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Long-term-care Insurance Is Crucial, but Often Expensive

LongTermInsuranceHourglassPatricia Grenier doesn’t miss an opportunity to talk about long-term care — and the insurance products available to pay for it.

“I talk about it with every client who crosses my desk,” said Grenier, general partner with BRP/Grenier Financial Services in Springfield. “I discuss how they’re going to take care of themselves, what their plan is for long-term care, and we discuss all the options; they can self-insure. They could give away all their money and live off the state, but who wants to be poor? That’s not the goal. They could move in with family — usually their kids — but nobody wants that.”

As Baby Boomers surge into their retirement years and Americans are living longer, on average, than ever before, the rising cost of long-term care — which may include everything from home care to assisted living to skilled nursing care — is not a matter to be taken lightly. The cost projections, for all tiers of care, are daunting.

In fact, according to Genworth Financial, the largest seller of long-term care policies with roughly 35% of the market, the median annual costs of care in Massachusetts are:

• $126,290 for nursing-home care in a semi-private room, or $134,320 for a private room, with costs rising about 4% per year;

• $62,964 for a one-bedroom assisted-living unit, rising about 4% per year;

• $57,200 for a home health aide, or $52,625 for homemaker services, costs expected to remain fairly steady; and

• $16,900 for adult day healthcare services, with costs rising about 3% per year.

In other words, the costs rise steeply with the level of care required, and these are numbers that most Americans are simply unable to handle on their own.

“Unfortunately, very few people are prepared to deal with this risk, as less than 8% of people have long-term-care insurance, and only 10% of people in the U.S. have a long-term care plan in place,” notes Jamie Hopkins, who writes about retirement-income planning for Forbes. “This lack of planning is extremely troubling because long-term care is a very real and expensive risk, as nearly 70% of people will need long-term care at some point.”

Frank Carrazza, director of Financial Planning at St. Germain Investment Management in Springfield, said there are many reasons why people put off buying long-term-care insurance.

“We all know that, once we get older, it would be nice to protect ourselves so we don’t have to lose our assets,” Carrazza said. “The ideal time to buy, for most people, is probably between 50 and 55, when premiums are reasonable. But at ages 50 to 55, they’re not thinking about retirement that much, and they’re still accumulating for retirement. When people get to age 65, 66, 70, they may re-evaluate.”

By then, however, premiums are more expensive.

“Let’s say you want to buy a long-term-care policy in the area of $250 to $300 a day. It’s very expensive. On average, a 65-year-old couple, if they’re in good health and non-smokers, might pay $6,000 to $8,000 a year, depending on the benefits. A lot of people can’t fit that into their budget. Or, people with substantial assets, who can afford it, might not pay for it, but figure they can use their own resources later on.”


Tough Decisions

Dan Caplinger, director of Investment Planning for the Motley Fool, says the idea of decades of ‘sunk costs,’ never to be recovered, worries people, especially when rates go up.

“Insurance agents typically advise people to obtain long-term-care insurance as early as possible to reduce costs, as premiums are much lower for younger policyholders who are less likely to need benefits in the immediate future,” he writes. “What that means, though, is that those who’ve held onto their policies a long time have already paid tens or even hundreds of thousands of dollars in policy premiums without having gotten a dime in benefits to show for it.”

And when faced with possibly hundreds of dollars in extra premium payments each month, many people — especially those on a fixed income — find themselves trapped by the spectre of the rate increase. “That will prove an impossible task, and they will have to accept lower benefits or even give up their policies entirely — thereby having essentially wasted all the money they’ve spent on premiums for years.”

Howard Krooks, an elder-law specialist in Florida, told the New York Times that he advises clients faced with an increase of 20% or less to “bite the bullet” and pay it, even if they think it was unfair. If the increase is much higher, they may consider reducing their benefits — for instance, by accepting a daily benefit amount of $250 a day rather than $350 — to keep the premium down.

Pat Grenier

Pat Grenier says she makes a point of talking to virtually every client about long-term-care insurance.

And those rate increases keep coming. Genworth began seeking increases on its existing policies in 2012, with the goal of raising between $250 million to $300 million in additional premiums by 2017. Meanwhile, Grenier said, John Hancock is raising rates by up to 50%. “That’s amazing. And I think Genworth is going to gender underwriting, where before it was unisex. Now women are more expensive — because, statistically, women still live longer than men.”

A new trend, Carrazza said, is an option for a large lump-sum payment — say $50,000 — which is refundable if it’s never used, as opposed to a monthly premium, which customers typically don’t get back.

Whatever the product, he added, the market is becoming tougher for customers, with higher rates, lower benefits, and fewer options available than there were years ago.

“Fewer companies are offering the product, and those fewer companies are now underwriting the product,” he explained.

“What that means is, if someone wants to apply, instead of just filling out an application and having a telephone interview, in most cases, people are required to complete a paramedical exam — the same type of exam taken for a life-insurance policy. Insurance companies are losing money with the product, so they’re raising premiums and underwriting the product to improve their claims experience. And, from a customer point of view, that makes it harder to get the product.”

Insurance companies say the changes are necessary. Caplinger noted that they paid out almost $7.5 billion in claims for long-term-care benefits in 2013 — a 13% rise from the previous year, with benefits going to 273,000 policyholders across the nation. He cited another study projecting that current benefit payouts will double by 2023 and rise to $34 billion by 2033 as more people start accessing their policy coverage.

Expensive — but Necessary

Despite the expense, long-term-care insurance remains a critical product, said Grenier, who said the ideal age to purchase it is in one’s late 50s or perhaps early 60s.

“It’s absolutely a necessity,” she told BusinessWest. “A couple could spend around $250,000 a year [on care]. That’s a lot of money. So I do talk to everyone about it.”

There are some creative options for families willing to sacrifice together, she said, noting that she and her siblings actually pay the premiums for their parents’ long-term-care insurance.

“Many times, people who are retired have a hard time making ends meet. For me, I’d rather pay a premium now on a monthly basis than come up with tens of thousands of dollars later on. I look at it as a family issue.”

Grenier joked that the decision was partly a “selfish” decision, to avoid huge out-of-pocket expenses later, but quickly got back to the idea that her family wants to make sure their parents are cared for.

“Obviously, we want them taken care of well, and that could be more expensive than just paying a monthly premium today — and, of course, I have siblings helping out,” she said, adding that, in many families, especially those scattered around the country, one child takes the lead in caring for — or financing the care of — a parent, which can cause rifts and resentment in the family.

“It’s very difficult when one lives in California, and you’re in Massachusetts. How do you handle that care?” she said. “In the old days, our elders lived with us. Now, that doesn’t happen. And the government doesn’t have the money it used to have; we are responsible for ourselves.”

Other options exist for paying for long-term care, Hopkins notes in Forbes, including reverse mortgages and income annuities.

“While self-funding, long-term-care insurance, Medicaid, and family-provided care will continue to be the primary sources of long-term-care funding for the foreseeable future, the market is changing, and more people are becoming aware of these new and alternative ways in which to pay for long-term care,” he writes. “Whatever avenue you decide to take, having a plan in place is crucial.”

Grenier agreed. “It’s a rising trend. It’s a need for more people, I think more people are aware of it, and more people are buying it.”

Even as rates continue to rise.

“Long-term care is going to get more expensive,” Carrazza said. “That’s the really sad part about it. It’s difficult.”

Joseph Bednar can be reached at [email protected]

Insurance Sections
Nathan Agencies Have a Host of Client Needs Covered

Glenn Allan, Anna Holhut, and Dean Paddock

Glenn Allan, Anna Holhut, and Dean Paddock offer a diverse array of insurance products to individuals as well as business owners.

Ron Nathan says many people think they are secure, while others don’t worry about their financial futures in the event of a calamity. But the first assumption can be erroneous, and the second approach can result in financial devastation.
“I’ve grown up seeing a lot of people who are totally unprepared for a catastrophic situation, like a death in their family,” he told BusinessWest. “Others save for something specific, such as their children’s college education, but don’t think about their own retirement because they are so focused on one goal. Then, when it comes time to retire, they realize they never planned for their own future.”
Thus, he has dedicated his life to preventing such scenarios from becoming reality, and is proud that the Nathan Agencies in Amherst, which began as a small firm 45 years ago, have grown steadily over the years, offering one-stop shopping to meet people’s insurance and financial-planning needs.
Three companies — Amherst Financial Services, Amherst Insurance Agency Inc., and Andrew Paddock Insurance Agency Inc. — make their home under the agencies’ umbrella on 20 Gatehouse Road and have well-educated employees who strive to help clients plan for and protect their financial futures. Together, they offer comprehensive services and products that range from financial planning, investments, and estate planning to life insurance; long-term-care insurance; auto and home insurance; renter’s insurance; business, health, and disability insurance; and other forms of commercial insurance.
Nathan said many clients do all their business under the umbrella, but others have policies with different agencies or have their own financial advisors. But his passion for helping people has no boundaries, and if he discovers they don’t have adequate coverage, he makes them aware of what they need, then advises them to call their own agent.
“You need to look out for people’s best interests and help them,” Nathan said, adding that he is concerned that schools don’t provide young people with the education they need to manage their finances, “never mind how to invest money. And it’s so important.”
Nathan said exceptional customer service is the foundation of his firm’s success and accounts for the extensive number of awards it has received. “We go above and beyond and do things such as assisting people with insurance appeals to avoid a surcharge,” he said, as he spoke about services provided following an auto accident.
Anna Holhut agrees that clients need help whenever they suffer a loss. She worked for Nathan for decades before she and Glenn Allan purchased Amherst Insurance Agency from him in 2012. “We’re not related to Ron, but we still run it like a family business,” she told BusinessWest.
She recalled going to the scene of a house fire immediately after receiving a call from the building inspector. The homeowner had given him her name and number as he was readied for transport to the hospital via ambulance.
After leaving the house, Holhut visited him in the hospital. “I wanted him to know that his pets were in good hands as well as how he could get back into the house,” she said. “When there is a loss or problem, we really come to the plate.”

Growing Enterprise
In 1969, Nathan founded the Nathan Agency. He had moved to Western Mass at age 21, was selling life insurance to college graduates and graduate students at UMass Amherst, and liked the area.
At the time, the young agent faced significant competition, but he worked four nights a week as well as during the day, which soon led to success.
In the early years, life insurance was his primary product, but by the ’70s, Nathan had begun to expand his product lines. As a result, the firm experienced steady growth, and in 1978, he moved from Pray Street in Amherst to his company’s current location.
A year later, when the owner of Amherst Insurance and Real Estate Agencies became ill and left town, he purchased that business and changed his company name to the Nathan Agencies.
Although he had earned his stockbroker’s license at age 23, it wasn’t much use to him at the beginning of his career, as the college students to whom he sold life-insurance policies did not have money to invest. But after the move to Gatehouse Road, Nathan began thinking long-term.
“I envisioned creating a one-stop shopping place where people could get competent professional help in all areas of insurance and financial planning,” he said.
To that end, he persuaded an attorney to move into the building, and in 1987, he earned a degree as a chartered financial consultant from the American College of Financial Services.
In 2001, the Nathan Agencies expanded again when the Andrew Paddock Insurance Agency Inc. moved into its building. The expansion came about as a result of relationships Andrew’s son, Dean Paddock, had formed with Nathan, Holhut, and Allan. “I had taken over my father’s business in 1990 when he retired, and in 2001, I decided to move the business from Hadley and join Ron, Anna, and Glenn,” Paddock explained.
Today, even though Nathan has realized his dream and is proud that Nathan Agencies offers a wide array of products and services, he still focuses considerable energy on the product he started with — life insurance.
“It should be part of everyone’s financial planning, but many stockbrokers and people with investment backgrounds don’t believe in it or really understand life insurance and its benefits,” he explained. “But people need to have a lot of things in place to be secure — an attorney, a will, guardians for their children, and insurance coverage for their mortgage if they die.
“They also need to think about disability insurance, and, as they get older, they should think about long-term-care insurance,” he went on. “And if they accumulate wealth, they need to make sure they have proper liability in their auto and homeowners’ policies because, if someone sues you after an auto accident or after they slip and fall in your home, you could lose all your assets.”
The trust he has built with clients, a hallmark of the Nathan Agencies, is reflected in relationships formed by employees in all three companies. The businesses continue to grow, and Nathan attributes part of this success to the fact that his broad enterprise is family owned.
“Many family-owned auto and homeowners’ insurance companies have been purchased by other firms and become more of a retail business,” he noted. “But I believe very strongly in personal service, which started with the fact that I grew up in the life-insurance business and brought the same concepts I used with those clients into the property and casualty agency.”
Today, his continued focus on educating and protecting people has made him concerned about people who purchase insurance via the Internet.
“I don’t think it’s necessarily by choice or because they want to,” he told BusinessWest. “It’s because they don’t know where to go, and, as a result, an enormous segment of the population is not getting any financial planning advice or help with insurance.
“But we are a source for that,” he continued. “We have developed trust on both sides of the agency, and because most of our staff has been here for so long, they have had the opportunity to grow in the direction they enjoy the most, and are experts in their field.”

Community Service
Nathan has seen many people suffer as a result of their failure to protect themselves financially.
“So we try to protect people on all sides; the whole concept of our agency is a one-stop place to shop,” he reiterated, adding, “I started from scratch and was the smallest agency in Amherst. Today, we are not the largest property and casualty agency, but between both sides of our business, we do as much business as anyone in the Pioneer Valley.”

Insurance Sections
At Webber & Grinnell, the Devil Is in the Details

Bill Grinnell

Bill Grinnell says his job is to protect businesses, and education is a big part of that.

The sales pitch at Webber & Grinnell Insurance often comes down to one simple question: what are you not covered for?

“That’s part of our renewal process, focusing on what coverage is lacking,” said William Grinnell, who, along with Richard Webber, has led this Northampton-based insurance agency to steady growth for almost two decades. “Business owners get a sense of where they’re exposed, and what they really want to know is what they’re not covered for.”

Take, for example, the broad realm of business-practices liability.

“That’s a huge one,” said Mat Geffin, vice president of business development. “They think, if they’re sued by an employee, their general liability coverage protects them. It won’t. There are exclusions for employment-practices types of claims, like sexual harassment and wrongful termination — those are a totally separate type of policy, completely excluded under your general liability.”

And, in an ever-more-litigious society, that’s no small matter for an employer.

Those suits are frequent; my clients have seen a lot of those this year,” Geffin said. “The more employees you have, the more turnover, the more likely it is that these suits will occur.

“It’s a huge risk,” he added. “I’ve had clients who have done all the right things in terminating a problem employee, but nothing’s stopping them from going to Mark E. Salomone and filing a lawsuit. That’s where that employment-practices policy steps up to protect the company.”

Sometimes, Grinnell noted, employers think they’re doing everything right and don’t believe they’re exposed. “But anyone can sue for any reason, and defense is very expensive and time-consuming” — often to the tune of thousands of dollars small businesses just can’t spare.

Fortunately, he added, the agents at Webber & Grinnell are trained to think like underwriters; in fact, even the most dynamic salespeople won’t get hired if they aren’t able to dig into the fine print of an 80-page policy, understand its strengths and weaknesses, and make sure clients understand them, too (more on that later).

“We help them understand that everyone out there has different risk tolerances,” Grinnell told BusinessWest. “Our job is to help them make an informed decision about what insurance they’re going to purchase.

“Our obligation is, obviously, to protect those businesses,” he added. “They had better be protected right, or we’re exposed, too.”

Digging Deep

Grinnell said his agency focuses on the property/casualty market. “Our main lines of coverage are workers’ compensation coverage, commercial property, and general liability,” as well as home and auto insurance.

On the business side, he said, some nuances have changed the game over the past decade or so. For example, workers’ compensation has become much more complex, and many employers’ policies are fraught with mistakes in classification or experience modification calculations — although companies are becoming more savvy on these matters.

Mat Geffin

Mat Geffin says cyber liability is one of the hot insurance trends that companies of all kinds need to be aware of.

From a liability standpoint, said Geffin, there’s more of a trend toward cyber liability, with more companies, especially retailers, doing business online. “It’s an area of growth in the insurance industry — you see all these lawsuits; you see Target losing millions of customer records,” he noted. “What happens when small businesses in this area are being hit with some of those exposures? They’re not all covered for it, and that’s the new thing we’re talking to people about.”

On the personal-lines side, Grinnell said business is always changing. “It’s been ever-more competitive with the introduction of competitive auto rates several years ago, so we battle with that.”

In the midst of such competition, Geffin said, “I do believe a differentiator for us is our knowledge, being a pure coverage insurance agency. We’re not out there just hawking prices. We really do take a hard look at the coverage, talk intelligently, take an underwriter’s approach to it. Bill and Rich were both underwriters, and were trained to look at risks like underwriters.”

Indeed, Grinnell’s first job after graduating from college in 1984 was with United States Fidelity and Guarantee Insurance in Boston. He received in-depth training there, which provided him with advanced knowledge of how policies are constructed. Webber had similar training experience at Aetna as an underwriter, and Grinnell attributes most of the company’s success to an ability to carefully examine policies, because, while clients are expected to read their policies, he realizes that they don’t always understand them.

Grinnell purchased his father’s agency, then known as Woodward and Grinnell, in 1997, and soon after teamed up with Webber. Their relationship has been synergistic, with Grinnell focusing on sales, and Webber spearheading office adminstration, technology, and relationships with larger carriers. Last fall, Grinnell became the company’s sole owner, and Webber is now vice president of operations.

Unlike insurance agencies that use a cookie-cutter approach to policy writing, Grinnell said, his salespeople are required to take a highly individualized approach.

“Everyone has different problems, and you’ve got to identify what the issue is and then capitalize on it,” he explained. “It might be a service issue, it could be a problem they had with a claim, a coverage issue … any of these things.”

One of the firm’s advantages is the number of commercial markets it represents, he added, and the leverage that brings. “As opposed to a smaller agency, we have dozens of different commercial insurance companies to approach, and we can get a good, competitive package from one of them.”

Knowledge Is Power

But Webber & Grinnell brings knowledge and information to its clients beyond crafting their policies.

Significantly, the company sends clients something called Business Digest, a national insurance newsletter agencies personalize according to their own needs. “Sometimes it contains timely topics concerning insurance coverage,” Grinnell said, “and sometimes it focuses on insurers and best practices and what we’re doing well to manage a particular risk they might have in their business.”

Over the years, the firm has also established informational hotlines for OSHA and human-resources matters, a workers’ compensation hotline staffed by an attorney in that field, and seminars on topics ranging from sales fundamentals to hiring rights to corporate leadership — all these efforts geared toward moving beyond the insurance relationship and becoming more of a partner with clients, to help their businesses run smoothly.

All those efforts are part of growing Webber & Grinnell, both in size and in scope of services, Geffin said. “We have a lot more competition that has come in with the direct writers, like Geico and Progressive. But we’re trying to grow.”

One reason that’s a challenge, Grinnell said, is that the agency is extremely cautious in its hiring process. “We’re very selective about who we take on. We’re trying to find a salesperson who fits our culture, and it’s very difficult. We get a lot of people in the door, but we don’t take many.”

The reason has to do with the dual nature — personal and technical — of what the company demands.

“You’ve got to be bright, and you’ve got to work hard,” he told BusinessWest. “And you’ve got to be a person who’s able to handle the technicalities of the insurance world and all the little details in the policy, and, at the same time, get along with people, communicate well with people, and build firm relationships.”

Geffin agreed. “It’s very much a hybrid type of role,” he said. “A lot of salespeople are not good at the technical standpoint, that other side of reading the contract language and interpreting the contract language. There might be hundreds of pages, and 100 ways you can write it depending on the risk. You need a very special person, and it’s very hard to find that mix.”

Even for employees who don’t deal directly with clients, the standards are high, Grinnell said. “Internally, we’re looking for a slightly different skill set, but, again, we test everyone who comes in here, interview them several times, check their references. We’re very selective about hiring. And I think that gives us an advantage.”

Giving Back

With so many human needs in Western Mass., the company also has to be selective about its charitable efforts, which Grinnell said have long been a part of the agency’s culture. These days, for example, Webber & Grinnell heads up campaigns for United Way of Hampshire County and United Way of Pioneer Valley, among other efforts.

“I don’t know if this is true for a lot of agencies, but we do a lot philanthropically in the Valley,” Geffin said. “It’s a huge commitment. Bill and Rich have always led by example, by giving back to the community that supports us. I think that’s a good message.”

It’s just one more detail that this insurance company strives to get right.

Joseph Bednar can be reached at [email protected]

Insurance Sections
Phillips Insurance Agency Specializes in Surety Bonds

Joseph Phillips

Joseph Phillips says the bonding process, while complex, should be considered an opportunity for businesses, not an obstacle.

Joseph Phillips is drawing a triangle to illustrate how a surety bond works. One leg is upheld by a contractor, and the other is held by a bonding company. The business owner, city, or agency that hired the contractor sits at the top.

The president of Phillips Insurance Agency in Chicopee explained that a surety bond is a type of guarantee, and if the contractor fails to complete a project, the owner can go directly to the surety bonding company to remedy the situation. “Surety is defined as a third-party guarantee, and the surety bonding company guarantees that the contractor will perform the work as stated in the contract,” he said, adding that this includes paying subcontractors and suppliers.

Although the concept is not difficult to understand, Phillip says confusion and misperceptions exist about the prequalification process required to post a bond. He admits it takes time and can be frustrating, but contractors who complete it have an edge in an industry that has become increasingly competitive. Bonds allow contractors to work in both public and private sectors and thus weather changes in the economy during an era in which more and more owners and banks require that projects are bonded.

Phillips is passionate about his work, and he and his 18 employees have spent close to two decades educating and helping clients complete the bonding process, which many don’t attempt because they consider it too complex or difficult.

But Phillips says it is a good investment of time. “People should not consider it an obstacle, but an opportunity to expand their business,” he told BusinessWest.

He has been dealing with surety bonds since he graduated from college, and today, due to his efforts, Phillips Insurance has become one of the largest bond and construction insurance writers in the Northeast. “We have the same expertise in surety bonds and risk management for contractors as our competitors in New York and Boston, and can respond to needs whether they are simple or complex,” he said.

Although his agency also writes automobile, home, and business insurance policies and serves 150 clients in 12 states, 80% of its work is with bonds.

Phillips does what it takes to attract and retain clients, and that includes meetings at 5:30 a.m. in a wide variety of places, including airports. “I’ve written bonds for contractors in Las Vegas whom I have never met,” he said.

Jocelyn Keech

Bond Administrator Jocelyn Keech is one of 20 employees at Phillips Insurance Agency in Chicopee.

He takes great pride and satisfaction in connecting clients with the companies that offer these third-party guarantees. What sets the company apart from the 38,000 other insurance agencies in the U.S. is that it is a member of the National Assoc. of Surety Bond Producers, Phillips said, adding that the organization has fewer than 500 members due to the difficulty of fulfilling its requirements. He is past president of the Surety Assoc. of Massachusetts, and has earned both his AFSB (associate in surety and fidelity bonding) and CRIS (construction risk and insurance specialist) designations.

Phillips advises contractors who are unfamiliar with the bonding process to visit his agency’s website — www.phillipsinsurance.com — and read the publication link titled “Your First Bond,” as well as other educational material posted there.

Changing Direction

Phillips Insurance Agency celebrated its 60th anniversary last year by giving $1,000 each to 10 nonprofits that were nominated by their clients, then voted on by the public. Winners included the Boys & Girls Club of Chicopee, the Constanza Medical Mission, the Assoc. for Community Living, the Sisters of St. Joseph, Camphill Village USA, and others. In addition, the agency donated $1 to Shriners Hospital for every ‘like’ it received on its Facebook page.

The company dates back to 1953, when Joseph’s father, Cornelius Phillips, purchased the William J. Fuller Agency in Chicopee. The Fuller Agency had been in business since 1898, and Cornelius renamed it and chose to focus on auto and home insurance.

A major shift occurred when Joseph took the helm after his father’s death in 1997 and put his focus on the surety bond market.

He had worked for Fidelity and Deposit Co., which is the oldest bonding company in the U.S, after graduating from college, then was employed as a bond writer for Liberty Mutual before he returned to Chicopee to join his father in business.

The company has always valued its employees, and when Joseph joined his father, there were only two employees. They included 52-year-old Jeanne Jones, who was employed by Cornelius at age 16 and is still working at the agency.

“We also have three employees who work remotely,” Phillips said, noting that he chose to keep these individuals when they moved from Western Mass. to distant states.

Phillips also places a high value on education, so the agency’s website contains a wealth of information about the bonding process. In fact, he finds great satisfaction in helping people obtain their first bond.

“It’s intimidating for small companies — the process can be confusing, and many people don’t think they can get a bond,” he said, adding that the agency receives a number of referrals from local certified public accountants and commercial lenders. “But if the person goes through the steps and understands what is required, they leave behind a slew of competitors who failed to do what is required to bid on public projects.”

Phillips said surety bonds resemble an extension of a line of credit at a bank, and the practice of issuing them dates back to ancient Egypt. They have been used throughout U.S. history as well. In fact, Franklin Delano Roosevelt was bond manager for Fidelity and Deposit Co. in New York from 1921 to 1928 before he was elected president in 1932. Three years later, passage of the Miller Act in the U.S. made it a legal requirement for a bond to be issued for all federal public works projects that exceed $100,000.

Phillips admits that trying to get a bond for the first time can be a frustrating process for people who don’t understand what is needed. “When a surety company underwrites a new account, they are looking for the three Cs  — capital, capacity, and character — or the moral and ethical nature of an individual or business entity,” he said. He defines ‘capital’ as a measure of the contractor’s ability to do the work, their working capital, and bank support; ‘capacity’ as their ability to perform a job, which includes their experience, people, and equipment; and ‘character’ as the contractor’s moral or ethical nature and reputation.

In order to gather that information, his agency becomes deeply involved with clients. “We learn the history of their company, their financials, their capabilities, and their failures and successes. We become trusted advisors, like certified public accountants or attorneys, and we have a very high retention rate,” he said.

After the agency gathers all it needs from the person or company, employees analyze and review the material. When that is complete, Phillips determines which bonding company will best serve the client’s needs. “We have the experience to see that the client is placed with the bonding company that matches up best with their type of construction, size, program, and financial position,” he said.

The final step involves submitting a recommendation and the required documents to the chosen bonding company and working out a program for the client. Phillips has access to most of the top 25 surety companies in the country and also offers complimentary products such as builders’ risk, railroad protective coverage, pollution liability, and more.

Projects for which Phillips Insurance recently executed bonds include:

• An $11 million bond guaranteeing the reconstruction of the William F. Davitt Memorial Bridge in Chicopee on behalf of the Mass. Department of Transportation;
• A $10 million bond for the Central Campus infrastructure project at UMass Amherst;
• A $35 million bond for a state utility company for an infrastructure project;
• An $11 million bond written for the masonry portion of the $100 million Commonwealth Honors College Complex at UMass Amherst; and
• A $12 million bond written for a HUD housing project in Greenfield.

Phillips has also written bonds for clients on projects nationwide. They include various clients at the $10 billion Global Foundries project in Malta, N.Y., as well the granite contractor at the Cosmopolitan in Las Vegas.

“We’ve bonded projects from $100,000 to $50 million, and have written bonds for subdivisions, landfills, and solar projects,” he said.

And new work is expected after a license to build a casino in Western Mass is issued, as widely expected. “We’re excited about it. It will be a $500 million-plus project, and if the owner decides to protect the project by bonding the contractors working on it, we will benefit,” said Phillips. “We’ve also seen a lot of activity in solar-field construction, which we expect to be a big part of our bond writing over the next three years.”


Promising Outlook

The Phillips agency’s business in surety bond premiums increased by 30% last year from the year before, and it continues to acquire new accounts.

Phillips wants to expand across the nation, and to that end, he is creating a new website — mybonddept.com — to help agencies that lack the expertise to serve clients who need bonds. “We want to split the commission without taking the business away from them.”

He acknowledges that bonding is a rigorous underwriting process and says an annual review is important. “But I tell new clients to hang in there, because once you accomplish this, you have an unlimited ability to work. It opens up so many doors.”

Insurance Sections
If the Answer Is ‘No,’ the Consequences Could Be Costly


By MICHAEL LEVIN

When it comes to cyber security and data breaches, no system is infallible. Some of the largest companies in the world have been victims of data breaches.  Recently, the Swansea, Mass. Police Department contracted the CrytoLocker computer virus, and paid ransom to gain access to their files.

While large breaches like those at Target, Neiman Marcus, and Yahoo! receive great media attention, smaller breaches occur daily without much fanfare. A common misconception is that malicious hackers target only large companies. However, small and mid-sized companies are often perceived — for good reasons — as easier targets due to their limited IT resources.

What is the incentive for criminals to steal data? There is a large black market for stolen identities. Some estimates put the value of stolen personal identifiable information (PII) and personal health information (PHI) at $5-$10 per record, depending on the information. Malicious hackers who gain access to computer systems have the potential to modify accounts-payable data and change bank routing numbers.

Human Error

Another common misconception is that most breaches result from a hacker sitting behind a computer in some foreign country. Malicious hacker activity has and will continue to occur; however, some studies estimate that approximately 50% to 60% of breaches result from simple human and system errors.

For example, unencrypted laptops and smartphones that are lost or stolen pose a large threat, as do data backups brought home by an employee for off-site storage. Lost or weak passwords continue to be an issue as well. It’s fairly common to see a sticky note on an employee’s computer monitor with their username and password to access the enterprise software system (hopefully not the controller).

In addition, people often mistakenly send e-mails to someone other than the intended recipient. How many times have you replied to an e-mail that started with, “I think you meant to send this to another person?” If the e-mail contains PII or PHI, this may be a breach.

Not understanding the technology in your office can also result in a breach. Affinity Health Plan Inc. settled with the U.S. Department of Health and Human Services (HHS) for $1.2 million when it returned leased photocopiers with 344,579 personal health-information records on the copier’s hard drives (yes, modern copiers have hard drives that store data).

Human error breaches are not limited to digital data. Improper disposal of documents that contained PII or PHI has led to breaches. The list of exposures on the human-error side alone is limited only by one’s imagination.

Cyber Risk Management

Implementing preventative measures, best practices, and a strong backup solution help reduce, but not eliminate, the risk. An incidence-response plan that details responsibilities and vendors is crucial to quickly address a breach and to avoid panic buying. Many state laws have time deadlines for certain actions.  The clock is ticking once a breach has been identified. A written policy and plan detailing security measures will be of assistance should you be interviewed by the Office of Civil Rights, HHS, or the state attorney general.

Potential Cost of a Cyber Incident

Expenses from a data breach or a cyber incident vary and can be quite high. Beyond the intangible cost associated with the loss of consumer confidence, organizations may face lawsuits, regulatory expenses, regulatory-defense costs, notification costs, and business-interruption losses.

In order to limit the damage, organizations often hire public-relations firms, outsource call centers, provide credit monitoring for at least a year (required by law in some states), and provide identity-fraud insurance.

Forensic specialists may be required to identify and remediate the source of a breach that results from an organization’s computer systems. Again, the clock is ticking. Not finding and resolving all the issues with a system creates further exposure down the road.

As discussed earlier, part of a comprehensive cyber risk-management program is to have a good backup solution and to monitor it regularly to ensure that data is consistently backed up. Without a solid backup strategy, organizations may incur data-restoration and computer-program-restoration expenses — assuming the data and programs can be restored.


Cyber-liability Insurance

It is important to understand that a general-liability insurance policy typically does not respond to cyber exposures. Available cyber-liability insurance coverages include network and information-security liability, security-breach remediation and notification, hacker damage, crisis-management expenses, business interruption, cyber extortion, media, data restoration, and computer fraud.

Today’s cyber-insurance policies are flexible so that you can choose coverages based on your unique needs, exposures, and risk tolerance. Developing a meaningful cyber-insurance program requires an understanding of an organization’s IT systems, data-security best practices, and level of employee education.

In Summary

Whether or not they realize it, most organizations, no matter the size, have some sort of cyber-security or data-breach exposure. If you store personal identifiable information or personal health information, your risks increase exponentially. And these risks are here to stay.

There are far too many cyber-security exposures to be covered in a single article. It is important to work with an insurance agent who is capable of understanding your exposures and who can match insurance coverages and carriers to meet your unique needs. A properly structured cyber-liability insurance policy can be an important element to an organization’s overall cyber-risk-management program and long-term sustainability. n


Michael Levin is an account executive at the Dowd Insurance Agency, a full-service agency providing personal, commercial, and financial-planning needs, with six offices in Western Mass.; (413) 538-7444; [email protected]

Insurance Sections
Severe Storms Are Creating a Trickle-down Effect on Policy Holders

Jim Phaneuf

With past and future storm damage in mind, Jim Phaneuf says, the state attorney general and insurance commissioner are making sure that carrier premiums and rate increases are justified.

When Jim Phaneuf references the weather, he’s certainly not making small talk.
Rather, he’s discussing big business — the insurance business, which he’s been in for more than 36 years, enough time to see everything, or just about everything, in this industry.
Indeed, over the past several years — and one year in particular, 2011 — Phaneuf, president of Bell & Hudson Insurance Agency in Belchertown, and others in this sector have seen things they’ve never seen before in terms of weather calamities and the resulting impact on the companies that write the policies and the consumers who purchase them.
‘Historic’ is the word he and others have used to describe it all — meaning everything from 2011’s ice dams, tornadoes, hurricane, and freak October snowstorm to subsequent weather events such as Superstorm Sandy in the fall of 2012, and the general consensus that this part of the country will see more of the same in the years to come.
But instead of words, Phaneuf and others like to use numbers to get their points across.
“Between 1980 and 2012, there were 123 U.S. weather-related events that resulted in claims of over $1 billion,” he told BusinessWest. “In 2011 alone, there were 12 U.S. weather-related disasters with over $1 billion in claims, and that caused insurance companies to raise rates to attempt to recover their losses. Our experience has been that most home-insurance customers have experienced rate increases in the past two years, largely as a result of the storms of 2011 and 2012.”
Corey Murphy, president of First American Insurance Agency in Chicopee, agreed, noting that 2011 was a banner year for weather-related claims in this region and others, and the impact from those losses will be felt for some time.
“I knew the insurance companies were going to have to respond — it was a catastrophic year; we had pretty much every natural disaster you could have,” he said, noting that rates have escalated for business and residential policy holders alike, between 3% and 6% on average.
The numbers vary, he said, because in many instances, an agency can sometimes shop for and get a better price, even at a time when many carriers are still struggling to recover losses. Meanwhile, agents can work with clients to lower their insurance bills by making sure they’re buying only what they need, passing on what they don’t need, and employing strategies such as bundling policies, taking higher deductibles, and avoiding marginal claims that will nonetheless trigger premium hikes.
Corey Murphy

Corey Murphy and his staff have kept their commercial and residential rate increases from storm damage as low as possible by shopping their policy needs with a variety of carriers.

Overall, he said, this is a time for consumers to renew — and tighten — their relationship with their insurance agency, because if predicting the weather is difficult, if not impossible, so too is gauging and minimizing the impact of all that weather on one’s insurance bills.
For this issue and its focus on insurance, BusinessWest takes an in-depth look at what has become a perfect storm — in every aspect of that phrase — for insurance carriers, and a time of challenge for those looking to protect their assets and manage the cost of doing so.

Climate Change
Recapping recent events, meaning those of the past few decades and especially the past few years, those we spoke with said things have become more unsettled.
They used that word to refer to both the weather — which, in the opinion of many, is being increasingly impacted by global warming — and the fiscal health and well-being of insurance carriers.
Indeed, due to the recent spate of weather calamities, most insurance companies will not write polices for hurricane-prone coastal properties in the Carolinas, Georgia, Florida, and Texas, said Bill Grinnell, president of Webber & Grinnell Insurance Agency in Northampton. So the states have created their own insurance mechanisms and set up rules, collecting premiums from property owners and assessing surcharges to those insurance companies that do business in other regions of those states.
“There is a wide belief that these storms are caused by global warming, which makes the weather less predictable and insurance outcomes less predictable,” Grinnell explained. “As a result, more revenues are needed to create reserves to cover the potential for more disasters, so there’s definitely been an uptick in the cost of insurance.”
According to a 2013 report, “Inaction on Climate Change: the Cost to Taxpayers,” by Ceres, a nonprofit organization advocating for sustainability leadership, the total loss exposure of these state-run insurance plans in the past 20 years has risen by 1,550%, from about $40 billion in 1990 to more than $600 billion in 2010.  Additionally, the report says only 50% of the damages in the U.S. caused by extreme weather events are privately insured, which leaves the federal and state governments (the taxpayers) to pick up the remaining tab.
Insurance companies, said Grinnell, earn revenue in two ways: premiums, of course, and conservative, low-risk investments, primarily in the bond markets.
With the historically low rates of return on bonds, insurance companies are not earning as much as they have in the past, and at the same time, they’re seeing higher bills from their reinsurance companies after paying out billions for just the past two years’ worth of catastrophic storms.
“So the reinsurance companies that provide the insurance for your insurance carrier for big disasters have increased their rates to the carriers, and those rates have been passed right down to the policyholders,” Grinnell explained, adding that the regional carriers in New England that do business in Massachusetts weren’t directly affected by Hurricane Katrina or, to a great degree, Superstorm Sandy. “So the majority of the storm-related increases are due to more localized events.”
Locally, Phaneuf added, state Attorney General Martha Coakley and Commissioner of Insurance Joseph Murphy are making sure carrier premiums and rates are justified.
“The attorney general seems to have served as a watchdog with the insurance issue,” he said, “to keep insurance companies’ rising rates in check.”

Policy Statement

Bill Grinnell

Bill Grinnell says insurance carriers are getting hit with higher rates from their reinsurance companies and passing these increases down to policyholders.

In this changing climate — for both weather and insurance to cover the damage it causes — Grinnell said agencies need to work even more closely with clients to reduce the impact on premiums while making sure customers’ bases are covered, literally and figuratively.
For instance, when his staff sees a client’s premiums spike significantly, they will attempt to shop that business around to get similar coverage, but at a better rate.
“We try to find a better home for their insurance if we’re able to, which we can some of the time, but not all of the time,” he said. “It’s definitely worth the effort if the insurance is going up more than 7% or 8%.”
Murphy agreed, but noted that there is seemingly less room for negotiating between agency and carrier in this environment, adding that this is another sign of the times and a product of the more adverse conditions within the industry, even though the weather has been much calmer this year.
“There’s a lot less back-and-forth over the last year or two. Now, there’s a lot less room; they’re pretty firm on what their prices are,” he said. “This year, it was a pretty mild year, but there were predictions that storms would increase, so there were a lot of adjustments by carriers based upon that.”
Those adjustments, Murphy went on, have appeared as higher premiums and a much harder look at what policies companies will underwrite. He called it “getting tighter.”
When Murphy and his agents present a potential policyholder to an underwriter — the person at the carrier who will decide how much to charge on the commercial lines, or even if they’ll write it or not — they want a much clearer picture of what they are writing.
“So, as an agent, we’re trying to present the best possible picture of that potential client,” he added. “The more you can make an underwriter feel comfortable about what they are writing, the better they feel about doing it.”
Meanwhile, agents can work with clients in a number of ways to help control their insurance bills without reducing coverage, said Phaneuf, listing several possible ones, including a willingness to accept a higher deductible.
“They generally mean lower annual premiums, but more out of your pocket when you have a loss,” he explained. “Your agent will also make you aware that you can control premiums by bundling discounts for your home and auto and installation of alarm systems, renewing your policies with the same insurer, and maintaining a loss-free status.”
Elaborating, he said that going years without filing a claim can lead to attractive discounts, savings that could more than offset the long-term costs from filing a claim in an instance where the damage only marginally exceeds the deductible.
In addition, Murphy told BusinessWest, he and his agents make sure their business clients are updating their product inventory and specific elements that they need for doing business.
“Business owners have to understand what their business is rated on,” he noted, adding that some standard ratings are based on square footage, which doesn’t change unless there is an expansion or a move, but other things do change, like real-estate values, replacement costs, inventory levels (up or down), or an increase in sales, all of which accurately reflect the business’s exposure.
The First American staff helps educate their commercial clients about keeping up with the current state of their property and business.
“If you don’t respond to your carrier with any updates, then they assume that all remains the same, and you could be paying more when you shouldn’t have to,” said Murphy. “But you don’t want them to be caught underinsured.”

Batten Down the Hatches
Grinnell and others we spoke with said their background is in business and insurance, not climatology or meteorology.
Predicting the weather is more difficult than ever, he noted, adding that even those with degrees in those subjects can’t say what will happen next year or over the next decade. The best thing to do is be prepared as much as possible, and that philosophy extends to the realm of insurance.
Phaneuf agreed, adding that, when it comes to weather patterns that are predicted to cause havoc in the future, protection of one’s home or business is, now more than ever, a complex business transaction.
“It cannot be effectively and appropriately done in 15 minutes,” he said. “In spite of what some national insurance carriers would like to have you believe, it is not a simple transaction like buying laundry detergent or breakfast cereal. If you treat it too lightly, you may not have the protection that you need when you need it … at a time of great loss.”

Elizabeth Taras can be reached at [email protected]

Insurance Sections
How to Reduce Stress and Optimize Outcomes in Filing Insurance Claims

John E. Dowd Jr.

John E. Dowd Jr.

Let’s begin with the premise that insurance companies are in the business of paying claims, pure and simple. However, as most people are aware, the process of filing and then being paid for compensable claims is not always easy or convenient, depending on the size and nature of a claim.
We try to advise our clients at the outset of every claim of the appropriate steps they need to take to make sure things go as smoothly and quickly as reasonably possible. We also try to carefully manage people’s expectations for how the claim process will go, as well as the eventual payout amount they can expect. Unfortunately, some insurance companies handle claims better than others, and you need to rely on your insurance agent/broker to properly represent you both at the time you choose your insurance company and when a claim has occurred.
Many of the complaints insurance companies receive each year are from customers who are unhappy about claims handling. For many years, one of the top complaints people have regarding the claims process is a delay. When people are dealing with the issues that made them file a claim, it can be frustrating to handle the insurance claim on top of that. For this reason, it is important for all policyholders to be prepared. One of the best ways to do this is to make sure all of the information the insurance company would need is always available.
Policyholders should keep this information in a safe place where it will not be lost or forgotten. The following suggestions are also helpful.
• When filing claims, make sure they are submitted promptly. Call your agent/broker immediately after something happens that warrants a claim. Letting receipts pile up can cause more delays. If temporary repairs are put off or are not completed, the initial damage to the home could worsen. For example, water damage that is not addressed promptly could lead to problems that cost more money and may create coverage issues.
• Understand the policy. It is important for every individual to know what his or her policy says. Knowing what is covered and what is not covered makes it much easier to know what to expect when damage occurs. Waiting until a disaster happens to read through the policy will only result in further frustration. Talk with your agent/broker ahead of time so he or she can explain your coverage and answer questions.
• Use correct and complete information for the claim. Using incorrect or incomplete information will result in processing delays. Check all of the information for accuracy twice before submitting it, and make sure everything that is required has been provided.
• Keep records of all forms of correspondence. When making calls, sending e-mails, or receiving letters, make sure each one is recorded. Write down the date, the form of correspondence, the name of the contact person, and the subject of the correspondence. If there are any important details, include these in the notes. Policyholders should always ask questions and address any disagreements promptly.
• Keep records of temporary repairs. Some types of damage warrant immediate but temporary repairs. If this is the case, it is important to document any work that was done and who completed it. When purchasing supplies or services, save the receipts. Taking photos or videos before and after the repairs is also helpful. Homeowners should never make permanent repairs. Policies cover only necessary temporary repairs. Those who want to know how much it will cost to complete permanent repairs should arrange for one or more adjusters to provide quotes.
• Verify any denials. If a claim is denied, politely ask for the language in the policy that reflects why it was denied. Your agent/broker will assist you in confirming the accuracy of the coverage denial.
• Never rush into a settlement. When a settlement offer does not seem fair, contact your agent/broker immediately to discuss the matter.
• Ask for information to be released for health claims. If medical help was needed due to the reason for the claim, it is important to ask a medical provider to release relevant information. When policy holders suspect that a medical provider is overcharging, an insurance company may audit the bill upon request.
The claims process is a stressful one for many people. With proper preparation, this stress can be reduced significantly. The most important thing to remember is that your agent/broker is always available to help during any part of the process, so do not hesitate to contact your agency when questions arise.

John E. Dowd Jr. is a fourth-generation principal of the Dowd Agencies. He is one of three partners at the oldest insurance agency in Massachusetts with operations and management under continuous family ownership. The Dowd Agencies is a full-service firm providing personal, commercial, and financial-planning needs, with four offices in Western Mass.; (413) 538-7444; [email protected]

Insurance Sections
Leverage Your ‘Mod’ Squad to Keep Workers’ Comp Costs Down

By BILL GRINNELL

When Red Sox pitcher John Lackey grabbed his right arm in pain and walked off the mound in his first game of the 2013 baseball season, I can imagine that the Red Sox management held their breath.  He had missed all of the 2012 season. They had just invested a year in getting Lackey healthy, including costly surgery and extensive rehabilitation.
During that year, Red Sox management diligently followed Lackey’s progress. They encouraged his return as soon as possible. And, after learning that his pain that day was just a bicep strain, they had him up and throwing again 10 days later. He was back in the rotation to beat the Houston Astros just three weeks after the strain.
If you have an employee on your company’s disabled list, you would do well to follow the Red Sox management’s example.
Sidelined employees are not only a drain on productivity, but they can also quickly escalate your workers’ compensation costs. Keeping tabs on these employees’ healing process and getting them back to work as soon as possible are key to reining in those costs.
The factors that drive workers’ compensation costs are many and complex. Understanding them is important. You can’t manage what you don’t know.
Generally speaking, workers’ compensation policyholders with an insurance premium over $5,000 are subject to the Mass. Workers’ Compensation Bureau experience-modification rules. These rules establish an experience-modification factor (or ‘experience mod’) that is used to calculate your workers’ compensation insurance premium.
Like auto-insurance rates, experience mods are designed to make premiums cost more for those insureds with adverse loss experience and reward those with better-than-average experience.
The formula for your experience mod takes into account the frequency and severity of your losses compared with similar-sized companies in your industry. The bureau uses policy-holder loss data that is reported by insurers every year to calculate the experience mod.
The bureau looks at a three-year period of losses to minimize the effect of an extreme year (good or bad). The three-year period covers the three years prior to the last policy year completed. For example, an experience mod calculated on Jan. 1, 2014 will take into account the data from the policy years Jan. 1, 2010 to Jan. 1, 2011; Jan. 1, 2011 to Jan. 1, 2012; and Jan. 1, 2012 to Jan. 1, 2013.
A ‘snapshot’ of the losses is taken six months into a policy term and then reported. It’s important to attempt to close out open claims or question high reserves prior to this six-month snapshot event.

How It Works
Let’s talk about how the experience mod works and then get to how you can control your workers’ compensation premiums.
Remember how I said that the experience mod takes your frequency and severity of losses and compares them to what would be expected of a company of your size in your industry?
Well, if your actual losses are lower than expected, your experience mod will be less than 1.0, yielding a credit factor. The credit factor is applied against the standard premium and will save you money.
If your actual losses are greater than expected, then your experience mod will be more than 1.0, generating a debit factor. The standard premium would then be multiplied by the computed debit.
In Massachusetts, it is important to understand the dramatic impact that small losses can have on an experience-mod calculation. The full brunt of a loss up to $5,000 is added into the equation. The amount of a loss above $5,000 is discounted by factors near 80%. Two $5,000 losses produce a significantly higher debit than one $10,000 loss.
Experience-mod calculations are more sensitive to adverse loss experience today than ever before. While our elected officials can claim that Massachusetts has some of the lowest workers’ compensation rates in the country, you won’t hear them talking about mod calculations. Favorable rates have been significantly offset by experience-mod surcharges.
Loss-control programs, safety manuals, and light-duty return-to-work plans are all important ingredients toward achieving a lower mod. Tactics like these and others can be your ‘mod squad’ and help you keep workers’ compensation premiums down.
But most important of all, be careful who you hire.  New hires have consistently been the source of the worst workers’ compensation claims. Your hiring process is the key to your workers’ compensation experience-mod success.
With a selective hiring process, diligence with employee safety, and support to get injured and ill workers back on the job, you can keep your experience mod in check — and hopefully get World Series-winning performance from your employees!

Bill Grinnell is president of Northampton-based Webber and Grinnell Insurance Agency; [email protected]

Insurance Sections
Cyber Liability Is the Hot Trend in Business Insurance

Cyber TheftEven one electronic security breach is a headache for businesses that store their customers’ financial records. Millions of thefts? That’s much worse.
“They’re like mosquitoes,” said William Trudeau, president of the Insurance Center of New England in Agawam. “It’s one of those things where one or two bites isn’t too bad, with five bites, you’ve got an itch, but if you have 5,000 bites, you might die. For a small bank, if someone steals 100 ATM cards, it’s going to be not fun. But if, all of a sudden, they steal the records of 20,000 ATM cards and are withdrawing money all over the world for two days, it could get ugly.”
It’s not just banks that worry about such breaches. Large retailers, which keep the credit-card records of their customers on file, are at risk as well, as the TJ Maxx incident that came to light six years ago.
In that case, hackers gained access to company databases in 2005 and stole the personal information of more than 45 million credit and debit cards — but the company didn’t discover the theft until two years later. TJ Maxx later claimed that 75% of the cards were either expired at the time of the breach, or the personal information on them was masked. But the international ring of thieves did use much of the data to enrich themselves before they were arrested — and the various consequences of the incident eventually cost the clothing chain more than $130 million.
“After the TJ Maxx incident, Massachusetts law mandated self-reporting and potential fines per incident,” Trudeau said, but the costs stemming from such a breach can range widely, from PR work to restore brand reputation to individual and class-action lawsuits.

Bill Trudeau

Bill Trudeau says companies victimized by hackers can run up massive expenses even before customer lawsuits arrive.

“Say a company wants to rectify things, says that it won’t happen again,” he continued. “So they pay for two years of ID theft protection for anyone who wants it. Then you need to do notification by third-party certified mail to all customers. Say I’ve got 30,000 records, so I’ve got to send out 30,000 pieces of mail from a certified facility, costing maybe $90,000. Then, how many will take me up on two years of identity-theft protection? Maybe 10%?
“What you have here are first-party costs,” he went on. “It’s not someone saying, ‘OK, I lost 20 grand, and now I’m suing you.’ You’ve got a lawyer in your office saying you need to do certain things now, even though there’s no lawsuit yet. But who’s going to pay the $90,000 for mailings? Who’s going to pay for the ID-theft protection? There’s a huge potential for loss, even before the lawsuits arrive.”
As a result, cyber liability is one of the hottest terms in the insurance world, one that agents have been busy telling their clients about.
“We’ve been concentrating on this kind of insurance,” said Robert Gilbert, president of the Dowd Insurance Agencies in Holyoke. “I read four trade publications each week, and every single one, every week for the past year, has had an article about what we call cyber-liability insurance. That includes Internet liability, cyber-security … anything that can attack your computer and cause loss of data.”
And businesses make a mistake if they assume that large, national retailers are the only ones at risk. Verizon issued a report on data-breach investigations last year that analyzed data from 855 reported incidents that resulted in 174 million compromised records in 2011. That study revealed that 71% of breaches struck organizations with fewer than 100 employees.
Bob Gilbert

Bob Gilbert says his agency has been busy informing business-insurance clients of the need for cyber-liability coverage.

As a result, Gilbert said his agency has been busy notifying its clients about cyber threats and the insurance products available to protect them, noting that banks, retailers, restaurants, and medical businesses are among those with the most potential threat exposure. “We’re talking about businesses where customers are using credit cards. That data is capturable. Large retailers are constantly taking credit cards because that’s how most people pay for things. So it’s significant.”

Growing Concern
Earlier this spring, Best’s Review cited several recent surveys that shed light on the extent of the cybercrime problem and how it concerns businesses. For instance, a survey by American International Group found that corporate executives are more concerned about cyberthreats than any other major business risk, with 85% of the 258 surveyed saying they are ‘very’ or ‘somewhat’ concerned about it.
Meanwhile, a Deloitte Tech Trends poll of 1,749 business professionals found that 28% of those surveyed reported at least one known cyberattack in the past year; 9% reported more than one breach. And those are just the known cases.
According to the Ponemon Institute, which has been reporting on the cost of cybercrimes for the past three years, the average cost to a company from data theft is $194 per record breached — meaning it takes just 515 such records stolen to reach a six-figure loss, a tough pill to swallow for small to mid-sized companies.
That’s why cyber-liability insurance is so important. Trudeau cited one product his company promotes, Beazley Breach Response, which covers many of the first-wave expenses of cybercrime, including notification and credit-monitoring services for up to 5 million affected individuals, as well as forensic and legal assistance, PR costs, and other benefits, with separate coverage limits for third-party claims.
“Many policies offer first-party coverage — that is, they will pay you for things like business interruption, the cost of notifying customers of a breach, and even the expense of hiring a public-relations firm to repair any damage done to your image as a result of a cyber attack,” business-technology writer Minda Zetlin noted recently in Inc. magazine. “Having this cash available in the event of a crippling hack can keep the lights on until you’re able to resume your normal cash flow. A good policy can even cover any regulatory fines or penalties you might incur because of a data breach.”
Early response, aided by such coverage, can be critical, Trudeau said. “Depending on how good the response is, you don’t always get to the liability point if you self-report that you’ve had a breach.”
Considering the rate at which businesses are attacked and hacked, Gilbert said, it’s tremendously risky for companies that store sensitive data to ignore their need for cyber-liability coverage.
“When private data has been hacked, the expense to go through it is tremendous — you have notify all the people in the database, there are advertising expenses, possibly litigation,” he explained. “As technology has changed so rapidly, so has the expertise of criminals. The insurance marketplace never anticipated the seriousness of these crimes.”
But it’s certainly paying attention now. “When you’re hacked, and someone has access to everything in your computer, they can throw viruses in there or extort your business with the threat of viruses,” Gilbert added. “There are so many different areas of exposure, so it has become a very big issue.”
Customer notification alone can be a major hassle, considering that 46 of the 50 U.S. states have notification laws, the details of which vary by state — and many breaches affect customers in multiple states. “You should talk to your risk manager or agent,” Gilbert tells clients. “Do you have this coverage? What do you need to secure it? If nothing else, we make them aware of the exposures they face.
“It definitely interrupts your business. You have a loss of income, a loss of profits,” he added. “We talk to clients about what their exposures are today and what to do about it.”

Constant Threats

In a world where data theft is pervasive — from restaurant waiters carrying ‘skimmers’ in their pockets to lift debit-card information to international hackers hammering their way into large corporations — companies increasingly realize that it’s up to them to both better secure their data and seek out a realistic level of coverage, Trudeau said.
“When doing an assessment, ask, what’s the exposure risk? What exposures do we have, and how could we get in trouble?” he said, re-emphasizing that those risks run from the debit-card information stored at Big Y to the HIPAA-protected patient data at medical practices.
“It doesn’t matter if you’re a big company or a small company,” Kelly Bissell, who heads Deloitte’s Information Technology Risk Management Team, told Best’s Review. “It matters what data you have that’s valuable to them. The bad guys don’t discriminate.”
It’s also dangerous for businesses to assume they’re protected against data breaches of third-party vendors, experts say, since they provided them that information in the first place. Nor is there any guarantee a cloud provider will cover a company against a data breach in the cloud. It all comes back to speaking with an insurance agent to make sure all contingencies are accounted for.
“Every time you open the paper, another bank has gotten hacked,” Gilbert said. “Criminals today are pretty smart. They’re not using guns and knives anymore; they’re sitting somewhere in Russia or somewhere in Oklahoma — it doesn’t matter where.”
And that changing world has forced changes in the insurance realm, with the advent of products that are becoming an increasingly necessary part of companies’ risk-management strategies.
“This type of coverage has been developed to meet a need,” Gilbert said. “With what’s going on with cybercriminals, it’s very important that, every account we go out on, we’re bringing up things they don’t have. That way, at least we’ve done our job.”

Joseph Bednar can be reached at [email protected]

Insurance Sections
Understanding the Many Nuances of the Affordable Care Act

By MARC A. CRISCITELLI
The Affordable Care Act (ACA), commonly known as Obamacare, will help some people, but has definitely created confusion and concern for most.
There are several approaching deadlines dictated by the ACA that employers must comply with. Some of the deadlines mentioned below have few financial obligations, but require administrative tasks:
• Summaries of benefits and coverages (SBCs) must be distributed to employees for plans that renewed on or after Sept. 23, 2012.  Insurance carriers are producing the SBCs for employers, and they must be distributed to employees, new hires, and those continuing on state or federal continuation (COBRA).
• Employers issuing 250 or more W-2s must include the value of health-plan benefits provided to employees on the W-2s annually.
• Employers must provide notice to employees about the availability of state health-insurance exchanges, also known as marketplaces or the Small Business Health Options Program (SHOP), by Oct. 1, 2013. The deadline was formerly March 1, 2013, but it was delayed since the majority of states and the federal government were not ready to administer the health exchanges.
Unfortunately, there are many provisions of the ACA which may carry some significant cost increases directly to employers.
• Effective Jan. 1, 2013, flexible spending accounts must limit the annual contribution maximum to $2,500. This will lower tax savings for uncovered medical, dental, and vision expenses for employees and consequently employers.
• The comparative clinical effectiveness research fees pay directly to the newly created federal institution known as the Patient Centered Outcome Research Institute (PCORI). Employers with plans renewing Oct. 1, 2012 through Jan. 1, 2013 will have to pay $1 per insured person by July 31, 2013. It will increase to $2 per insured person the following year and will be indexed in years 3-8. Insurance carriers pay the fee on behalf of fully insured employers. Those employers that offer a healthcare reimbursement account (HRA), are self-insured, and/or fund at least $500 into their employees’ flexible spending accounts must file IRS Form 720 and pay the PCORI.
• All employers will be required to contribute to a transition reinsurance fund in 2014, 2015, and 2016. The annual fee is per covered life and is likely to equal $5.25 per month per covered life in 2014 and may decline in 2015 and 2016. This fee will be included in the premiums for employers who are fully insured, but self-insured groups will have to pay this fee directly. Reporting will be due in November 2014 and payable 45 days after reporting. Final rules have not been communicated as of yet.
• Employers with 50 or more full-time-equivalent employees must have waiting periods of no more than 90 days and must offer coverage to employees working an average of 30 hours per week starting in 2014. This will be extremely expensive to many employers, especially those in industries that historically did not offer health insurance to their employees.
• Starting in 2014, employers with 50 or more full-time-equivalent employees must offer ‘affordable’ coverage. This means that they cannot charge more than 9.5% of an employee’s income for the single level of coverage and must offer a plan that is considered ‘minimum value’ if the plan’s share of covered charges is at least 60%. If an employer does not offer coverage to 95% of its full-time employees, the penalty is $2,000 per full-time employee per year (excluding the first 30 employees) if one employee receives a premium tax credit though the SHOP exchange. Employers that offer coverage that does not provide minimum value or is not considered affordable will pay a penalty of $3,000 per year for each employee who receives a premium tax credit.
There are some other provisions of the ACA that cause a direct financial impact to employers and all employees that have private insurance.
The expansion of Medicare and Medicaid will be the biggest drivers. The largest contributing factor to the increase in healthcare costs — and, consequently, private health-insurance costs — has been and will continue to be the ever-increasing population of those covered by Medicare and Medicaid.
The economics are simple. Medicare and Medicaid reimbursement rates to healthcare providers are much lower than reimbursement rates from private insurers and HMOs. The more patients seen by a healthcare provider each year who are insured by Medicare or Medicaid, the more the provider needs to charge private insurers to make up for the low payments they receive from the government-funded healthcare plans.
As a final point, I only touched upon some of the negative effects of the ACA, but there are further responsibilities thrust upon employers, both financial and administrative, buried within the more than 2,700 pages of the law. I encourage all employers to contact their broker, consultant, and CPA for guidance to make sure they are prepared for the full effect of the ACA.
Even though there will be people who benefit from healthcare reform, it will be at the detriment of employers having to deal with and pay for the most daunting law passed in decades.

Marc Criscitelli is vice president of East Longmeadow-based FieldEddy Insurance; (413) 233-2134; [email protected]

Insurance Sections
Because Trips Are Sizeable Investments, the Answer Is Usually ‘Yes’

John E. Dowd Jr.

John E. Dowd Jr.

In many cases, vacations can involve thousands of dollars and months of advanced planning, organizing, and saving. So if you’re wondering if you need travel insurance, the answer is often ‘yes.’
Like any other investment of this magnitude, it’s important to make sure you have adequate insurance to protect yourself should the tour operation or cruise line you’ve booked with go bankrupt, you or a family member become ill, or some other unforeseen event upset your vacation plans.
Travel insurance can be purchased as a packaged plan with several different options, including travel delay, trip cancellation, baggage, accidental death, auto, 24-hour traveler assistance, dental, emergency medical, emergency medical evacuation, and so forth. The five main types of travel insurance — which are trip cancellation, baggage, emergency medical, auto, and accidental death — can each usually be purchased as an individual policy.

Trip Cancellation
This insurance policy protects you should certain factors prevent you from taking the trip. Look to the specific policy to determine what factors will be covered, but most will include circumstances like a tour operator or cruise line going out of business, personal or family illnesses, and the death of a family member. The policy may also reimburse you for any unused portion of your vacation should you become seriously ill or injured once on the trip.
The cost of trip-cancellation insurance is usually equivalent to between 5% and 7% of what the vacation costs, meaning a policy for a $2,500 trip would be around $125-$175. Keep in mind that trip-cancellation insurance isn’t the same as the cancellation wavier your tour operator or cruise line may offer you.
While the waiver is relatively less expensive, at around $40 to $60 dollars, it must be purchased when you book your vacation. These waivers also are usually accompanied by multiple restrictions, such as not covering a cancellation occurring near the date of departure or once the trip has begun. It’s important to remember that a cancellation waiver isn’t insurance and isn’t regulated by any agency, which means it might not be worth the paper it’s printed on if the business goes bankrupt or closes.

Emergency Medical Assistance
Ask your health-insurance carrier what type and degree of coverage you’ll have on a trip to a foreign country. If your health-insurance policy doesn’t cover you at all or leaves you underinsured while visiting a foreign country, then you might consider an emergency-medical-assistance policy to cover any emergency medical assistance that you might need during your vacation following an injury or illness. The policy would cover medical transportation to a hospital capable of treating your illness or injury, foreign hospital stays, and, should you be seriously ill or injured, transportation home.

Baggage and Personal-effects Insurance
This policy covers you should your personal belongings get damaged, stolen, or lost during the vacation. It usually costs about $50 to cover $1,000 worth of personal belongings for a seven-day trip. Depending on if and how much insurance is provided by your trip operator and/or airline, you may or may not need this coverage.
You’ll also want to determine if your homeowner’s or renter’s insurance covers off-premise thefts before you purchase this coverage. You might consider an endorsement or floater to your homeowner’s or renter’s insurance instead of personal-effects coverage if you’re traveling with high-value items like electronic equipment, sports equipment, or jewelry. Such an endorsement to cover a $1,000 necklace for a year would be about $10 to $40.
Additionally, you may want to contact your credit-card company to determine what, if any, travel-related coverage or services they provide.

Auto Coverage
A typical auto-insurance policy covers only your vehicle within U.S. states and territories and Canada. You can check with your auto-insurance carrier to determine how your auto insurance will apply to your vacation destination and mode of transportation — rental or personal vehicle. Should your trip include taking your personal or rented vehicle outside the areas specified in your personal auto-insurance policy, then you’ll need to purchase coverage applicable to your destination through either an insurance agent, car rental agency, or travel agency. Don’t forget to obtain both liability and physical damage if you’ve chosen to rent a car.

Accidental-death Coverage
An accidental-death policy usually isn’t necessary if you already have an appropriate life-insurance plan. Much like a typical accidental-death policy, this policy provides a benefit should the insured party die on the vacation.
As always, thinking ahead and reviewing your insurance protection before a loss occurs is the best advice anyone can offer. Even if you decide to self-insure, at least you have made a conscious decision so that, if something does happen unexpectedly, you will be more mentally prepared to deal with the consequences.

John E. Dowd Jr. is a fourth-generation principal of the Dowd Agencies. He is one of three partners at the oldest insurance agency in Massachusetts with operations and management under continuous family ownership. The Dowd Agencies is a full-service agency providing commercial, personal, and employee benefits. It has four offices in Western Mass.; (413) 538-7444; [email protected]

Insurance Sections
How Would a Casino Impact Downtown Real Estate?

John Williamson

John Williamson says a casino, if approved, will start a chain reaction of tenant relocations and other real-estate activity.

John Williamson says “the stage is being set” for a flurry of real-estate activity in downtown Springfield — all related to an $800 million casino development that might never materialize.
“There’s an interesting dynamic taking place in the central business district of Springfield,” said the president of Williamson Commercial Properties. In the event that MGM Resorts International wins its bid to build a gaming resort just a few blocks south of the downtown towers, “they’re in the process of trying to assemble as much of the property as they can in the project area, which involves getting various properties under contract to purchase.”
Robert Greeley, partner at R.J. Greeley Co., has noticed the same dynamic taking shape. “Still, until a decision is made, however long that takes, there are so many uncertainties that it’s very difficult for people to make decisions,” he noted. “A lot of owners and landlords will hold out, thinking there’s a windfall on its way, but until they know whether the casino is coming or not, it just puts a significant unknown into the equation.”
Bob Greeley

Bob Greeley says casino proponents tend to gloss over the possible negative impacts of major construction and traffic.

The general consensus among real-estate brokers headquartered in downtown Springfield is that the short-term chess moves — building owners contracting with MGM and current tenants of those buildings scrambling to find other homes for their businesses — has begun in earnest, particularly since city leaders chose to back MGM’s project over the other competing proposal, by Penn National Gaming in the North End.
“We’re anticipating the relocation of some businesses in the project area, and those things are all ongoing,” Williamson said. “There are numerous properties that MGM has under contract; if the casino goes through, it will acquire those properties. There are also a few properties they’ve already purchased. If the casino doesn’t go through, they’ll simply turn around and sell the properties they acquired.”
None of this early movement should come as a surprise, said Evan Plotkin, president of NAI Plotkin, considering the scope and cost of the proposal — neither of which Springfield has encountered before.
“That’s going to impact a lot of things that go on downtown. In the short term, in anticipation of a possible casino, a lot of people are jockeying around, trying to relocate. The goal is to try to keep businesses in the downtown and not have them move out. My sense is that many of the businesses want to stay in the downtown.”
And that perception touches on the bigger real-estate question downtown: what will the long-term impact be if the Gaming Commission grants MGM a casino license early next year, when the voting is slated to take place?
“There’s a positive effect on the commercial market already taking place, and also expanding opportunity out there in the form of speculation,” Williamson said. “I know there are properties that, because of the fact that they may be acquired, have magically increased in value, so there’s a lot of jockeying for position going on.
“If the casino comes to Springfield,” he continued, “it’s going to have a dramatic impact on the commercial market, and especially the commercial office market, because there are several office buildings in the project area that will be razed to make room for the casino. Those tenants have to find alternative quarters, and that means the amount of office space in the market will decline, and vacancy will diminish. That increase in occupancy raises the value of all properties, which benefits the tax base. It’s good old supply and demand.”
Some aren’t convinced, however, that a casino will be an attractive business neighbor, particularly in the short team. Greeley, for one, cited potential impacts on traffic, street closures, and general construction-related bustle for several years to come. “I think most people who have not experienced this scale of project will be freaked out by the kind of traffic impacts this thing has.”
For this issue’s focus on commercial real estate, BusinessWest delves into the pros and cons, both short- and long-term, of the proposed MGM Springfield casino, and why it’s generating both excitement and anxiety for area property owners and tenants alike.

Lease of Their Problems
Springfield is competing with two other proposals — Hard Rock International in West Springfield, and Mohegan Sun in Palmer — for the sole gaming license the state will award in Western Mass. If MGM is successful, Williamson said, commercial vacancy downtown will certainly decline.
“Landlords now sitting on a lot of vacancy have potential to fill varying amounts of that space up. It’s good for the market all around,” he told BusinessWest. “Lease rates in Springfield have been flat or slightly declining for years, moreso in the class B and C market — the class A market is pretty stable ­and really won’t be impacted as significantly as B and C properties at the present time.”
From a broker’s perspective, he said, the project will generate demand for space, at least within a six- or seven-block radius of the casino. “This has been called the largest economic-development project in the history of Springfield, taking place smack dab in the heart of the central business district. It will really strengthen the class B and C commercial properties downtown.”
One downside, he said, is tenants finding they have to pay more rent than they are currently paying, “but in some cases, the landlord is going to have to buy them out of their leases, if they have long-term leases, because they need the building to be sold free and clear of all tenants. That may offset any increase in rent they’ll have to pay.”
The possibility of a casino has placed many businesses in a tough place, Greeley said — both those interested in moving into the casino zone, and those who might be forced out. “No one wants to sign a long-term lease not knowing what the future is going to be. It’s a problem.”
And if the casino doesn’t come, he added, after all the preliminary scurrying among property owners near the MGM proposal, “a lot of people will be left with stars in their eyes, and it’ll take them awhile to come back down to earth and be realistic about what the market is without a casino.”
As an analogy, he cited a CVS or Walgreens that overpays — say, $1.5 million — for a corner lot. “Now, the owners of the other three corners, who paid $400,000, think they can get a million and a half, but that’s not going to happen just because CVS was willing to pay it. That purchase really distorts the market.”
In the same way, he continued, if the casino era closes in Springfield several months from now, as abruptly as it began, site owners who were hoping for a casino buyout might be left with an inflated sense of how much South End property is actually worth.
But if MGM does win the Western Mass. bid, “you’ll see opportunities for businesses,” Williamson said. “Some stand-alone businesses may be able to replicate what they do inside the casino. It’s really to MGM’s credit that they’re looking at local companies to have a major presence in the casino. Some of the mom-and-pops may find themselves smack dab right in the middle of the most expensive economic-development project to take place in this city.”
Plotkin agreed, citing MGM’s promotion of its ‘inside-out’ casino concept, one that incorporates surrounding businesses in the project.
“The development plan is very outward-focused, and it’s going to incorporate a lot of the other businesses and entertainment venues downtown,” he said. “And I would hope the cultural and entertainment aspects will not only be an attraction regionally for people to come and visit Springfield, but perhaps to live in Springfield.”
Plotkin likes to paint a picture of downtown Springfield as a sort of an “urban theme park,” he explained. “How do you create that? What do you need to incorporate in a downtown to make it welcoming for people to live and work? If you have a catalyst like MGM, a development of that size and scope, it’s natural you’re going to have spinoff businesses, and hopefully that will lead to more development of market-rate housing and subsequent retail — not just retail associated with the casino, but other retail that you would need to provide goods and services to people moving downtown. I think there’s potential for tremendous spinoff.”

In Demand
Of course, that kind of commercial spinoff will require an influx of talented workers, in a variety of fields, Plotkin noted.
“Businesses are looking for a trained workforce, and a lot of us on the sidelines are wondering if there is enough of a trained workforce in the region to satisfy what MGM needs,” he said, adding that Greater Springfield companies will also have to deal with competition from a casino that needs some 2,000 employees and will certainly lure many away from their current jobs. “I think it’s important that businesses see an increased flow of human capital to the area; that’s a critical point for our success as a city.”
Greeley — who was involved in a third Springfield casino proposal, pitched by Ameristar Casinos on Page Boulevard, until that project was withdrawn late last year — remains unconvinced that a South End casino will be the economic-development catalyst many hope it will be.
“If the casino comes, you have all the impacts over three years, at least, for all the construction and disruption that accompanies such a project,” he said. “This will be the largest construction project in the history of Springfield, and if it’s coming, it’s going to take years for the property owners not directly involved with the casino to come to terms with whether or not they’re going to be positively affected.
“I don’t want to be the rain-on-the-parade guy,” Greeley continued, “but I am very skeptical how much positive effect there will be outside the casino-owned facilities. For example, I don’t think the Fort restaurant will benefit. People aren’t going to eat at the Fort, then come to the casino. That’s not the mentality anywhere.”
Plotkin disagrees. “In all my discussions with MGM, we believe they’re an organization that has a great understanding of what the urban landscape should look like. They’re not looking at a casino in a vacuum; they’re looking at the big picture. Frankly, nobody wants to visit a city just to drop into the city casino, and then leave.
“This is an opportunity,” he told BusinessWest, “to make the entire city more welcoming, to shine a light on some other offerings we have as a downtown, which are many, but have been underappreciated by a lot of people.”
Greeley sees it differently. “A lot of people are drinking the Kool-Aid about how impactful this is going to be on development outside the casino footprint,” he said, “but nothing suggests to me that adding a whole bunch of traffic to the South End will be helpful to other businesses than those directly involved in the casino.
“I think this is being sold as a panacea,” he concluded. “That’s how it’s being marketed. But I haven’t seen a building yet where the renderings didn’t look wonderful.”

Joseph Bednar can be reached at  [email protected]

Insurance Sections
10 Simple Steps to Readying a Home and Preventing Calamity

John E. Dowd Jr.

John E. Dowd Jr.

Many disasters caused by winter-weather conditions can be prevented by taking a few simple steps. Although fall is an ideal time to begin to think about and prepare for the cold winter months ahead, you really need to be constantly assessing such things as snow loads on roofs and decks, appropriate foundation drainage as the snow melts and freezes, and, of course, the dreaded ice dams on your roofs and gutters.

Regular homeowner’s policies provide coverage for ice dams, burst pipes, loss from fires, and wind damage from snow or ice. When snow melts, it can cause serious damage to a home. One of the most common causes of catastrophic loss is winter storms. Although wind and hail are the most common causes of insurance claims, freezing and water damage follow close behind.

It’s important for homeowners to carefully review their insurance policies before winter arrives to understand what is covered. It’s crucial to have ample coverage for rebuilding a home and replacing all the belongings in it. It’s also helpful to consider purchasing sewer-backup insurance.

There are several ways to prepare a home for winter and the damage it usually brings. Consider the following tips:

• Clean out all gutters. It’s important to remove all sticks, leaves, and debris. This helps the melting ice and snow flow smoothly. It also prevents ice collecting and forming a dam, which can result in water seeping into the house’s ceilings and walls.

• Keep trees and branches trimmed. When branches hang over houses during the winter, they’re likely to accumulate snow and ice, which may make them break. Branches falling on homes can cause significant amounts of damage. They may also hurt people who enter the property.

• Use gutter guards. These guards are useful for preventing interference of water flow from debris.

• Seal cracks and holes. Caulk all these spaces to ensure that melted snow and wind can’t enter the home.

• Keep steps and handrails safe. It’s important to ensure that steps and banisters are sturdy. If they accumulate snow or ice, they can contribute to serious injuries.

• Use insulation liberally. Homeowners should add extra insulation to basements, attics, and crawl spaces. When heat escapes through the roof, it contributes to ice and snow melting faster. As the moisture melts, re-freezes, and accumulates, it can cause a roof to collapse.

• Maintain a warm temperature. It’s best to keep the thermostat at 65 degrees to prevent pipes from freezing. The temperature in the walls is always colder than the temperature in the house.

• Call the professionals. The heating system should be checked and serviced every year to prevent fires. It’s also important to ensure that smoke alarms are working. Carbon-monoxide detectors are another valuable safety feature that should be placed in every home. In addition to this, homeowners should have a contractor evaluate the home for structural damage. It’s best to identify and repair minor problems before they become a disaster.

• Be familiar with shutting off the water. Homeowners should know how to do this, and they should know where their pipes are located. When pipes freeze, it’s imperative to act quickly. When going away for an extended time, it’s best to have someone look after the home or have a service professional drain the system.

• Add an emergency pressure-release valve. By adding this to a current system, homeowners will have a system that is protected against increasing pressure from frozen pipes.

Although many of these suggestions appear to be common sense, we all have a tendency to put off certain mundane routine maintenance. As we have all experienced at one on time or another, failure to follow these preventative steps can lead to expensive and annoying problems.

Taking a moment to save the list of suggestions above and use it as your personal fall preventive checklist will save you time and money and give you peace of mind to enjoy the winter season while living in New England.

 

John Dowd is a principal and executive vice president of the Dowd Agencies, the oldest insurance agency in Massachusetts with operations and management under continuous family ownership. Today the fourth generation of Dowds provides counsel and coverage from several offices in Western Mass.: James J. Dowd & Sons Insurance Agency Inc. of Holyoke; Cray-Dowd Insurance Agency Inc. of Hadley; Moskal Dowd Insurance Inc. of Indian Orchard; Dumont-Dowd Insurance Agency Inc. of Southampton; and Dowd Financial Services LLC in Holyoke; www.dowd.com.

Insurance Sections
Voluntary Benefits Are Becoming More Popular with Employees

Patti D’Amaddio

Patti D’Amaddio says employees, especially those in Gen X and Gen Y, embrace voluntary benefits, even though they pay much of the costs.

By definition, an employee benefit is a perk largely paid for by the employer.

Right?

Actually, that’s not always the case these days, as a concept called ‘voluntary benefits’ is becoming increasingly prominent in workplaces across America. These are benefits made accessible to employees but are paid for mostly or fully out of their own pockets.

And workers, for the most part, are responding positively.

“The voluntary benefit is really an increasing trend, no question,” said Patti D’Amaddio, human resource generalist at the Employers Assoc. of the NorthEast, “because it allows the employer to add value to their benefit plan without adding a lot of cost. Instead of not offering things they feel they can’t afford, they’re offering voluntary benefits and letting people tailor them to match their personal needs, whether it’s long-term care or a number of other things.”

A survey conducted by EANE registered growing use of voluntary benefits, or VBs. Of the member companies that responded, 62% of them offer VBs of some kind. Of this group, 93% offer supplemental life insurance, 70% offer dependent life insurance, 20% offer auto insurance, 18% include long-term-care insurance, and 10% provide legal services. Four percent even offer pet insurance.

“That’s valued especially by Baby Boomers, whose kids have grown up; they’re spending a lot of money on their pets,” D’Amaddio said. “Again, anything can be tailored to the employees’ needs. Even if it costs the employee, it’s seen as a benefit being offered by the employer to the employee.”

Jim Mooradian and Bryan Lambert, founder and broker, respectively, with Jim Mooradian and Associates, a Boston-based insurance-brokerage firm, recently wrote on the topic of voluntary benefits for the Northeast Human Resources Assoc.

They note that, in today’s changing financial landscape, companies are looking for creative ways to expand their benefits packages while tightening their belts in other ways. In many cases, businesses are looking to control costs in their medical plans and other employer-funded benefits, from gym memberships to eye care.

Scott Llewellyn, western regional sales vice president at the Ameritas Group, recently told California Broker magazine that the idea of spending a few dollars per paycheck for that peace of mind is appealing to many employees — especially at a time when employers are paring back the health and dental benefits they traditionally pay for.

“Offsetting some of the lack in demand created by the down economy is a host of very new and creative voluntary benefits,” he notes. “Brokers are using these benefits to help increase their income, given the new realities of lower commissions from medical carriers.”

As Mooradian and Lambert point out, “companies increasingly see voluntary benefits as an effective tool for boosting employee commitment at little to no cost. Since voluntary benefits are employee-paid, corporate expenses are minimal, yet VBs deliver an immediate, tangible benefit to employees. Once the benefit is set up, there are virtually no ongoing demands on HR staff resources, since claims are administered directly by the carrier.”

It’s a win-win, but only if employees feel voluntary benefits are worth the expense. Increasingly, they do.

 

Youth Appeal

D’Amaddio cited a MetLife study that suggested that younger workers — both Gen X and Gen Y — are driving the new interest in voluntary benefits.

According to the survey, one half of such workers in smaller businesses (those with fewer than 500 employees) said current economic conditions make them look more toward employee benefits to achieve financial security — even if they have to fund 100% of the cost themselves.

Timm Marini

Timm Marini says chronic disease coverage, such as cancer insurance, is one of the hottest trends in voluntary benefits.

Businesses, in turn, are seeing voluntary benefits as a recruiting and retention tool. Four out of five employers of smaller businesses surveyed in MetLife’s 10th annual Study of Employment Benefit Trends ‘strongly agree’ that retaining quality workers is an extremely important objective of employee benefits. Meanwhile, the survey found that 72% younger workers who are very satisfied with their benefits feel a strong sense of loyalty to their employers, compared with 46% of younger workers overall.

“It’s hard to overestimate the importance of responding to the needs of younger workers on whose shoulders the future of a small business can depend,” said Anthony Nugent, executive vice president of Group, Voluntary, and Worksite Sales at MetLife. “Our study underscores that the generational differences about benefit needs and preferences are not just reflections of age. Younger workers, particularly those in many smaller organizations that were hit very hard by the recession, and who are unsure about the future of Social Security, have a different benefits perspective than older generations.”

The survey was reported by World at Work, a national employer-resources firm, which also noted that Gen X and Gen Y members, who collectively comprise 56% of the workforce, recognize that a broad range of benefits carries a cost, and they are more willing than their predecessors to bear some of those costs, despite the financial stresses many of them are feeling in the current economy.

“Two-thirds of Gen X and Gen Y would rather pay more than lose those benefits,” D’Amaddio said, again citing the MetLife survey. In fact, 54% of younger workers would be interested in having a wider array of benefits options even if means paying the full cost of certain voluntary benefits, such as life, dental, vision, disability, critical illness, or homeowner/auto insurance.

Such workers are essentially making a cost-benefit calculation between the cost of premiums for some coverages — which can be as little as $3 or $4 per week — and the the benefit, which is often a predetermined lump sum, with few strings attached, paid when a covered event occurs, such as an accident or a debilitating illness such as cancer, stroke, or heart attack, Mooradian and Lambert note.

Voluntary benefits, they write, “offer simple, affordable solutions to very real problems. An average accident policy, for example, costs an employee about $3.75 a week — about the same as a cup of coffee and a doughnut.”

And the terms, they note, are straightforward. “If an employee’s child falls off the swingset and breaks her wrist, the policy could pay $400 to be used for any purpose. If an employee slips and dislocates a shoulder, the policy could pay $500. Unlike core health and disability benefits, the money from this accident policy can be used to pay anything from uncovered medical costs to household expenses such as a utility bill. For rank-and-file employees, getting cash in hand during a difficult time is crucial to their financial well-being.”

Voluntary benefits can bring peace of mind during more serious medical situations as well, said Timm Marini, president of FieldEddy Insurance.

“We do a lot of voluntary benefits,” he said. “Historically, it’s been dental and disability, but all of a sudden, more and more, it’s critical illness and cancer coverage, things of that nature. That’s the hottest trend right now.”

That development may be in response to a couple of colliding trends — the fact that Americans are living longer than ever, often with chronic conditions, and the ever-soaring costs of health care, particularly for older and sicker patients.

“I think a lot of this is congruent with the life tables going up — more and more people are living longer, the medicines are better, and they’re living longer even with cancer and things of that nature,” Marini said. “Diseases are certainly as preventable as they’ve ever been, and the success rate is higher in treating cancer and putting it into remission.”

 

When Trouble Strikes

Studies increasingly show that families appreciate the way VBs allow them some spending flexibility during a rough patch. According to MetLife’s annual survey, having enough money to cover bills during sudden illness is the number-one concern of 63% of full-time employees and 75% of young families with children.

“One of the biggest issues facing America’s working families during a health crisis isn’t the cost of care itself,” Mooradian and Lambert point out. “It’s the loss of cash flow that results from being out of work, coupled with uncovered expenses associated with aftercare and treatment. If a family is living paycheck to paycheck, having the primary breadwinner miss a week of work has a significant impact on their financial stability.”

D’Amaddio also noted that voluntary benefits are convenient, in that they’re paid with a payroll deduction, and they are typically transferrable, so workers can take these benefits with them when they change jobs. “They’re not tied directly to the employer — and with the transient nature of employment right now, people aren’t staying 40 years with the same company, and they can take these benefits with them wherever they go.”

In addition, according to MetLife’s annual survey, 55% of employees feel that payroll deductions for voluntary benefits help them to be more disciplined about saving. This discipline — coupled with the financial safety net the benefits provide — can also translate into increased enrollment in company-sponsored 401(k) plans. At the very least, the report suggests, accident and critical-illness insurance might help curb a trend toward increasing credit-card debt incurred by participants in high-deductible health plans.

And companies are beginning to see quality VBs as retention tools. The MetLife survey suggests that employees who feel good about their company’s benefit package are much more likely to enjoy their jobs and to feel loyal to their employers.

“In small to mid-sized companies, when Joe or Jill has a heart attack, everyone knows about it,” Mooradian and Lambert write. “A $10,000 critical-illness payout within weeks of a diagnosis becomes good news that travels fast. Maybe that’s why critical-illness coverage is experiencing double-digit growth.”

But D’Amaddio cautioned employers about who they partner with to administer such benefits.

“We’ve heard some horror stories,” she told BusinessWest. “You want to make sure your partner is all about service for your employees, because an employee might say, ‘this is a great benefit, even if I have to pay for it’ — until they can’t get a claim processed, or they can’t get hold of a representative, or the service is inadequate. Then it becomes a detriment.”

In most cases, however, voluntary benefits are proving to be a key safety net for employees, one they’re more than happy to pay for.

 

Joseph Bednar can be reached at [email protected]

Insurance Sections
Third Generation of Ross Insurance Agency Looks to the Future

Kevin Ross and Maureen Ross O’Connell

Kevin Ross says he and Maureen Ross O’Connell work well together because they understand where each excels.


While Maureen Ross O’Connell said that her father didn’t want her to work at the family’s insurance company during her college years, her brother, Kevin Ross, laughed and said he knew since he was 5 years old that the company would one day be in their hands.
“I can remember my father bringing me into his office, and as a kid I would point to a desk and say, ‘that’s mine, dad!’” he remembered with a laugh.
Today, the siblings comprise the third generation of their family to run Ross Insurance Agency Inc. Their brother, Ernie, was also part of the team until he passed away last year. Sitting down with BusinessWest recently, the partners offered a look into an agency that, in many intriguing ways, is looking squarely to the future.
Like many family-business owners, both Ross and O’Connell said that their best education came from the daily interaction and on-the-job words of wisdom from the generation before them. And having grown up in the agency together, Ross added, the siblings have honed their collaborative technique.
“Family businesses have their struggles,” he acknowledged. “Every one of them does, and I won’t say that we don’t sometimes. But we know where we excel. Maureen runs the inside of the house, administration, the staffing, company communications, and I’m in sales. We play off each other, and that’s why it’s been so successful.”
And it isn’t just the walk-in, brick-and-mortar business where Ross Insurance excels. The partners long ago recognized the changing marketplace for their service-based industry, and have been steadily trending in the direction dictated by technology.
Like a seasoned IT whiz, O’Connell explained both how the firm has maintained a regularly updated insurance blog, and the efficacy of spiking its professional online presence with current information, all for the purposes of search-engine optimization (SEO). “When people Google, we want to be right up there,” she continued. “We’ve been working very hard on organic SEO for almost a year and a half. It’s been very beneficial.”
But as the third generation talked about the shifting sands of technology and how it impacts their industry, they stopped before a wall of photos in their office. In front of this large grid of Little League team pictures, all sponsored by Ross Insurance, O’Connell said, “as much as this digital age allows us to grow, it’s not to say that this community and this local piece isn’t important.”

Shop Talk
O’Connell and Ross are just the latest generation to put their stamp on the company — and they are well aware of all the contributions needed to take the venture to this point in its long history.
“In 1925 our grandfather, George Ross, had a grocery store in Holyoke,” Ross said. “But he decided that he wanted to get into the insurance business instead. Holyoke was growing and booming, and he saw it as a real opportunity. So he started the business from scratch.”
In the years after World War II, his sons, George Jr. and Ernie, and son-in-law Jim Gorman took over the firm. Returning to the story of her first days in the company, O’Connell said that she had always been a diligent worker — “I didn’t play any sports in high school; I worked.
“When I entered college, my father insisted that I quit work and devote my time to my studies,” she continued, adding with a laugh, “I was furious!”
The time soon came for Ernie to revisit his moratorium on her collegiate employment. “He called me one day in November,” she remembered. “The business had recently moved from Suffolk Street to High Street. And basically, he said, ‘the bills aren’t getting out — can you come and send out statements?’ It didn’t take me long to say, ‘sure!’ I was going to get paid, it was work, I was thrilled.
“I finished that job before the day ended,” she continued, “so my uncle had me start another project. That wasn’t finished by day’s end, so I had to come back, and then that went on for several days. Finally my uncle said to my father, ‘either give her a job or let her go.’ And so my Uncle Jim hired me as a file clerk. That was my first official job here.”
Meanwhile, her sibling contrasted this story with his own tale, as an early adopter of the family business. “I went into the office with dad on nights and weekends,” Ross said. “I just knew from day one that this is what I wanted to do. I went to business school at Bryant, and there was no question about it; I was coming into the family business.”
While their stories might have diverged up to that point, once they were part of the staff, the two spoke similarly of the benefits of working in a generational family business.
“From my perspective as an in-house employee with my beginnings here,” O’Connell said, “dad was harder on me than any of the other staff — from day one.
“But we had the greatest working relationship,” she went on. “I learned everything from that second generation. I would come in the morning, grab a coffee, and sit at the spare chair at my dad’s desk and just hash things out — talk about the business, where we were going, what we were doing. I loved working with them.”
With Ross nodding in agreement, she added, “it was sad, very sad, when they all retired.” Their father eventually bought out his partners in the firm, and when the time came for his legacy to be built upon by the next generation, both O’Connell and Ross said the transition was as smooth as could be expected.
“In the last few years of his owning the business,” Ross explained, “he went into semi-retirement and passed the reins of operation over to us, which gave us valuable education, but also gave him a comfort level, knowing that, when he was ready to sell out, we could take it on successfully.”

Linked In
Pausing to reflect back on her earliest days in the firm, O’Connell recalled her first official job at Ross, in claims. “In those days we paid our own claims. So that means a customer would call in with a claim, I go into Jim’s office, ask him if it was a payable claim, he’d have me pull the form, and from that moment on, every claim that came in, I’d pull the form. He made me research every single claim. It was the best education I could ever have gotten in the industry.”
The pair’s professional development in many ways mirrors their industry. O’Connell said that, while the office isn’t paperless — yet — much of its registration and filing is streamlining in that direction. Their marketing budget has seen a similar shift.
“Years ago, quite a bit of our business was walk-in,” Ross added. “We were on High Street, and that’s the way things were done. Now, we have an employee who handles all of our social media. We post four blogs a week on our on-site blog, and we post to our off-site blog. And the bottom line is that this works for our SEO.
“The first thing the modern consumer does before he makes a purchase, he gets on the computer,” he continued. “We want to be the first agency that pops up, so we get the opportunity to deal with that person. Maureen really has been spearheading this process.”
The new walk-in customer, she said, is anywhere with an Internet connection. “We’re writing policies across the state,” she said. “We wrote a workmen’s comp policy for a business in Hawaii. They had a salesman in Massachusetts, and they had to have a workmen’s comp policy. Their agent couldn’t provide it, so they got in touch with us.”

Neighborhood Watch
O’Connell said that the firm is in the formative stages of digital growth.
“But while the digital age is very young, we think it’s the future of our business,” she continued. “So we’re embracing that and working as hard as we can to make that a very important part of our future. We’re growing without bricks and mortar.”
However, in talking about the future of their industry, both O’Connell and Ross gestured to that wall of Little League pictures. “We’re a committed, third-generation business in our community,” Ross said. “Maureen and I spend a lot of time trying to grow our business and be the best answer for all of their questions and needs. But it’s also important to give back to the fabric of our community. Immediately since we took over in 1990, we paid close attention to two areas — youth and education; they’re important to us.”
O’Connell said that is the difference — a locally based family business maintaining its community roots. “When auto insurance in Massachusetts went competitive in 2008,” she added, “we first had the Geicos, Progressive, all of them. To compete with that, we have to be an important part of our community, giving back to it. The direct writers don’t do that. They don’t care.”
As part of the ongoing renovations at the Holyoke Public Library, O’Connell and Ross have created the Team Ernie Charitable Golf Tournament; the goal is to raise $60,000 for the construction project, and in turn the newspaper and periodicals room at the new facility will be named for their late brother.
Speaking to the technology that has secured their generation’s ascent into the digital age, O’Connell said that, while it is necessary to have a strong online presence, some things will never change.
“Yes, we want to be straightaway on Google searches,” she said. “Otherwise, you’re not getting that primary opportunity. And then you get the chance to show them the personalized customer service.
“Face to face is not obsolete,” she added. “But it is important to get them here first.”