Insurance Risk Management Consulting » risk management consulting

Does Your Corporate D&O Policy Cover You After You Retire?

Premier Risk Management Admin — Mon, 29 Jun 2009 01:15:39 +0000

Does your corporate D&O policy cover you after you retire?

Really?

For how long?

In a recent New Jersey case, Schoon v. Troy Corp., two directors of were sued for breaching their fiduciary duty.

One of the directors named in the suit had retired from the company a year or two before the suit was brought. Subsequent to the suit being filed, the board had negated the bylaw extending insurance coverage to directors who had left the company.

By-laws can be amended at any time by the board. Thus it is vitally important for all directors to know how the by-laws and amendments to those by-laws affect them personally.

It is also vitally important to make sure that D&O coverage matches the prescribed intents of indemnifications contained in the by-laws. If coverage does not match up a tremendous gap could arise.

If you are contemplating retirement from a board how can you protect yourself?

Have your Attorney draw up a personal indemnity contract whereby the company or its insurer covers you into retirement for legal fees and damages in cases involving your board service.

Buy coverage against service related torts for a six year period, after that you will have been gone from the board long enough for them to forget about you, presumably. It is available and not that expensive. Well worth looking in to.

In addition to the above, request that the company up a “minitrust” to pay the director for any deductibles or retentions that may apply in the company’s D&O policy.

Remember, every D&O policy has different terms and conditions. They can be tailored to meet the needs of your company. The bottom line is don’t get a shocker, review and assess your coverage.

Insurance Risk Management Consulting : Food for Thought

Premier Risk Management Admin — Sun, 28 Jun 2009 05:01:39 +0000

Whether your business is small or large, public or otherwise, the purchase of insurance has become extremely complex.

The issues surrounding business survival in the event of loss can be nearly insurmountable even with a comprehensive insurance program in place. Keep in mind that insurance does not cover it all, nor is it meant to.

So how then do you protect your company and save money?

Step #1: First, an assessment of a business’s true needs must be performed to identify company risk and exposure to loss.

Step #2: You need to develop a well-thought-out program on how to lessen, mitigate or eradicate potential exposure to those identified risks.

PROTECT AND SAVE

The true purpose of this exercise is to ensure the protection of company assets and the company’s future should a loss occur.

But let’s go even deeper than that. In a real and practical sense it all boils down to Return On Investment. From the actual cost (hard dollars) of the insurance products (policies) you buy … to loss control and safety programs you institute … to deductibles paid and retentions assumed … to uninsured losses to underinsured losses … to a variety of other factors — all these make up what is called your Total Cost of Risk.

Depending on factors such as a company’s risk appetite, exposures, losses, and insurance coverage purchased, the cost of risk can vary from year to year.

Most businesses have cycles. Just like all real world expenses, over the years we have seen significant swings in the cost of insurance.

As a C-Level exec you’re savvy enough to know that the insurance industry has market cycles (soft – meaning insurance company capacity is high, broad coverage terms are plentiful and premiums are low; hard – capacity is diminished, coverage is restrictive and premiums are high).

Here’s the point: The objective of any insurance and risk management program should be directed toward steadying, if not lowering, costs over a long period of time relative to a particular company’s production (revenue).

Product Recall – A Primer: Pyramid Defense

Premier Risk Management Admin — Fri, 05 Jun 2009 07:02:33 +0000

This is the continuation of a four-part series. You can read the article that precedes this one here.

Pyramid defense

Think of your risk management plan as a pyramid that outlines a series of defenses to counter the threat of a product incident. The first line of defense is the base of the pyramid. What actions can be taken to eliminate the majority of threats, such as unwanted bacteria, disgruntled employees, malfunctioning equipment, sloppy suppliers, lax testing, etc.? Put that in the first tier (bottom) of the pyramid. Any threats that escape being eliminated by the first tier should be addressed by the second, and so on. As the pyramid rises, the plan becomes more specific and more effective at isolating and eliminating product incident threats.

Tier 1. Total commitment to quality.

The good news is that most of what can be done to protect against a product incident is done (or not done) in the area of product quality assurance and control. Commitment to turning out the highest quality products, day after day, is the best countermeasure to the threat of a product recall crisis. This dedication to quality should be evident in every aspect of business, from manufacturing to marketing. The logic is simple: If the product can’t leave the plant in a contaminated state and the packaging is designed so that tampering is difficult to accomplish (or obvious once done), the odds of experiencing a major incident are considerably reduced.

Tier 2. Prepare with a contingency plan.

The time to plan is before a crisis arises. Research indicates that the first 48 hours of a major product incident are more crucial than the next 48 days. Every company should have a workable product recall and crisis management plan.

Tier 3. Focus with training.

Contingency plans aren’t of much use if they haven’t been tested and honed under simulated conditions to ensure the plan works.

Tier 4. Respond with expertise and decisiveness.

Even with a good team and a good plan, there is a place in a recall crisis for professional consultants.

Tier 5. Transfer risk where possible.

Even the best companies who are prepared for a recall can suffer substantial financial losses. In spite of all precautions, a large-scale public recall may cost millions of dollars in extra expense, lost profits, lost inventory, lost shelf space, and finally lost market share. If it comes to this, the last line of defense is a solid product recall insurance program – one that indemnifies for the host of extra expenses and losses in revenue that come with product withdrawals.

The Hazards of Risk: Part Two

Premier Risk Management Admin — Wed, 03 Jun 2009 07:33:02 +0000

This article is the second of a two part series. Please read the first part before proceeding.

The view from 30,000 feet: One of the most important roles of any executive is to orchestrate and gather resources that can help them to optimize the performance of their company. There are many risks — organizational, strategic, traditional hazards, regulatory, environmental and technology, just to specify a few.

The C-Level executive must be in a position to draw upon talent in every area to better identify risk. The investors require it. The Board requires it. Employees require it. Orchestrate and gather your resources!

Many times losses (physical, human and financial) are the result of not identifying hazards that can lead to a loss. Sometimes it’s just common sense. And other times it’s a lot more involved.

Be proactive in your approach. Identify potential hazards and remove them or have them eliminated. It can save you, your business and most important of all, your employees from suffering serious harm.

The Hazards of Risk: Part One

Premier Risk Management Admin — Tue, 02 Jun 2009 21:26:04 +0000

A hazard is the potential to cause harm or refers to an occurrence that increases to likelihood of a loss.

Example: There, on every pack of cigarettes, is the Surgeon General’s hazard warning. It’s there for the consumer’s enlightenment.

But what about the hazard cigarettes pose for the company? If smoking is allowed in your building there is an increased likelihood that fire will occur.

And, relatively speaking: How great a hazard is that compared to the overloading of workplace outlets or if your non-licensed maintenance/repair staff installs additional electrical wiring in a shoddy manner thereby increasing the likelihood of a short which could cause a fire? This may seem to be getting down to fine detail, but sometimes this is the difference between the success and the failure of a risk management program.

Always keep in mind: Risk management is not meant to be negative. It is clearly a positive opportunity to increase margins and decrease expenses – resulting in an increased or optimized return on investment.

The real trick is to recognize and address hazards that can lead to a potential disaster or even an opportunity. While most C-Level executives are lay people in this regard, there are experts in varying disciplines as well as loss control experts who can assist in identifying these hazards.

Insurance Risk Management Consulting Tip #3

Premier Risk Management Admin — Fri, 01 May 2009 06:54:34 +0000

Tip #3: Use flow charts to identify sole source suppliers or other contingent business interruption exposures.

When reviewing business income exposures it helps to draw a map or a flow chart of how goods and services flow. What in the chain could cause an interruption? If there were an interruption in that chain how long could it last? What would be the worst case scenario? What if there is no physical loss to the building? How much coverage is enough?

Bottom Line:
Business Interruption Insurance is to a business as Disability Insurance is to us personally. If we get sick and are unable to work there is a good chance that our income will stop and our households will suffer.

Same thing with a business if it suffers a loss (gets sick) there is a good chance that the businesses income will be affected and the business will suffer, to the point were it may not survive. Spend the time to review your organizations exposures.

We’ll talk more about this in the next article, Business Income Insurance Tips.