Omni Risk Mgmt E‑Newsletter
Fall, 2006 Volume 5, Number 1
In This Issue · Commercial Lines · Personal Lines · Surety Bonds · Life & Health · Construction News Insurance Industry Links www.ambest.com Lines Of Business Bonds Property Work Comp Commercial Auto General Liability Umbrella Inland Marine Ocean Marine Personal Auto Homeowners Flood Insurance Group Personal Lines Pension Plans Payroll Deduct Plans Health Insurance Disability Insurance Boiler & Machinery Professional Liability Executives Rob Mastrantonio, Pres. Rob@omni-risk.com Frank Strcich, VP Frank@omni-risk.com Glenn Glubiak, VP Surety Glenn@omni-risk.com Bob Burton, President The Burton Agency Bob@theburtonagency.com Commercial Lines Tara Pattona Tara@omni-risk.com Christine Schuller Chris@omni-risk.com Adam Stone Adam@omni-risk.com Gina Di Paoloa Gina@omni-risk.com Tom Weigand Tom@omni-risk.com Cassandra Rienth Casandra@omni-risk.com Personal Lines Patricia Micari Pat@omni-risk.com Joe Schepis Joe@omni-risk.com Mechelle Diaz Mechelled@omni-risk.com Surety Jennifer Spadaro Jen@omni-risk.com Penny Rocco Penny@omni-risk.com Life & Health Joe Schepis Joe@omni-risk.com Claims Debbie Oggeri Debbie@omni-risk.com Accounting Maria Salvo Maria@omni-risk.com Administration Natalie Perry Natalie@omni-risk.com Candace Strasser Candace@omni-risk.com	Commercial Lines Changing Patterns in Workplace Drug Abuse—What is the most commonly abused drug, other than alcohol, in your workplace? If you guessed marijuana, you'd more than likely be wrong. Prescription painkillers and meth use has accelerated dramatically over the past few years. In 2004, for example, 2.4 million persons initiated nonmedical use of prescription painkillers, more than marijuana (2.1 million) and cocaine (1.0 million). Tracking first-time use is important as it sets trends for the years to come. Overall, an estimated 32 million Americans have used pain killers nonmedically in their lifetimes ... up from 29 million in 2002. Oxycontin (oxymorphone) is a drug of particular concern as well as Vicodin and other "brand names." One last statistic: the National Highway Safety Transportation Agency recently posted the number one cause of large truck accidents: "driver error." And the number one associated factor: "prescription painkillers". It's important to note that most "standard" urine drug tests as well as DOT and SAMHSA tests do not screen for oxycodone, oxymorphone, hydrocodone, or oxymorphone. This means they may not be in synch with "current" drug usage patterns in the United States. This should be an important consideration when choosing the drug screening vendor for your organization. Personal Lines Some credits that you are entitled to! There is a good chance that you may be paying too much for your homeowners insurance. This is particularly true if you are unaware of the numerous discounts available for this coverage. The following discounts are ones you should inquire about. Some may not be available in all states and from all insurers, but it doesn't hurt to ask. These discounts may significantly lower your insurance premium. * Home/Car Discount. Many insurers offer discounts up to 15 percent if they provide both your homeowners and personal automobile insurance. This can reduce your premium on both policies. * Protective Devices. If your home contains smoke alarms, fire extinguishers, CCTV, burglar and fire alarms reporting to a central station, or deadbolts on all exterior doors, you could save up to 15 percent depending on the protective device. * New/Renovated Home. Many insurers offer discounts up to 25 percent if your home is less than 5 or 10 years old since newer homes tend to experience fewer losses. In addition, homes that have substantial renovations can also qualify for this discount if the specified work has been performed by a qualified (licensed when necessary) contractor with proper documentation. Surety Bonds Surety Primer The average agent knows very little about surety and probably does not need to know much about it. If an agency is large enough, it will have a specialized department to administer surety bonds staffed with experts in this field. A primer on surety, then, is likely to meet the needs of most readers of this resource kit. A basic knowledge of surety fundamentals will help clients accomplish their objectives, close out competition and promote a professional image. So what are the surety fundamentals? Let's begin with its purpose. Purpose The very meaning of the word "surety" conveys the purpose of this line of insurance. The commercial world and our society as a whole, functions much more efficiently under conditions of certainty. If everyone paid their debts, performed their obligations, kept their promises and fulfilled their duties, then we could pursue greater aspirations without fear of miscarriage and accomplish more with less waste. But since surety beyond death, taxes and human imperfection does not exist, we grope for assurances by alternate means. A surety (sometimes known as the guarantor) in a contract of suretyship is one who has the measurable ability to meet the failed obligation assumed by, or expected of, an obligor or principal. The obligation may involve the payment of a debt, the timely completion of a project or the faithful stewardship of other people's property. There are literally hundreds of applications of suretyship that can generate the need for a surety contract. Personal surety A surety can either be a person, such as a friend, or an entity, such as a corporation. Personal sureties have been around since biblical times. When someone's own resources or reputation are insufficient to satisfy the demands of a party seeking assurances (known as the obligee), a friend or relative may gratuitously lend his good reputation or financial position to back up the promise made by the principal. It is not uncommon for dad to co-sign on a loan so that his son can purchase a car. Dad is the surety, the bank is the obligee and the son is the principal. Corporate surety It is possible for the relationship with a personal surety to be more formal, leading to the expectation of compensation. When society was less mobile and towns were small, personal sureties were known to the community and easily identified. Today, the complexity of society and the escalation of values at risk have made personal sureties inadequate or unobtainable. Licensed insurers, in their role as professional risk bearers, have become the practical choice for corporate sureties due to their recognized financial resources and regulatory oversight by insurance departments. They are accessible to everyone, not just those who are fortunate to know a personal surety that is willing to guarantee an obligation. Surety bond A surety bond is a written contract of suretyship issued by an insurance company. The principal compensates the surety by paying a premium while the obligee derives the benefit. The amount for which a bond is written is called the penalty, which serves as a limit. A bond remains in force for a length of time that differs by the type of bond. For instance, construction contract bonds are no cancellable and terminate at an unfixed time when the contract has been performed. On the other hand, some license and permit bonds must be periodically renewed and may have a cancellation provision. The obligations, which are the subject of a bond, frequently originate from ordinances, regulations or statutes. In similar fashion to a workers' compensation policy, this bond will refer to the statutory basis of the obligation when defining the coverage. Where the obligation is not statutory, it will be based on a contract between the principal and the obligee. Insurance comparison An insurance policy is a two-party contract which transfers individual risk from an insured to an insurer. For most casualty policies, the risk represents the insured's liability to third parties who are not a party to the insurance contract. The insurer expects that a percentage of the premium for all such insured risks will be paid out in losses. If a loss does occur, the insurer promises to indemnify the insured and relieve the insured of any payments made by the insurer to a third party. In contrast, a bond is formed with three parties instead of two. The surety is primarily liable not to the principal who purchased the bond, but to the obligee. In theory, the surety does not expect to have a loss if its underwriting operation is successful. In fact, if a loss does occur with payment being made to the obligee, the surety is subrogated to the rights of the obligee against the principal. The principal must reimburse the surety. Three "Cs" Bond underwriters are interested in avoiding losses. By careful analysis of a principal's character, capability and capital, the potential for failure in performance is reduced. Character relates to a principal's integrity and reliability. Is there an expectation that the principal can perform under adversity? Capability (or capacity) is the realistic ability that the principal possesses to perform the obligation. Does the principal have the expertise and the physical resources necessary to perform? And of utmost importance is capital—the financial strength which backs the pledge. Thus the principal is often asked to provide financial statements to support the capital requirements. Other safeguards A surety will sometimes require the principal to post collateral with sufficient value to meet all or part of the penalty amount, usually accompanied by a premium credit. This requirement, along with the overall philosophy behind bond underwriting, compares in part to a bank's underwriting of loan applicants. Another way that a surety can control its exposure is to require a concurring opinion on proposed actions by the principal. This is especially prevalent with fiduciary duties that involve the disbursements of assets. The surety may choose to co-direct the actual performance of obligations under a fiduciary bond. Bond categories While the list of available bonds seems endless, they fall into six broad categories which can be named for convenience. Contract bonds guarantee the performance of public or private contracts. They include bid, performance, payment and maintenance bonds. License and permit bonds satisfy regulatory requirements for various contractors, realtors, insurance brokers, notaries, etc. Federal surety bonds apply to federal requirements concerning tobacco, alcohol, imports, taxes, etc. Public official bonds guarantee the faithful performance of elected or appointed public servants. Judicial bonds involve obligations proceeding from a probate court or a court of equity. Miscellaneous bonds provide assurance for a very large number of diverse needs. Life & Health Health saving accounts face modest use The percentage of U.S. workers signing up for health-savings accounts (HSA) is stagnant despite support from President Bush, according to a survey released on Tuesday. About 4 percent of workers with job-related health coverage, or about 2.7 million, are enrolled in high-deductible insurance plans eligible for the HSA accounts, a Kaiser Family Foundation poll found -- about the same as last year. A centerpiece of Bush's health-care agenda, the accounts allow consumers to set money aside before taxes to pay for health expenses when used along with high-deductible health insurance policies. Consumers then pay directly for most doctor visits and other services until they meet their deductible. Among U.S. employers that provide health benefits, about 6 percent offer HSA-eligible plans while 12 percent of firms with at least 1,000 workers make them an option. Researchers also found 19 percent of firms that provide other types of coverage were "somewhat likely" to offer plans eligible for the savings accounts, while 4 percent were "very likely." Forty-five percent were unlikely to offer them. "We don't know yet whether workers and employers ultimately will embrace consumer-driven health plans in big numbers, but it certainly hasn't been a tidal wave," study co-author Gary Claxton, a Kaiser Family Foundation vice president, said. The nonprofit group, along with the Health Research and Educational Trust, surveyed a mix of more than 3,000 public and private firms between January and May. Bush called for an expansion of the accounts during his State of the Union address in January as a way to help curb ever-growing health care costs. Supporters say consumers will become more judicious shoppers because they have to pay directly for services, giving them an incentive to spend less. Critics say forcing consumers to search for the least expensive care will burden patients and possibly force them to make tough or even risky medical choices. To offer an HSA, health insurance plans must carry at least a $1,000 deductible for an individual or $2,000 for a family. Consumers can then save pre-tax money in an interest-bearing account in which accumulated funds do not expire. "When you look at the total costs, the savings from these plans may not be enough to overcome consumer concerns about higher cost sharing," Claxton also said. Instead of offering HSAs, companies surveyed said they were more likely to make employees pay a bigger share of their health insurance and prescription drug bills. Researchers also found U.S. workers continue to pay more for health insurance at a rate that outpaces inflation and wage increases but is not increasing as fast as in recent years. On average, workers paid a 7.7 percent increase in health care premiums in 2006 compared with a 9.2 percent increase in 2005. Construction News REQUIRE CONTRACTORS PROFESSIONAL LIABILITY INSURANCE ONLY WHEN TRULY NEEDED Over the past few years, contractor’s professional liability insurance has become a prominent insurance coverage for contractors. Many project owners have begun requiring professional liability insurance not only for all design professionals but for all of the contractors on the project as well. This presents a unique problem for those contractors not performing true professional services, who ask: "Why or how do I buy the coverage when I don't even have an exposure?" Many times this, as well as cost, is argued to negotiate the requirement out of the contract. In those instances where it cannot be negotiated out, contractors will attempt to secure the coverage. If they can get it, they evidence coverage, perform the work, get paid, and everyone is happy. However, it would be prudent for all to understand that in the event of a claim against that policy, there is a very good chance it will not be covered simply because the contractor's work does not meet the definition of "professional services" -- "those services that the insured is legally qualified to perform as an architect, engineer, surveyor, or construction manager." It's ironic -- by obtaining the insurance, the contractor essentially has no coverage but benefits by getting the job. The owner's representative, thinking he or she is doing well for the organization, inadvertently increases the cost of the project with no added protection. Requiring professional liability coverage only when it is truly needed will reduce the overall cost of insurance on the project -- and this could be significant, since professional liability insurance is fairly expensive. In addition, doing so expands the owner's choice of qualified construction firms for the project. 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