R&R Insurance Blog

While it may seem complex, understanding the basics of a coinsurance penalty will save you from any surprises down the road. The first step in gaining an understanding starts with the Coinsurance Clause.

A Coinsurance Clause is a property insurance provision that penalizes the insured's loss recovery if the limit of insurance purchased by the insured is not at least equal to a specified percentage of the value of the insured property. The coinsurance provision specifies that the insured will recover no more than the following:

Insurance Carried

--------------------------- x Loss = Amount Recoverable

Insurance Required

As an example:

A building actually valued at $1,000,000 has an 80% coinsurance clause but is insured for only $750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will be subject to the underreporting penalty. Assume it suffers a $200,000 loss:

$750,000 ÷ (0.80 × 1,000,000) × 200,000 = $187,500 Payout (less any deductible).

In this example, the underreporting penalty would be $12,500.

Business income coinsurance is solely a function of time; a 12-month period of time to be more specific. How long will it take, following a worst-case-scenario loss, to return the operation to pre-loss condition and capabilities? Knowing this allows the insured to accomplish two tasks:

1) Pick the correct coinsurance.

2) Ultimately decide on the limit of business income coverage to purchase (again, the amount subject to loss is a function of the coinsurance percentage and the percentage a function of time).

• 100 percent = 12 months (12 months x 100%) Estimated Loss of Income (Amount Subject to Loss) Calculation: • Maximum Coinsurance Percentage x 12 months business income calculation = Amount Subject to Loss

As an example:

The policy states there is a $1M limit with 50% coinsurance. This means the 100% amount would be $2M. If, at the time of loss, the 100% amount was $3M, then the limit should be $1.5M (50% of $3M). Therefore the insured would be penalized 33% of their claim, and paid $1M versus $1.5M.

Contact your knowledge broker to learn more about how to avoid the potential fallout from a coinsurance penalty.

“For people who sit most of the day, their risk of a heart attack is about the same as smoking.” – Martha Grogan, Cardiologist, Mayo Clinic

R&R is excited to be participating in the WELCOA (Wellness Council of America) Top 100 Active Companies Challenge for 2015. Aimed to combat sedentary behavior, the Challenge triggers positive habit changes which make people continuously active throughout their daily life. The more active a person is, the healthier they become. The healthier they become, the happier their life is. And the healthier employees are, the lower the time and cost on health care.

To participate in the Challenge, companies must have 30% of their employees engaged throughout the 12-week program. In its pilot year, there are 38 companies taking part in Wisconsin. R&R is proud to be ranked in 5^th place during week 6, with roughly 50% of our employees participating.

Along with the physical activity and educational aspects of the program, R&R employees have created entertaining contests to increase participation and engagement. Some of the latest contest winners included the following profile photos:

WELCOA will be giving statewide and nationwide recognition to companies that are actively fighting sedentary behavior. We are excited to share our final results with you at the end of the Challenge.

Stay tuned! And in the meantime, take time to MOVE throughout your day!

Although it may not feel like it now, summer is just around the corner. Before we know it school will be out, vacations will be planned, and boats will be hitting the water. Whether you are a new boat owner or you have had one for years, it’s important to refresh your memory with boat safety before heading out on the lake. Our friends at West Bend Mutual provided these simple safety tips for boating this summer:

1. Read your owner’s manual and understand the various on-board warnings located on your boat.
2. Wear a life jacket. While this sounds like common sense, the excitement of riding in a boat may take your focus off safety. A life jacket is like a seatbelt. It should be worn at all times because it can increase your chances of survival if there’s an accident.
3. Stock your boat. Make sure you have an appropriate life jacket for each person onboard. An adult life jacket is not appropriate for children. In addition, if you plan to be on the lake for the day, make sure you have plenty of water, sunscreen, medications, and snacks. Lastly, make sure you have a fire extinguisher, flares, maps, and communication devices in case you run into trouble. Here is a great video resource for the proper safety items to have onboard.
4. Bring a back-up. If you’re boating with friends or family, make sure somebody other than the driver is familiar with the boat. It’s not a safe idea for one adult to take a boat full of children out tubing. If the primary driver is injured or unable to navigate, it’s vital that a passenger is also familiar with the boat and can get you back to land safely.
5. Keep an eye on the weather. Summer weather can change quickly. Pay attention to your local forecast and consider signing up for weather alerts that can be sent to your Smartphone.
6. Be aware of your surroundings. Depending on the time of the year, boat traffic can be heavy on the lake. Make sure you always keep a close eye on what’s happening around you. If pulling a tube or skier behind your boat, always have a spotter to alert you of issues.

Taking a Boating Safety Course is another great way to ensure you have the most up-to-date information to protect you and your family. Visit your local DNR website for additional information. http://dnr.wi.gov/topic/boat/

If you haven't evaluated the value of your boat this season, contact your knowledge broker. We can ensure you have the proper coverage to get you through your summer on the water!

Under the Wisconsin Workers' Compensation Act, there are nine criteria that must be met for a subcontractor to truly be considered an independent contractor for the purpose of workers’ compensation.

Contrary to popular belief, it can be difficult for a subcontractor to meet all nine of these criteria. Unless your subcontractor has their own workers’ compensation policy; you may have an exposure you did not foresee. Potentially, you may have a work comp claim for someone who you do not consider to be your employee.

The criteria are as follows:

1) Does the subcontractor maintain a separate business?

2) Do they have a separate FEIN from the IRS? Or have they filed business or self-employed income tax returns with the IRS for work or services in the previous year?

3) Do they operate under specific contracts? Meaning do they have a contract for services stating what service is to be performed, and for what amount of money?

4) Are they responsible for operating expenses under the contract?

5) Are they responsible for satisfactory completion of the work under the contract?

6) Are they paid per contract, per job, or by commission or competitive bid?

7) Are they subject to profit and loss under the contract?

8) Do they have recurring business liabilities and obligations?

9) Are they in a position to succeed or fail if business expense exceeds income?

As you can see, all of these can be broadly interpreted. There are published court cases that go both ways on whether a business meets the criteria for independent contractor status. These often hinge on one or two small facts about the relationship between the employer and subcontractor.

Keep in my mind that the subcontractor must meet ALL nine of these criteria to be considered an independent contractor for work comp purposes. If they do not meet all of them, courts will generally look somewhere else for coverage for this person. If as a business owner you are directing the work, you may be found to be acting as the employer, and thus be on the hook for a worker’s compensation claim.

The Department of Workforce Development has stated that a person is NOT an independent contractor for workers’ compensation purposes just because they say so, or because the contractor over them says so, or even if other government regulators say so. The Department looks at whether all nine of the criteria mentioned above are met.

The best course of action is to insist that all subcontractors maintain their own workers compensation insurance policy, and ask for proof of that via a certificate of insurance. Contact your knowledge broker for additional information.

In case you haven’t heard of this, it is the latest trend in the theft of money that is NOT covered by either a Crime Policy or a Cyber Policy. Here is a description of how it works.

The accounts payable clerk receives an email from the company president directing him/her to transfer money to an account in China. Since the company regularly transacts business in China and the email came from the president, the clerk proceeds with the transaction. However, it turns out that the email was never sent by the president. Another example is that the company has a contract with ABC janitorial service. The accounts payable clerk receives an email from ABC indicating that they have changed their banking relationship and to direct all future payments to a different bank (including routing numbers/account number, etc.). Time goes by and ABC contacts the company and inquires why their account is 3 months past due. Turns out that ABC never sent the email changing the banking information.

These instances are not covered under a commercial crime as the policy was designed to cover theft perpetuated without the insured’s knowledge or through unauthorized access or fraudulent funds transfer by an imposter. There is no hacking, virus, unauthorized access to the network, etc. that would trigger any cyber coverage. These are examples of gullible employees who fail to follow procedures or assume that because they received an email it has to be true. A new version of “The Sting.”

For information on how to protect your business, contact a knowledge broker at R&R Insurance.

A tragic accident at a North Carolina high school wrestling meet in 2014 led to heightened regulations on mat thickness and placement. When no-1 ranked wrestler, Luke Hampton, attempted to drive his opponent backward he wound up headfirst in a padded wall - leaving him completely paralyzed from the neck down.

In the weeks following the accident, tournament officials, school superintendents, and coaches refused to complete until mats were positioned correctly. According to the 2011–12 edition of the federation’s handbook, Rule 2-1(5) states: “The mat area includes the wrestling mat and a space of at least 10 feet surrounding the mat, as well as the team benches and scorer’s table where facilities permit.”

Today, 12 inches of padding is recommended with it extending at least 8 feet beyond the area of activity. In order to ensure you’re meeting regulations, visit the ASTM Standards 1292 – an excellent guide for mats and protective surfacing. Suppliers are also a reliable source for recommended protection.

What is ASTM International?

Established in 1898 originally as the American Society for Testing and Materials, ASTM International is one of the largest voluntary standards developing organizations in the world. ASTM is a not-for-profit organization that provides a forum for the development and publication of international voluntary consensus standards for materials, products, systems and services. ASTM’s members, including producers, users, and consumers from more than 150 countries, develop technical documents that are a basis for manufacturing, management, procurement, codes and regulations.

Contact our Knowledge Brokers for additional information.

Efficiently running a business without outsourcing tasks can be a major challenge in the fast-paced world that we live in. As ProfessionalEmployer.net states, business operations such as accounting, tax filing, and human resources take up a huge amount of time and generate zero profit for the business, however, they are essential operations. This can be a large pitfall for business owners. While some companies choose to hire in-house employees to handle these areas of the business, others hire third party companies to do the work for them.

Professional Employer Organizations can be a great fit for many organizations and absolutely serve a purpose in the market. That being said, there are many cases where business owners do not properly utilize a majority of the services provided. As a result, owners are paying a higher administrative fee for a complete package of services that are potentially unneeded. Some key areas to be aware of include:

• Potentially Higher Insurance Cost
  For a long time, PEOs have claimed that they have the ability to obtain cheaper health insurance prices for their clients’ employees. While this is true in some cases, it’s not always that way. If a PEO has lots of clients, there is a decent chance that some of their clients have unhealthy employees in high numbers. In a case like this, the rate you are quoted by the PEO might be the same, or even higher, than the rate you could obtain on your own. This is entirely case-by-case, and it never hurts to compare rates.
  
  
• Unneeded Services
  PEOs offer business owners an array of services to choose from. While they are all useful, they may not all be needed based on the circumstances of your company. Some PEO’s package too many unneeded services together and charge for them whether or not they are used. An example of this would be recruitment and selection services. When selecting a PEO, it’s important to select a company that offers flexibility within their offering.

• PEOs Need to Be Profitable
  Unlike an in-house HR representative, a PEO is a business on its own. In order to stay in business, it needs to maintain profitability. So, if your business starts costing them too much time or money, they may place you in a higher-risk category, and may even raise your rates. As they say, there are no free lunches!

• The Fine Print
  Every PEO has different rules and terms. It’s important to review each and every detail of the contract before you sign it. It would be wise to consult with a third party attorney, as well. Short of that, you should talk to the PEO’s legal advisor. You should be 100% sure about every aspect of the contract before signing it.

When signing up for a PEO, I highly encourage business owners to ask as many questions as possible on the front end to ensure that they are clear on services provided and setting proper expectations. If you have any questions, please contact a knowledge broker for additional information.

Dan is currently a Benefits Consultant with R&R Insurance. With over 14 years of experience, he has an extensive background in the payroll, PEO, and HR related field.

A representative from WMC recently spoke to the Waukesha County Business Alliance Economic Development Committee to provide insight on the Prevailing Wage Laws in Wisconsin.

Established by the Davis Bacon Act of 1931, prevailing wage laws were geared to stop outside contractors from undercutting local businesses. Wisconsin actually has three separate prevailing wage rate laws, each covering a different type of public works project:

1. Section 66.0903, Wisconsin Statutes covers projects bid or negotiated by a local governmental unit.
2. Section 103.49, Wisconsin Statutes covers projects bid by a state agency, except state highway and bridge projects.
3. Section 103.50, Wisconsin Statutes covers state highway and bridge projects bid by the Department of Transportation.

The Wisconsin Department of Workforce Development states “These laws mandated that most workers employed on public works projects must receive wages which are representative of the wages normally paid to workers on similar private projects in an area. Employers were required to base their bids on prudent planning, good management and supervision and the skill and efficiency of their workers and not solely on the wages paid to their workers.”

According to a recent study however, WISTAX stated that the formula for calculating prevailing wages in Wisconsin is flawed. The study showed prevailing wage rates are overestimated by 23% compared to Bureau of Labor Statistics (BLS) wage data for the same Wisconsin workers. When worker benefits are added in, taxpayers are paying for labor costs that are inflated by 45%. The current formula requires companies to submit data on wages, etc. They typically receive approx. 10% response rate.

Opponents of the potential reforms site concerns with outside contractors slashing prices and undercutting the marketplace, safety, and training. They are also operating under Union contracts that have prevailing wage laws taken into account.

Reform options that are being discussed and considered include:

• Repeal 1, 2 or all 3 laws
• Make an adjustment to increase the threshold for when prevailing wage applies
• Reform the formula
• Minimize Davis Bacon impacts

The situation currently at hand regarding the deficit with transportation fund in Wisconsin has elevated the importance of finding savings. The prevailing wage law will continue to be a discussion point. It is important to note that currently WMC has not taken a position on the pending legislation and it will continue to be a hot topic in the State of Wisconsin.

The Wisconsin Supreme Court recently issued a decision in Anderson v. Aul, 2015 WI 19, which clarified whether Wisconsin Statutes, §631.81 (1) and §632.26 (2), protect an insured when they fail to report a claim during the policy period of a claims-made-and-reported policy.

Aul was an attorney being sued by his former clients for legal malpractice. Aul received a letter from the Andersons on December 23, 2009 which stated that they “were dissatisfied with the legal representation Aul had provided.” This letter constituted a “claim made against the insured (Aul)”. As a result, Aul’s duty to report the claim to his professional liability insurance carrier was triggered.

Aul had purchased a claims-made-and-reported policy from the Wisconsin Lawyers Mutual Insurance Company (WILMIC) with a policy period of April 1, 2009 through April 1, 2010. However, Aul did not report this claim to WILMIC until March 2011. This was nearly one year after the policy period expired. The policy provided coverage for those “claims that are first made against the insured and reported to the insurance company during the policy period.” This language is typical of claims-made policies, although some policies do allow for an extended reporting period to report claims after the policy period ends. This is usually limited to 30, 60, or 90 days.

In this case, WILMIC argued that they did not owe a duty to defend Aul, or pay any damages, because Aul had failed to report the claim during the policy period as required. Aul responded by citing two Wisconsin Statutes, §631.81 (1) and §632.26 (2). These statutes say that an insurance company cannot deny a claim because of late notice, unless the insurance company was prejudiced by that late notice. In other words, if the insurance company could still investigate a claim, and was not harmed by the late notice in any way, the insurance company cannot deny coverage to their insured.

Therefore, the question the Wisconsin Supreme Court had to answer was whether these two notice-prejudice statutes supersede the reporting requirements specific to claims-made-and-reported policies. The Court stated that “Requiring an insurance company to provide coverage for a claim reported after the end of a claims-made-and-reported policy period is PER SE prejudicial to the insurance company.”

In other words, if you fail to tell your insurance carrier of a claim made against you during the policy period, you cannot rely on Wisconsin Statutes, §631.81 (1) and §632.26 (2) to protect you. So what does this mean to policyholders in Wisconsin?

First, this decision only applies to claims-made-AND-REPORTED policies. It does not apply to occurrence-based policies. Also, this decision does not apply to pure claims-made policies.

Examples of policies that typically have claims-made-and-reported wording are:

1. Professional Liability Policies for lawyers, engineers, architects, doctors, etc.
2. Employment Practices Liability
3. Manufacturing Errors and Omissions
4. Product Recall
5. Directors & Officers
6. Fiduciary
7. Contractors Professional Liability
8. Pollution Liability
9. Cyberliability
10. Technology Errors & Omissions

If you are not sure if your policy is a claims-made-and-reported policy, make sure you review the terms of that policy with your agent.

Second, businesses need to be aware of this decision at all levels of management. For example, a human resources person may be aware of an employment practices claim from a disgruntled employee, but the person responsible for reporting insurance claims may not. As a result, a claim may be late reported and denied under a claims-made-and-reported policy.

Finally, policyholders should always err on the side of caution and report any potential claim no matter if the policy is occurrence-based, pure claims-made, or claims-made-and-reported based. It is far better to send notice of a potential claim to your insurance company and rule out any potential denial due to late notice.

If you have any questions, please contact a knowledge broker.

The Office of Civil Rights (OCR) has proposed to ramp up their Phase II HIPAA audits at some point in 2015. Unlike the initial pilot Phase I audits, the second round will require compliance from the chosen health care account, as well as be expanded to include their “Business Associates.” Business Associates being subcontractors of health care organizations that have business agreements with the selected entity.

These audits will affect between 550-800 covered entities and their associated business partners chosen at random through the National Provider Identifier database.

What will the OCR be looking for?

• Risk analysis and risk management policies
• Content and timeliness of breach notifications
• Notice of privacy practices
• Individual access
• Training procedures
• Device and media controls
• Transmission security (Encryption)

The OCR will use the Phase II Audit findings to identify technical assistance that it should develop for covered entities and business associates. In circumstances where an audit reveals a serious compliance concern, OCR may initiate a compliance review of the audited organization that could lead to civil money penalties.

If you are a health care organization or have a Business Agreement with a health care organization, this may be a good time to review your Network Security Liability coverage with your insurance agent.

Contact our knowledge brokers for more information!