Delaying Retirement?

You’re 49 years old, you make $113,000 a year and you’re starting to get worried about financing your retirement. You could take the drastic step of upping your retirement savings by 10% of your salary. Or you could achieve the same result by retiring two years and five months later than you had been planning to.

This is one of a number of such comparisons in a remarkable new National Bureau of Economic Research working paper, “The Power of Working Longer,” that I imagine is going to become a staple of retirement advice in the coming years. The authors are Gila Bronshtein, Jason Scott, John B. Shoven and Sita N. Slavov. Shoven is a Stanford economics professor and longtime retirement guru who, at age 70, is practicing what he preaches. Bronshtein, Scott and Slavov all got their doctorates in economics from Stanford in the past 15 years and are now working at, respectively, Cornerstone Research, Financial Engines and George Mason University.

The authors look at scenarios for different incomes, living arrangements and rates of return. But the findings all point in the same general direction:

The basic result is that delaying retirement by 3-6 months has the same impact on the retirement standard of living as saving an additional percentage point of labor earnings for 30 years.

The working-longer effect is strongest for those with the lowest incomes: If you make $21,996 a year, delaying retirement by just two and a half months has the same effect as saving 1% of earnings for 30 years, while delaying retirement by a little over three weeks is equal to saving 1% for 10 years. This is because those with lower incomes get a higher percentage of their expected retirement earnings from Social Security, and claiming Social Security later results in higher monthly benefits. Nearly half of retired-worker Social Security recipients start claiming benefits at the earliest possible age, 62, and receive much-reduced benefits as a result.

Social Security’s early retirees tend to be markedly less educated and less affluent than those who stick it out to the full retirement age — currently 66 and soon to start rising to 67. The less educated and less affluent also have lower life expectancies, so the decision to start receiving benefits early may in some cases be entirely rational. But there seems to be a growing consensus that in many cases it’s not, and that those who claim benefits early don’t fully understand the price they’re paying. It seems like Bronshtein, Scott, Shoven and Slavov have delivered a valuable educational tool for making that price clearer.

Higher up on the income spectrum, Social Security is less of a factor. And if you’re already planning to work to age 70, delaying retirement past that won’t net you any additional Social Security benefits.

Similar math does apply, though, to savings in 401(k)s and other retirement accounts, and it doesn’t stop applying at age 70. For every month that you delay retirement, you’re (1) increasing the amount you’re able to save and (2) decreasing the number of months you can be expected to live after retirement. That second part sounds awful, and it’s not strictly true, given that there’s some evidence that working longer actually leads to increased lifespans. But if you think in terms of the monthly annuity a person can buy at different ages — which is what Bronshtein et al. (and other retirement researchers) do in their calculations — one can see the appeal.

Using the CNNMoney annuity calculator, I find that a male New Yorker with $500,000 can buy a $2,505 monthly income with that at 62, $2,705 at age 65, $3,100 at age 70, and $3,707 at age 75. In other words, it pays to delay.

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5 Tips to Make 2018 the Best Year Yet

Since New Year’s resolutions have a 48-hour shelf life, many people don’t even bother with them. Here is a different approach: five ways to improve performance by focusing on results-changing behaviors.

1. Try something new

In their “Habits Across the Lifespan” study, Duke University researchers found that nearly half of human behaviors are habit-based, regardless of age. For example, we not only have favorite restaurants, but we tend to choose the same menu items over-and-over again.

It’s the same in business. After receiving a promotion, her boss asked her to serve on the selection team for her replacement, but cautioned her not to look for someone just like her.

If half of our thought processes are habitual, it takes conscious effort to try new things, whether it’s a different color of clothing, how we feel about owning a self-driving vehicle, or selecting someone to succeed us at work.

There’s one question anyone in marketing and sales should never stop asking themselves: ‘What does my customer expect?’

As it turns out, your smartphone can have a similar problem. When it doesn’t operate properly, it may need to change its “thinking.” Pressing the reset button gets it back to the way it was when new. We all accumulate habits that interfere with our performance. When that happens, it’s time for a “mental reset.”

2. Clearly communicate your purpose

Sears, Roebuck & Co. kicked off a retail revolution 125 years ago with the clear purpose of bringing thousands of products and services to rural America with its huge iconic catalog. Today, Walmart and Amazon and others continue that tradition.

But it’s the absence of a vibrant message that’s missing with too many companies. It seems the only reason they’re in business is to sell something. It’s as if just meeting with a salesperson or seeing a pop-up ad is a sufficient reason to buy. It isn’t.

From L.L. Bean’s current “Be an outsider” campaign to Opdivo’s “A chance to live longer” medication for those with a certain type of cancer, the message that the brand has a purpose is clear.

3. Improve the customer experience

There’s one question anyone in marketing and sales should never stop asking themselves: “What does my customer expect?” It applies in every situation, whether you’re selling autos or equities, books or bathrooms, homes or heating. There are no exceptions. Unfortunately, most get it backwards. “What can I get out of it?” is their top of mind question, an attitude that leaves the customer experience in tatters.

But today it doesn’t need to be this way. For example, sales transactions at an Apple store are virtually invisible. You see customers handed white bags, but paying for it is over so fast, you can’t catch it. With ApplePay it’s essentially seamless.

Then, there’s life insurance. Surveys show that consumers want to buy it, but don’t get around to it because they think it is time-consuming—filling out pages of questions, making time for meetings, having a physical, and then waiting weeks to get the policy. Now, those seemingly insurmountable road blocks are gone. It takes only minutes for a couple of phone calls, answering a few medical questions, signing the application electronically, and having the policy, up to $1 million or more, delivered by email in less than a week.

It starts and ends with doing what customers expect.

4. Learn from complaining customers

We’re told that customer complaints benefit a business since they point out problems that need correcting. Even though that helps, it’s essentially a reactive strategy, like trying to get the genie back in the bottle.

There’s a more significant problem: customers who refuse to be ignored. According to a study conducted by Edison Research, many customers may be cynical about businesses responding to complaints so they turn to social media–Facebook, Instagram, LinkedIn, and Twitter, among others.

“Seventy-nine percent of those complaining about a brand on Twitter do so in the hopes that their ‘friends would see it.’ While 52 percent hope the ‘company would see it,’ only 36 percent expect that the brand would ‘see it and address the problem,’” according to the study.

We can not only learn from complaining customers what needs correcting, but we can also let them know that we want to hear from them and give them easily accessible ways to communicate with us—and then respond quickly.

5. Take advantage of ‘fresh starts’ in making sales

Birthdays, anniversaries, a new baby, graduations and starting a new job are well-known “buying occasions.” But current research points to many more times when we’re inclined to “turn the page” and make new commitments.

In one study, researchers found that college students are more likely to visit the fitness center at the start of a new week, a new semester, or just after a birthday. These are called “Fresh Start events.” Receiving a bonus, getting a promotion, coming back from vacation, attending a workshop, among others, can make us more open to going in a new direction.

Armed with this insight, marketers and salespeople can take advantage of “Fresh Starts.” An insurance agent finds that a prospect has an upcoming birthday and suggests that it this might be a good time to meet.

In other words, it’s not when you and I want to make the sale, it’s when the customer is ready. Figuring that out is the job.

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Snow News

The worst storm of the winter season has knocked out power to thousands and canceled almost 3,000 flights. Next it threatens to bring more snow, ice and cold from Florida to Nova Scotia, including New York and Boston.

Winter storm warnings and advisories stretch from Maine to South Carolina, including New York, where as much as 8 inches (20 centimeters) may fall Thursday, the National Weather Service said. A blizzard warning has been issued for Boston, which could get 13 inches of snow and has closed schools Thursday.

Blizzard conditions are also possible along much of New England’s coastline, eastern Long Island and parts of New Jersey, Delaware, Virginia and North Carolina. The city of Philadelphia declared a snow emergency.

Staten Island and Queens also face a flood threat between 9 a.m. and noon Thursday as the storm will push tides as much as 12 to 18 inches higher than normal, said Faye Morrone, a weather service meteorologist in Upton, New York.

“It could result in some flooding, especially for vulnerable locations on the shoreline,” Morrone said.

Snow has already fallen in Tallahassee, Florida’s capital, said Rob Carolan, a meteorologist and president of Hometown Forecast Services Inc. in Nashua, New Hampshire. Snow was reported in Savannah, Georgia, while freezing rain and ice covered broad areas of southern states.

“We are going to get a decent snowfall out of this,” said Carolan, referring to New England. “The bad news is it will ruin tomorrow morning’s commute.”

The weather stands to wreak havoc on markets for longer, as electricity prices already surged to the highest level in years and natural gas demand hit a record high. As of 7 p.m. on the East Coast, about 29,000 customers were without power from Maryland to Florida, according to data compiled by Bloomberg from utility websites.

Airlines had canceled more than 2,100 Thursday flights so far, on top of 558 Wednesday, according to FlightAware, an online tracking service. American Airlines Group Inc. and Delta Air Lines Inc. have begun suspending flights at some eastern U.S. airports.

Governors of states in the path of the storm have declared emergencies.

The storm’s focus and track will shift north until it brings its worst to Boston and coastal New England Thursday. Wind gusts along the coast from Maine to Massachusetts could reach 70 miles (113 kilometers) an hour in places Thursday with heavy snow.

“The real apex, the peak of the storm, will be Cape Cod to Nova Scotia,” said Gregg Gallina, a forecaster at the U.S. Weather Prediction Center in College Park, Maryland.

Snow Bomb

This storm may end up being worse than your average nor’easter. It could turn into a bomb, short for bombogenesis, a phenomenon that occurs when a system’s central pressure drops steeply — 24 millibars or more — in 24 hours.

The lifeblood of a bombing storm is a harsh gradient between cold and warm temperatures. This sharp divide was on display early Wednesday as temperatures in Charleston, South Carolina, hovered around 29 degrees, while a buoy offshore recorded readings of 51.4 for the air and 71.1 for the ocean.

“That is a key driver, the cold air mass and the warm Gulf Stream,” Gallina said. “Cold air battling warm air.”

The atmosphere doesn’t like imbalance, Carolan said. When it happens the results can be ferocious.

If current computer models hold, that’ll start to happen somewhere off Cape Hatteras, North Carolina, and continue as the storm moves north. Hurricane-force wind warnings have been posted off the coast where ships could encounter winds of 80 miles an hour and waves as high as 26 feet on Thursday.

“It is certainly going to be a bomb,” Carolan said. “It could drop 40 to 50 millibars in 36 hours.”

The high winds generated by the storm could cause widespread power outages to go along with blizzard conditions. Morrone said gusts of 40 to 50 miles an hour could sweep parts of New York, especially southern Queens.

Environment Canada has issued its own warnings for New Brunswick and Nova Scotia, including Halifax.

Gallina said as the storm pulls off into the Atlantic, another blast of very cold air is going to roar down from the north behind it and spread out across the central and eastern U.S.

“There is a lot of potential for records being broken Friday and Saturday,” Gallina said.

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Learn how to build muscles as quickly as possible.

Some people spend years trying to put on muscle or get more toned, but just can’t seem to make it happen. Others see themselves in the mirror wearing a swimsuit, and realize that they want to get more toned or fill out some muscle, but just don’t know where to start. Whether you want to bulk up, get more curvaceous calves, enhance your chest, or achieve any other muscle building goal, you’re about to get 10 tips to build muscle fast..

Muscle Building Tip #1: Lift

In “How To Build Muscle,” you learn that the only way to significantly increase muscle is to cause muscle fibers to tear, and the only way to do that is to subject your muscles to external forces to which they’re not accustomed. So unless you have a heavy manual labor job like moving or construction, you must get your hands on barbells, dumbbells, and weight lifting machines to see significant muscle building progress.

Muscle Building Tip #2: Go Multi-Joint

Unless you’re already very muscular, single joint movements like biceps curls or triceps extensions do not build muscle quickly. Instead, you should use multi-joint exercises like cleans, deadlifts, squats, and bench pressing. Not only do these exercises work more muscles in less time, but they also allow you to use much heavier weight than you can lift with single-joint exercises.

Muscle Building Tip #3: Go Heavy

Most people who are trying to build muscle do not use an adequately heavy weight. You should be lifting in the range of 8-12 repetitions per set, performing 3-8 sets per exercise, and using a weight that leads to muscle failure by the end of each set. One of the reasons that bodybuilders exercise with a partner is so that someone is there to help them when the weight gets too heavy to lift with good form. If you don’t have a workout partner, you can simply stop when you get too tired to lift with good form, rest a few seconds, then keep lifting to complete the set. This is a better way to build muscle than using a weight that allows you to comfortably complete a set without reaching muscle failure.

Muscle Building Tip #4: Avoid Cardio

10 Tips to Build Muscle Fast

Your body requires calories to build muscle, and if you are doing a significant amount of cardio exercise like running or bicycling, you are burning calories that your body could otherwise be using to build muscle. So if you want to build muscle as quickly as possible, only use cardio for a brief 2-5 minute warm-up, and then focus on weight training only.

Muscle Building Tip #5: Eat

To put on one pound of muscle, you need to consume at least 3,500 extra calories. Since an achievable rate of muscle gain is 1-2 pounds per week, you will need to be eating 500-1,000 extra calories per day to get 3,500-7,000 extra calories each week. But rather than indiscriminately shoving food down the hatch, try to consume calories from healthy protein sources like grass-fed beef, healthy fat sources like avocadoes and coconut milk, and healthy carbohydrate sources like sweet potatoes and yams.

Muscle Building Tip #6: Supplement

In Do Muscle Building Supplements Work? I reviewed several popular muscle building supplements. The top two most effective supplements you should be consuming to gain muscle quickly are 1) a high quality protein powder and 2) a creatine supplement. Other popular muscle-building supplements, such as nitric oxide or beta-alanine, will achieve small results, but will not be as effective as the highly proven protein and creatine supplements.

Muscle Building Tip #7: Rest

If you work a muscle too hard, too many days in a row, the muscle fibers will become too damaged to properly repair and grow. To build muscle quickly, you must completely fatigue a muscle group, but then give it time to rest. Typically, a muscle needs at least 72 hours to properly repair from a muscle-building, weight training session. A good rule to follow is to allow for complete absence of soreness in a muscle before working that muscle again. For example, do a shoulders and chest workout on Monday and Thursday, a leg workout on Tuesday and Friday, and a back, arms and abs workout on Wednesday and Saturday.

Muscle Building Tip #8: Recover

While you are resting, be sure to give your body what it needs to properly recover and put the muscles into a state of optimal growth. Activities that can enhance recovery include ice baths or cold showers, compression clothing, massage therapy or foam rolling, stretching, breathing exercises, and adequate sleep.

Muscle Building Tip #9: De-Stress

High levels of stress can quickly drain testosterone, an anabolic, muscle-building hormone, and increase levels of cortisol, a catabolic, muscle-damaging hormone. If you find yourself at work or school with a constantly high heart rate, moody personality, shallow breaths or high body temperature, it’s likely that you’re too stressed for optimal muscle growth. Teach yourself to relax, breathe deeply and plan out your day to give yourself more time and less stress.

Muscle Building Tip #10: Address Hormones

If you are above the age of 30, hormonal deficiencies can slow your rate of muscle gain. If you feel your muscle gain is too slow, or have any of these symptoms, consider going to a doctor to test your hormone levels and address any imbalances or deficiencies.

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What insurance agents and Realtors need to know about winter flood risks

Floods are the number one most frequently occurring natural disaster in the United States, and this weather threat doesn’t let up once the temperatures drop.

Throughout the coldest months of the year, every part of the country is at risk of winter flooding.

As the season unfolds, agents need to prepare and educate clients on the risks of wintertime flooding. Experts from the Federal Emergency Management Agency(FEMA) and Aon National Flood Services warn about the different causes and risks of winter flooding as well as who is most at risk and provide critical information on insurance coverage and claims.

Causes of winter flooding

A number of conditions can cause winter flooding, but the biggest threats include coastal flooding, ice jams and rapid snowmelt. Winds generated from winter storms can cause widespread tidal flooding and severe beach erosion along coastal areas, putting the Great Lakes and the Northeast coast at risk.

For example, in the Great Lakes, the strong winds from winter storms push water levels up at one end of the lake, causing a storm surge. As the water levels then return to normal, a pendulum effect occurs, causing high water levels on alternating sides of the lake.

Long cold spells can also cause the surface of rivers to freeze, leading to ice jams. An ice jam occurs when a rise in the water level or a thaw breaks the ice into large chunks, which become jammed at man-made and natural obstructions and can result in severe flooding. A sudden release of an ice jam can also cause flooding. When the water is released, it can flow downstream quickly, causing a significant rise in water levels in a short period of time.

Winter floods can also be caused by sudden thaws of a heavy snowpack. A midwinter or early spring thaw can produce large amounts of runoff in a short span of time. Because the ground is hard and still frozen from low winter temperatures, water can’t penetrate and be reabsorbed. The water then runs off the surface and flows into lakes, streams and rivers, causing excess water to spill over their banks.

Proper preparation 

For residents in particularly susceptible areas like the U.S.’s northern regions and the Great Lakes, FEMA and Aon National Flood Services offer a number of critical steps to prepare and protect against winter flooding.

Residents in these threatened areas should purchase a flood insurance policy if they don’t already have one, FEMA advises. Those who have purchased a flood insurance policy should review it and become more familiar with what is and is not covered.

Make a flood plan, FEMA says. Plan evacuation routes and keep important papers and documents in a safe, waterproof place. Keep an up-to-date inventory on itemized possessions, and attach pictures of the possessions. These materials will be vital during the flood claim process.

As for the homes, Aon’s Vice President of Claims, Terry Black, says cleaning the gutters of your home is an important precaution to take to prevent water build-up around the foundation.

Black says experts are predicting a wet winter this season, increasing the chances for winter flooding, particularly in the Northeast and Great Lake areas.

Coverage concerns

When it comes to flood insurance, property owners have two options: private insurance policies or the one-size-fits-all, government-issued National Flood Insurance Program (NFIP).

Private policies offer better coverage for high-value homes, and generally provide greater coverage for additional living expenses. Agents and brokers can review their clients’ coverage and determine the best fit for the situation.

In any case, some flood coverage is better than none!

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Add These Tasks to your To-Do List

Your home is likely your biggest investment, and it requires routine preventive maintenance to keep it in good shape. Some to-dos can be tackled once a year, while others should be carried out on a monthly basis. Here’s a list of tasks to get you started and help keep your home running smoothly all year long.

Structurally important and frequently used items require regular attention, so periodically checking your roof for leaks, thoroughly cleaning your garbage disposal and regularly replacing air filters will help keep your home healthy inside and out.

Sticking to a seasonal home maintenance checklist is easiest during milder weather. Start by committing to a few simple to-dos like trimming trees and shrubs away from your home’s exterior. While you’re out there, give your gutters a bit of attention by clearing out leaves and debris that can eventually lead to water backup.

Also, take a moment to inspect the weatherstripping that surrounds your windows and doors. If you see cracks or believe the seals have been compromised, this will be an easy replacement that can save you money on your heating and cooling costs.

Set aside one day a year to do things like schedule a chimney cleaning and have your septic tank inspected. Amenities like this are extra costly to repair once there’s an issue, so consistent upkeep is key. Finally, keep all your fire extinguishers up to date and check at least once a year to make sure they’re fully pressurized.

Organizing home maintenance tasks into a manageable schedule can help you prioritize prevention above repairs and save you money in the long run.

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3 Factors Threatening the Nursing Home Liability Market

With ample capacity in nursing home and long-term care liability insurance, competition remains strong among carriers. However, clouds have been gathering on the horizon, with the convergence of three separate events threatening to create a perfect storm in the marketplace.

Increasing Claims

Claim frequency and severity has been climbing for the past several years, with nursing home litigation being one of the fastest-growing areas of health care litigation. In a recently published report on an actuarial analysis of the long-term care sector, it was stated that long-term care frequency is increasing by 5% annually.

Severity is a concern as well. Consider a few mega-claims in the past few years:

  • In Florida, a jury awarded $1.1 billion to the family of a woman who died following multiple falls.
  • In West Virginia, a nursing home was dealt a $90 million wrongful death ruling (later reduced to $32 million).
  • In California, a judge upheld a $23 million jury award in a wrongful death lawsuit.
  • In Tennessee, a jury awarded a $30 million judgment, which included $28 million in punitive damages, against a nursing home where poor care led to a resident’s death.


Significant Regulatory Changes

In another development, the Centers for Medicare & Medicaid Services, in a recently published rule, have prohibited binding pre-dispute arbitration agreements. The rule, effective November 28, is the first major change to nursing home regulations in 25 years and will impact both liability claims and pricing. Although the American Health Care Association has filed a lawsuit in an attempt to overturn the rule, the government’s action is a clear indication that these types of arbitration agreements are a target for regulatory scrutiny.

If the rule stands, it will drive up costs. The aforementioned report, noted that claims subject to arbitration have a 7% lower total cost and settle three months sooner than those resolved without arbitration. From a claims frequency standpoint, the rule also provides plaintiffs’ attorneys more reasons to sue by mandating several new rules around nutrition, medical treatment, infection prevention and control, monitoring of use of antibiotics, personnel requirements, and more.

Increased claims will drive up base premiums over time, but the pricing impact for nursing homes will be felt immediately. For many years, brokers in long-term care could secure premium credits for their clients that used binding arbitration agreements, and those deals are now obsolete.


Changing Patient Demographics

There is a third cloud on the storm front: the population of nursing home residents is changing. Advances in physical care have led to patients living longer, but as medical care finds ways to prolong life, more and more elderly are dealing with mental deterioration. According to the World Health Organization, over 20% of adults aged 60 and over suffer from mental or neurological disorders.

These conditions increase the cost of care, and in some instances nursing home facilities were not designed or staffed to treat high levels of mental disorders among residents. Additionally, it takes more, and more highly trained, people to care for mentally impaired but physically capable residents, compared to physically impaired people who have traditionally comprised the nursing home population.


The Impact

With an abundance of capacity in the market, carriers are currently turning a blind eye to these threats. There is a disconnect between the increase in claim frequency and severity already being seen in the market and the cheap and plentiful availability of coverage.

However, it is only a matter of time before claims catch up to carriers. Some of the new capital in the market has not experienced problems with the line. A marked increase in severity and frequency has the potential to take some of the “less informed” capital out of the market. This will have several impacts. First, reduction in capacity will cause pricing to go up and appetites to restrict as happened in the 1990s, where it was difficult to place coverage for nursing facilities. Second, carriers that have exited the market have less incentive to actively manage long-tail claims as they seek to close out reserves, leading to settlements that are in opposition to the best interests of the policyholder.

Agents and brokers need to act now to position themselves and their clients for market disruption. They should work with their long-term care clients to be sure they understand the changes taking place. In particular, taking the arbitration clause out of a defense attorney’s hands is a significant development that affects more than just insurance.

Additionally, agents and brokers should partner with a wholesaler that is an expert in the long-term care liability marketplace. Working with an experienced broker can provide resources for agents to educate clients. Also, when the market does harden, having established relationships with a wholesale broker that specializes in long-term care liability will help ensure that clients have access to insurers that are willing and able to provide needed coverage

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Why Your Employees’ Driving Record Can Be a Reflection on Your Company

You’ve seen it before – a good employee makes a horrible decision in his or her personal vehicle. What are the implications for your company if the employee’s license is revoked, cancelled, or suspended due to alcohol, controlled substance or felony violations?

If the employee in question is a CDL driver, he or she will lose driving privileges for one year. But what if he or she doesn’t hold a CDL, but instead drives a sales car or pick-up truck?  What if the incident involves excessive speed, reckless driving or bodily harm?  What happens then?

As an employer, you are caught in the balance between a good employee and the potential for vicarious liability, which holds you responsible for the actions or omissions of another person – in this instance, your employees.  As a result, you need to understand the “Doctrine of Negligent Entrustment” and the potential impact that your employees’ decisions can have on your business.

In its general form, the Doctrine of Negligent Entrustment states:
“It is negligent to permit a third person to use a thing or to engage in an activity which is under the control of actor, if the actor knows or should know that such a person intends or is likely to use the thing or to conduct himself in the activity in such a manner as to create an unreasonable risk or harm to others.”1

The legal interpretation of the principle of “negligent entrustment” is not founded upon negligence of the driver of an automobile, but upon the primary negligence of the entruster in supplying an automobile to an incompetent driver.  In other words, the employer knew or should have known of the employee’s incompetence, but in spite of this knowledge, the employer entrusted the vehicle to the driver in the scope of his work. The employer may therefore be guilty of negligent entrustment.

What can you do to protect your company?

It is important to be proactive in managing your drivers, both as part of your fleet safety program and to effectively maintain your CDL files. Below are some helpful tips for making this process easier and more efficient:

1)  Develop a company policy for MVR evaluations (CDL & all other drivers) that must be signed by the employee. A minimum three-year evaluation period is effective.

2)  Evaluate MVR at time of hire and annually thereafter (using a minimum time standard).

3)  Establish guidelines for reporting major violations (such as DUI, reckless driving, chargeable accidents) immediately, regardless of whether the incident occurs in a personal or company vehicle.

4)  Develop a company policy for personal use of company vehicles that must be signed by the employee.

5)  Develop a company policy for “occasional” drivers (for example, office employees who may drive to the bank or post office during the course of their work.)

6)  Develop a company policy for employees who may use their personal vehicles for company business (for example, outside sales people). Establish minimum limits that they must carry.

7)  Provide driver training programs.

In addition to the above suggestions, other options may exist for managing an employee with a history of driving infractions, including placing that individual in a non-driving role. However, doing so may affect other roles and responsibilities within your organization.

As an employer, it is important to remember that the consequences of allowing an employee with a less-than-perfect driving record extend beyond a possible traffic violation or accident. Due to the Doctrine of Negligent Entrustment, an employer must be aware of the potential liability to his or her company from allowing an employee with a poor driving history to operate any motor vehicles for work purposes.

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Lower Health Plan Expenses and Reduce Liabilities

Public entities trying to meet the ballooning costs of employee and retiree health benefits face a continuous battle to control those costs and lower their claims experience. However, a multi-pronged strategy that explores both alternative insurance structures and administrative enhancements can help turn this challenge into an opportunity for otherwise cash-strapped public entities.

Public Entities Struggle to Meet Obligations

From the local to the state level, the days when governments could hike taxes to raise needed funds are mostly a memory. In the wake of the Great Recession, entities from school districts to cities and counties continue to struggle, and governments are finding it difficult to ask more from a shrinking tax base. In this environment, almost three dozen municipalities have filed for bankruptcy since 2010. The latest filing was the largest.
In late February, officials in Detroit detailed a plan to exit the largest municipal bankruptcy in U.S. history, looking to restructure $18 billion in debt. According to The Wall Street Journal, employee and retiree pension and healthcare obligations accounted for about $7 billion of that debt — almost 40 percent of the city’s total. Short of bailing on these obligations —The Journal estimates Detroit’s public employees will have to settle for as little as 30 percent of what was initially promised — there are still ways to survive in this environment.

Dealing With the Great GASB

All public entities must deal with the Government Accounting Standards Board (GASB). When GASB issued Statement 45 10 years ago in June, it altered the way that many deal with the non-pension benefits of their retired employees. GASB 45 governs how public entities should address Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, also known as other post-employment benefits (OPEBs).
GASB 45 requires financial statements from government entities that reflect the current and future cost of OPEB benefits. Health benefits comprise a huge percentage of total OPEB costs, second only to payroll. In many plans, drug costs equal or are nearing other medical costs. Prescription drug plans can help rein in some of these costs.
Public and private organizations that offer retiree healthcare can take advantage of the Retiree Drug Subsidy (RDS) Program offered by the Centers for Medicare & Medicaid Services. The federal government will reimburse up to 28 percent of drug costs to Medicare-eligible retirees. However, organizations using this subsidy lose their federal tax deduction for expenses paid in this area.
One way around this is to involve third-party administrators (TPAs) that offer Employer Group Waiver Plans, or EGWPs. EGWPs — pronounced egg whips — help plan sponsors take further advantage of capitation, or fixed fees paid to prescription drug plans. Public entities using a wrap-around secondary plan with an EGWP might expect higher federal subsidies and federal assistance in meeting the costs of coverage for catastrophic illnesses. Other benefits can include reduced administrative costs — this arrangement doesn’t require an expensive RDS audit — and lower GASB drug benefit liabilities.

Examine Alternatives Designed to Stop Runaway Costs

Alternative risk transfer strategies, executed skillfully, can help public entities stem costs. Stop-loss insurance, for instance, is a time-honored way to protect against catastrophic losses.
But as catastrophic claims continue to impact health plans, organizations have to consider additional ways to protect themselves from devastating costs. Organ transplants and end stage renal disease are becoming increasingly more costly for self-funded medical plans. Medical excess insurance, a layer of protection organizations can purchase from traditional markets, can address transplants by providing first-dollar coverage, thus reducing stop-loss triggers. Some estimates show transplants account for 40 percent of stop-loss claims.
Closer management of dialysis treatment and wellness programs that address the most chronic and expensive health conditions of employees are two other ways plans can lower costs. Addressing all of these issues can drive a strategy in which a plan sponsor lowers its cost of stop-loss coverage by carving out expensive health events.

Find Strength in Numbers

Another strategy — group captives — has become an increasingly popular way for small- and medium-sized employers to help control current health benefit costs. Like-minded employers, grouped by organization type or region, get together to theoretically insure homogeneous risks through a captive insurance company. Captives are legal entities separate from the sponsoring organizations.

Among the advantages of insuring through a captive include potentially lower insurance costs, retained profits when claims are low, plan design flexibility and coordinated plan administration.

Farm Out the Minutiae

All self-funded clients understand that maintaining a health benefits plan is complex, time-intensive and ever-changing. By outsourcing to the right partner, public entities transfer these responsibilities to professionals well-versed in varied benefits and the challenge public organizations face. An experienced administrator should:
  • Build and monitor a health provider network
  • Provide reporting and update management about changing regulations
  • Monitor quality of care and spending patterns
  • Offer turn-key claims management
  • Provide additional services like COBRA/HIPAA, FSA/HSA/HRA administration
Freeing risk managers of these administrative duties lets them focus on ways to reduce risk.

Choosing a Partner

Monitoring soaring costs and providing cost control solutions has never been more important than today in the public sector. Even in the face of rising costs and increasing regulations, the right partner can help any type of employer better manage these situations to move forward in the right direction.
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Coinsurance and Blanket Limits in Commercial Property Insurance

Flynn has been investing in commercial real estate for some time now. He owns, under his real estate corporation, over 50 buildings located in the city, as well as the nearby suburbs. His real estate portfolio consists primarily of leased retail and office space, with some service occupancies, as well. Flynn is preparing to purchase another building in the city and is arranging a mortgage with a new lender – More Money Lending. To his surprise, the lender has rejected an insurance binder obtained by his risk manager, Allie, from his insurance agent. More Money does not accept building insurance with coinsurance – and the binder given to More Money lists coinsurance with a percentage of 90%.

Coinsurance As Flynn relies on his risk manager, Allie, to understand his insurance coverage, he has never read his insurance policies. But now he is alarmed by “coinsurance,” as it seems to Flynn – based on his limited dealings with health insurance – that his insurance company will never pay more than 90% of any loss that he has, regardless of the amount or limit of insurance he has purchased. This sounds problematic, and he immediately arranges to meet with Allie and his insurance agent, Donna, to discuss this matter.

Coinsurance Explained
 At Flynn’s request, Allie and Donna explain the concept of coinsurance. At the outset, they make clear to Flynn that coinsurance in property insurance is not the same as the 80/20 cost sharing in some health insurance policies. Instead, in property insurance, coinsurance generally means Flynn must purchase a certain limit of insurance on his building – the limit purchased must be no less than a denoted percentage of the full value1 of the building. Here, the percentage is 90%. Because Flynn did obtain, as part of his due diligence, a professional appraisal that determined the replacement value of his building as $5 million, Allie and Donna tell Flynn that he must purchase a limit of no less than 90% of $5 million or $4.5 million. If he does not purchase a building limit of at least $4.5 million, Flynn will face a penalty as a “co-insurer.”

The Coinsurance Penalty Allie refers Flynn to the pages of his property insurance policy, which provide two straightforward illustrations of the concept of coinsurance – including the penalty for being underinsured and what constitutes adequate insurance.2 Allie suggests to Flynn an example using his situation as a hypothetical – what would happen if he purchased less than 90% of the $5 million limit? Let’s say that Flynn bought a limit of $3 million (the amount of his loan principal). If Flynn then had a relatively small covered loss – say a $200,000 water damage loss caused by a broken pipe – he would be penalized as a coinsurer. He would be penalized because the insurer would, at the time of the loss, calculate whether Flynn had complied with the coinsurance condition.

The Coinsurance Formula To determine compliance with the coinsurance condition, the insurer would first ascertain the replacement cost of the building ($5 million) and then note the coinsurance percentage (90%) on the policy – and thus conclude that Flynn should have purchased $4.5 million ($5 million times 90%). But Flynn (in the hypothetical situation) did not meet the coinsurance condition – the limit purchased was $3 million, not the $4.5 million limit that he should have bought. The insurer would compute the coinsurance penalty by dividing the limit Flynn did purchase ($3 million) by the limit he should have purchased ($4.5 million), thereby yielding a percentage of 66%. This percentage (66%) would then be multiplied by the amount of the water damage loss ($200,000), producing a loss payable of $133,333, which is further reduced by Flynn’s deductible. The result is that Flynn would suffer a coinsurance penalty of $66,666 and he would be a 33% “co-insurer.” After further discussion, Flynn now understands the coinsurance formula – did (purchase) divided by should (purchase) may result in reduction in payment for even small or partial losses.

Blanket Building Limit Allie now refers Flynn to a third example3 in the policy regarding coinsurance – how coinsurance is determined if the policy is written with a blanket limit. Flynn’s commercial insurance policy provides a blanket limit for all his buildings, with one limitation that Allie promises to explain later.

A blanket limit4, according to Allie, means that one limit applies to more than one type of property or one limit applies to the same type of property but to more than one location (or both). As Flynn is insuring only the buildings, the blanket limit in his situation applies to the same type of property (buildings) over numerous locations. One limit of $250 million applies to all of Flynn’s listed buildings (again, with one exception). The benefit of this approach becomes evident to Flynn. In the event of certain5 covered losses to one or more of Flynn’s listed buildings – such as may be caused by a hurricane – Flynn has up to $250 million of insurance (in most instances).

Coinsurance and Blanket Limits Blanket limits change the calculus of coinsurance. While the formula is the same – did divided by should times the loss – with a blanket limit, the insurer must determine compliance with the coinsurance condition using total aggregate values. In Flynn’s case, for the insurer to calculate whether he has met the coinsurance condition, the insurer must use the $250 million limit (did), ascertain the insurance limit required (should), which is 90% of the full replacement value of all Flynn’s buildings (an onerous undertaking at best) and then multiply that percentage by the $200,000 water damage loss. As Allie points out, this provides more room for error – if a few buildings are a bit underinsured, but some others are over insured, the chance of applying a coinsurance penalty are reduced.

Margin Clause Two locations that Flynn owns do not have an automatic sprinkler system that is to the insurer’s liking. While the insurer did provide coverage for these two buildings and include both locations within the $250 million blanket building limit, the insurer also added a Margin Clause endorsement6 for these two locations. Flynn recalls that Allie had promised to explain this limitation to him.

The explanation is this: for these two locations, the insurer will not pay up to the $250 million blanket building limit, but instead will pay no more than values last reported for each building multiplied by the percentage shown in the Margin Clause endorsement. While the percentage ranges from 105% to 130%, Flynn’s policy lists in the Margin Clause endorsement 120% for each of the two buildings (reported as locations #16 and #42.) If the building at location #16 was reported as $3 million and location #42 was reported as $6 million, the true limit applicable to each location is $3.6 million ($3 million times 120%) and $7.2 million ($6 million times 120%).7 The effect of the Margin Clause in Flynn’s policy has been to eliminate these two locations from receiving the benefit of the full $250 million blanket building limit.

More Money’s Error – The Agreed Value Optional Coverage At the end of the discussion regarding coinsurance and the blanket building limit, as well as the margin clause limitation, Donna addresses More Money’s rejection of the binder. While the binder does show a 90% coinsurance, More Money failed to notice the coinsurance condition did not apply to any building on Flynn’s policy – the binder clearly listed that Flynn had purchased the Agreed Value optional coverage.8 Donna will explain to More Money that the agreed value option effectively suspends the coinsurance condition to the end of the policy period and that More Money should accept the binder, as the 90% coinsurance condition does not apply to the new building. Donna tells Flynn the agreed value option was provided to Flynn only because the insurer believed the values reported for each building were a reasonably accurate estimate of the full replacement value of each.

Conclusion  While policyholders should strive to provide the insurer with complete and accurate values for buildings (and business personal property) that are the subject of insurance, policyholders also should understand the basic workings of the coinsurance condition, including the potential penalties for underinsurance, as well the purpose of the agreed value option, blanket limits and margin clauses, if applicable. Even a cursory review of the basic illustrations found in the coinsurance condition of the Building and Personal Property Coverage Form should inform any policyholder of the penalties of underinsurance and thus the need for adequate insurance.  Stated differently, no special skill or expertise in insurance is needed to make sense of the coinsurance illustrations – taking only a few minutes to read the examples provided in every Building and Personal Property Coverage Form9should suffice.

For more information: Call Robert J Russell, LAS, LUTCF, Broker – 972.679.9029

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