3rd Quarter Insurance Risk Newsletter 2019

Fireman and FireWhat’s New in the Market: Business Interruption Insurance

Imagine if you had to close your business tomorrow due to a fire, and you had no idea when you’d be able to get it running again. It’s pretty scary for a business owner to face such a thing, especially when you (and your employees) depend on your business for a livelihood. Fortunately, you don’t have to live in fear if you purchase Business interruption insurance.

Business interruption insurance (also known as business income insurance) helps you pay bills, replace lost income and cover payroll when a covered event forces your business to close temporarily. It differs from property insurance in that a property insurance policy only covers the physical damage to the business, while the additional protection allotted by the business interruption coverage covers the income that would have been earned.

This extra policy provision is applicable to all types of businesses and is designed to put a business in the same financial position it would have been in if no loss had occurred. This type of coverage can be added onto the business’ property insurance policy or comprehensive package policy, such as a business owner’s policy (BOP) or as part of a standalone policy in some cases.

How Much Coverage Do I Need?

Business interruption insurance is usually provided on an “Actual Loss Sustained” basis, up to a coverage limit. The insurer’s obligation is limited to the dollar amount of loss actually sustained, but not to exceed the applicable policy limit. Financial losses that exceed the coverage limit are the insured’s responsibility. That’s why it’s important to choose coverage limits that are appropriate for your business.

Here are a few things you may want to consider as you’re choosing the amount of business interruption coverage for your business:

• What is the income your company is expected to generate over the next 12 months?
• What costs would continue if the business could not operate, such as loans, lease payments, taxes and salaries?
• What loss prevention measures (sprinkler and/or alarm systems, auto shutoff systems, business continuity plans, etc.) are in place?
• Is comparable commercial space readily available in your area, or would it take weeks to find a suitable alternative location?

You may also want to think about the likely period of time to restore your business after a loss. This “restoration period” determines how much profit you might lose and can vary greatly depending on the severity of the loss your business experiences. For example, a small fire may require only a 30-day restoration period, while a major regional event like a tornado may require months.

There are some simple things you can do to be prepared for a potential business interruption loss, such as knowing your exposure amount and accounting for any changes in exposure, backing up your financial information on a regular basis, understanding your insurance coverage, and knowing who to contact in the event of a loss.

While no one wants to think a catastrophic event could interrupt their lives or their businesses, it’s best to prepare for the worst. 

Image of Large BuildingsRisk Management: Mitigate Unexpected Risks with Business Continuity Planning

Risk management often means expecting and planning for the unexpected. In order to maintain the safety of employees and customers and ensure the viability of your business, preparing for unforeseen disasters is necessary. Risks may include criminal activity, natural disasters or terrorist acts – any one of these threats could be serious enough to devastate your business, but if you have readiness plans in place you can work to minimize their impact.

 

Without prior planning, you leave your company open to financial disaster, especially if you are forced to close operations for a period of time. In addition, without a proper plan to cope with a disaster situation, your company may face lawsuits from customers, vendors or employees claiming negligence.

Secure Your Facility

One of your main security risks is criminal activity, including vandalism, theft and violence. Though not all security threats can be avoided, some situations can be prevented with appropriate preparation:

• Advise management and employees to report any suspicious persons or activity in or around the facility.
• Limit the number of unlocked entrances that customers may access. Consider locking any employee-only rooms and keep any cash on hand in a safe.
• Survey locks, fences, exterior lights and other physical security devices to ensure that they are in place where needed and in proper operating condition. Establish a monthly inspection of your security perimeter and key protective features of your facility.
• Conduct regular inventories of warehouses and/or products on the shelf.
• Pay special attention to areas where you are storing explosive, flammable or toxic chemicals. These areas should be properly secured and inventoried, with limited hands-on contact of these materials when possible.
• Evaluate critical locations in your facility for proper security, including the electric, telephone and gas units, building entrances, transformers and outside storage units.
• Be sure the security/fire alarm system is operating properly and that key personnel know how to arm and disarm it.
• Make sure that fire suppression systems are regularly inspected and maintained, and that a sufficient number of trusted personnel know how to activate, operate and shut them down.
• Closed-circuit television can serve as an excellent crime deterrent, and when the system is equipped with a recorder it can help solve crimes. Monitor all areas inside your facility, including areas where money or records are kept, along with the parking lot and area outside your building.
• Review your procedures for issuing facility keys. At a minimum, keep lists of who has been issued keys and have a procedure for what to do if a troubled employee is terminated without returning them.
• Discuss security with your local police department. Police departments are often very willing to provide information and support to local businesses.
• Have your local fire department conduct a pre-planned visit to your building. While there, they can identify potential hazards and plan fire suppression priorities. 

Prepare for a Potential Disaster 

It’s equally important that your business takes steps to protect against disasters:

• Keep copies of insurance policies and other critical documents in a safe and accessible location (e.g. a fireproof safe).
• Evaluate which disasters are most likely to occur in your area, remembering to include the possibility for terrorist activity. Be sure you are prepared for all of the risks you identify.
• Develop a Disaster Recovery or Business Continuity Plan. If you already have one, make sure that it is up to date. This entails preparing for anything that disrupts your business operations and planning for a backup option. Consider identifying backups for essential operations, supply chains, personnel, business functions, data processes, distribution channels and communication methods.
• Have telephone call lists available (include cell phone and pager numbers) for all key personnel so staff members can be contacted during non-working hours from any location. Review procedures for notifying employees if your facility is closed. Remind employees that they should never attempt to enter areas that are closed by police or other emergency responders.
• Consider establishing an alternate method for your phone service if the switchboard becomes unusable (e.g. forwarding incoming calls to a cell phone or remote number).
• Check available emergency supplies such as flashlights, batteries, emergency generators/fuel, patching materials such as plastic sheeting, wood 2x4s, duct tape, spare fire extinguishers, first aid kits, etc.

We hope these tips help mitigate unexpected risks.

StethoscopeEmployee Benefits: ACA Affordability Limit Change for 2020

Since the Affordable Care Act was passed, employers have been required to provide “affordable” medical benefits. In this case, affordable refers to the amount an employee contributes toward the medical premium each month, and there has been a change…

On July 23, 2019, the IRS issued Revenue Procedure 2019-29 to index the contribution percentages in 2020 for determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning on or after January 1, 2020, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed:

9.78% of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility; and
8.24% of the employee’s household income for the year, for purposes of an individual mandate exemption (adjusted under separate guidance). Although this penalty was reduced to zero in 2019, some individuals may need to claim an exemption for other purposes.

The new rate of 9.78% is a decrease from the 2019 maximum of 9.86%. As a result, employers may need to lower the employee contribution amount for next year.

Traffic Light Drowning in Water | Flood InsurancePersonal Insurance: If It Rains, It Can Flood

Did you know that flooding is the most common natural disaster? Anywhere it rains, it can flood – you don’t need to live near a coastline or river. Flash floods, inland flooding and seasonal storms bring flooding to every region of the country and just a few inches of water can cause tens of thousands of dollars in damage.

Most homeowner’s insurance does not cover floods.

• Only flood insurance financially covers your home and your personal property from floods.
• A flood insurance policy compensates homeowners, renters and business owners for all covered losses, and unlike a Federal disaster loan, it does not have to be repaid.

You can’t get flood insurance at the last minute.

• In most cases, it takes 30 days after purchase for a policy to take effect, so it’s important to buy insurance before the storm approaches and the floodwaters start to rise.

If you are in a high-risk area, flood insurance may be mandatory.

• If you live in a high-risk area and carry a mortgage from a federally regulated or insured lender, flood insurance is required.

If you own your property outright, you should still be covered by flood insurance.

• Statistics show that if you live in a high-risk zone, you are more likely to experience a flood than a fire.

You can purchase flood insurance no matter your flood risk.

• It doesn’t matter whether your flood risk is high or low, you can buy flood insurance as long as your community participates in the National Flood Insurance Program (NFIP).
• You can get flood insurance if your house has been flooded before, even if your mortgage doesn’t require it.
• Outside of the high-risk Special Flood Hazard Area, most properties will qualify for the lower-cost Preferred Risk Policy.
• Even though flood insurance isn’t federally required, anyone can be financially vulnerable to floods. In fact, people outside of mapped high-risk flood areas file nearly 25% of all NFIP flood insurance claims and receive one-third of Federal Disaster Assistance for flooding.

Preferred Risk Policies provide flood protection at the best price.

• Qualifying homeowners in moderate- to low-risk areas can purchase a lower-cost policy.
• Qualifying renters can purchase contents-only coverage for buildings in moderate- to low-risk areas.
• A lower-cost PRP also is available to business owners with up to $500,000 building coverage and $500,000 contents coverage per building.
• Business owners who lease their space can purchase contents-only coverage.
• To qualify for a PRP, the property must be in a moderate- to low-risk area and meet loss history requirements.
• Two claims for disaster relief payments of $1,000 or more for flooding, or three flood losses of any amount, make the structure ineligible for the PRP.

Small Business Owner with CustomerSurety: Empowering Small Businesses to Grow

More and more contracts are requiring surety bonds as a form of security for job completion. The Small Business Administration (SBA) guarantees bid, performance and payment surety bonds through many sureties nationwide. Both public and private contracts require these surety bonds and the SBA is helping small businesses win these contracts they wouldn’t otherwise qualify for. In 2018 alone, the SBA guaranteed $6.56 billion for over 1,800 business.

What can the SBA do for me?

• The SBA works directly with your broker to bridge the gap between express programs and traditional programs. We look to eliminate funds administration or collateralization and increase the bonding capacity for your business.
• The requirements are astonishingly flexible. The working capital requirements are generally one half of typical surety requirements and we see BLOC’s (banking line of credit) as an increase in working capital.
• There is job specific underwriting and financial statement flexibility for creative solutions to age-old bonding problems you’d traditionally find.
• The SBA guarantees approvals in less than 2 business days and QuickApp applications are usually approved within hours! Your broker has access to an online application process to speed up the submission and get you working on the job faster than ever before.
• SBA guarantees up to $6.5 million on all contract types and up to $10 million on federal work. QuickApp applications can be approved up to $400,000.

What does it cost?

All performance and payment bond guarantees require small businesses to pay the SBA a fee of .6% of the contract price. If for some reason the bond is cancelled or not issued, the SBA will return the fee. The SBA does not charge a fee for bid bond guarantees.

Am I eligible?

It’s easy to determine your small business’ level of eligibility before obtaining a surety bond. Does your business meet the following requirements?

• Are you a small business? Check here to check
• Do you have a small contract? $6.5 million non-federal, $10 million federal
• Do you pass evaluation? Surety company credit, capacity and character requirements

The SBA works directly with our surety team to increase your competitive advantage. The removal of redundant and ancient paperwork guarantees approvals faster than traditional underwriting.

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