you need these three (3) attributes :
Size & Scale: You need to be spending in excess of $500k in your property & casualty insurance program. You can include employee benefits here too if you wish. Many captives are set up to fund employee health expenses to save on their health & benefits insurance premium. The closer you get to $1 mill in total insurance spend, the better this solution looks. As the numbers you expense in your insurance program increase there is a direct correlation by % to your end benefit.
Free Cash Flow: In finance terms, you need to have strong financials and good free cash flow. The captive will plug into this “resource” and amp it exponentially for your company by keeping that free cash flow tax free instead of it having the direct profits spill down into the partners’ individual tax return.
Underwriting Profits: Too often when we interview companies and CFO’s about a Captive Alternative their main driver is looking for a cheaper insurance quote. They think that by forming a captive they can out run their claims problems and high insurance premiums. This is a fools’ errand. The last thing you want to do is switch places with the insurance carriers if THEY aren’t making money on your account.
Our demarcation line is a minimum of 35% undeveloped loss pic; which is a ratio between incurred claims & premiums paid. If your loss pic is just over that 35% threshold we should have a discussion. If your over 50%, you need to solve your claims problems first before you can consider a captive solution as a potential option.
Breaking Down the Cost of a Captive
You can’t simply compare the “cost” of a captive to the “cost of your current insurance program”, especially in a 1-year snapshot. The correct way to evaluate whether a captive solution is right for your organization purely from a numbers standpoint is a (5) year window. The data set is larger and more representative of your management team. It’s less “noisy” from a numbers standpoint, enabling you to see the big picture.
Further to simply look at this purely in terms of financial implications we suggest is short-sighted as well. This a long-term strategic play. Captives have major strategic advantages as you compete for business on the street than simply buying and expensing insurance year over year.
In our view, Captives are an investment that yields a consistent, measurable ROI, not a cost or expense. It’s an investment in YOU, for YOU! If you want to be at the vanguard and stay 3 steps ahead of your competition we suggest you open up a dialogue of what this solution could look like for you. CLICK HERE to have a 10-minute discussion with one of our Risk Advisors.
The DFS has reported from several regulated entities of successful or attempted data theft from websites that provide instant quotes to the end-user. All entities using instant quote software on their public-facing websites are vulnerable to this type of data theft attack. These attackers appear to be using the stolen data to apply for pandemic and unemployment benefits.
According to this alert, all regulated entities with instant quote websites should immediately review their websites for evidence of hacking. Reports have shown that even when consumer data is redacted, cybercriminals have proven they can easily recover the full unredacted information.
Reports have confirmed several methods that criminals successfully (or attempted) to use to steal consumer data from auto quote websites:
Taking unredacted information from the Auto Quote Websites’ HTML (Hypertext Markup Language) that was not displayed on the rendered page, but was visible in the code.
Using developer debug tools to intercept & decode unredacted consumer information.
Manipulating the technology to access parts of a public-facing website to view where the unredacted data is stored.
Purchasing a policy, after requesting a quote, using fraudulent payment methods in order to view the policy owner’s information, including his or her driver’s license number.
Requesting a quote and receiving an agent’s contact information to usesocial engineering to elicit information from the agent.
The DFS has requested prompt reporting of any attempts to steal consumer information from public-facing websites. Reports of unsuccessful attacks have previously been used to identify the techniques used by attackers. This helps the DFS respond quickly to new threats and continue to help protect consumers and the financial services industry.
Any DFS-regulated entity with a website that uses this type of technology should immediately review the following indicators:
Data analytics and website traffic metrics for spikes of quote requests. An unusual spike in abandoned quotes occurring in a short time frame was one of the key indicators of this type of attack. On a broader scope, regulated entities should look for an increase in consumer submissions that terminate as soon as consumer data is revealed.
Server logs for evidence of unauthorized access to private information. After your IT team has reviewed your web traffic, have them review your server logs for that period. When examining the logs of customer sessions, security teams should check to see if there has been any site manipulation using web developer tools.
These are just two suggestions by the DFS. There are a number of other ways cybercriminals can access information. Regulated entities should also follow their usual procedures for detecting and responding to cyber incidents.
The DFS has suggested the following steps for entities that are using Instant Quote websites to collect information:
Conduct a thorough review of website security controls, including but not limited to a review of its Secure Sockets Layer (SSL), Transport Layer Security (TLS) and HTTP Strict Transport Security (HSTS), and Hypertext Markup Language (HTML) configurations.
Review public-facing websites for browser web developer tool functionalities. Verify and limit the access so that users cannot adjust, deface or manipulate the website content using web developer tools.
Review and confirm that its redaction software for consumer information is properly implemented throughout the entire transmission of the data.
Ensure that privacy protections are up to date and effectively protect the data by reviewing which applications use the data, who has the authorization to view the data, and most importantly where is the data stored
Search and scrub public code repositories for proprietary code.
Block any IP addresses of suspected unauthorized users and consider a Quote limit per user session or IP address.
Any questions regarding the alert from the NY Department of Financial Service should contact their department directly, at CyberAlert@dfs.ny.gov
If you have any questions regarding your own cybersecurity. Contact one of our Risk Advisors at 914-357-8444 or visit ourContact Us page to schedule a 10-minute meeting.
N.Y. State lawmakers are working towards stricter standards on workplace harassment. Under today’s guidelines, judges have determined “pulling a bra strap” or “suggesting a woman gets breast implants” doesn’t qualify as workplace harassment. The proposed revisions to the law suggest any discriminatory conduct that is more than petty or slight inconvenience is harassment.
If this law passes, Gary Friedman, a partner at Weil, Gotshal & Manges LLP, said the proposed changes may result in more claims going to trial. “This is going to force employers to raise the level of awareness within their current workplace environments. Further, it’s going to force them to police their culture and work environment more carefully and diligently,” Mr. Freeman said in an interview.
New York City already enforces stricter workplace harassment laws, than the rest of the state. This new bill would change the existing standards to make the policies less precise and more context-specific, state-wide, and would eliminate an employers’ ability to use Faragher-Ellerth Defense. The defense allows employers to avoid being held liable if a complaining employee doesn’t follow set harassment policies set forth in their companies employee handbook. These stricter harassment guidelines throughout New York state should encourage you to look at your own workplace harassment program.
**UPDATE 6/20/2019**
The New Sexual Harassment bills have passed and the bar has been lowered for what sexual harassment is. This is a great opportunity for employees who feel like their accounts have gone unheard, but what about the employers?
Employers now have to brace themselves for the upcoming challenges of ensuring their sexual harassment policies are up to date and brace themselves for more cases going to trial. Under the previous laws, judges were able to quickly dismiss harassment claims because the claim did not fall into the “ Severe or pervasive” category of sexual harassment.
These new bills make it difficult for employers to avoid liability for their employees’ behaviors. They also expand the interval to file complaints about workplace harassment with a state agency. This also ensures that anti-harassment training will be provided in multiple languages.
Employers should arm themselves with a strong sexual harassment policy and supplemental EPLI Insurance which most small to mid-sized businesses overlook. Employers Protective Liability Insurance is also known as EPLI Insurance. With information being ubiquitous, word travels fast. The real hidden utility of EPLI Insurance is the fact that it will pay for your companies defense. It’s easy and free for employees to bring suit against your company. Conversely, the expense to defend your organization starts at six figures. EPLI insurance can help offset that cost as well as pay for the settlement in some cases. These policies call a fraction of what it costs for defense. As your company grows so does the probability of an EPLI lawsuit. CLICK HEREfor more information on EPLI Insurance.
