2018 | JGS Insurance - Part 2 

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  1. Why HRAs are Becoming More Important than Ever

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    By Barry Fields, Vice President – Employee Benefits

    Between rising healthcare costs and healthcare reform efforts, there’s no question the employee benefits landscape is continually changing — and keeping the hands of benefits managers full.

    With all these changes, employers need to think creatively when it comes to building and administering their health plans. While consumer driven plans and health reimbursement accounts are not new, they are becoming much more commonplace and their importance is now greater than ever. HRAs, in particular can help employers create a self-insurance plan for their employees and maintain rich benefits.

    HRAs help employees pay for medical expenses before a deductible is met. They’re essentially employer-funded group health plans that reimburse employees for medical expenses up to a certain dollar amount. Employers fund and own the accounts — which means they get to keep all savings and any unused funds. HRAs can help employers in a number of ways.

    A first step toward self-insurance

    One of the many changes we have seen over the past few years is a growth in the self-insured marketplace. While in the past self-insurance was only for the larger, cash-rich employers, more and more mid-market businesses are now looking into it in order to cut costs and regain control of their benefits.

    For businesses that can’t self-fund, are not yet ready to move to a self-insured plan or are looking for a way to just dip their toe in the water, HRAs are a great alternative and option. HRAs allow businesses to self-insure only a small portion of the healthcare plan (copays, deductible, pharmacy benefits, etc.) while still seeing substantial savings and having access to detailed claims information.

    How HRAs work

    Consider a 200-life group called “H-Corp.” H-Corp offers rich benefit plans with $20 office and specialist copays and a $1,000 deductible. H-Corp pays $1,500,000 annually for their benefits.

    The company decides it is spending too much on healthcare and seeks a way to offer the same benefits while lowering the annual cost. H-Corp’s insurance broker recommends a plan with a $50 copay and a $3,000 deductible, which would reduce their annual spend to by $500,000. In order to keep the same benefits, H-Corp implements an HRA to reimburse employees for the difference in copays and deductibles. Based on the last three years, H Corp predicts their HRA claims to be $100,000 to $150,000. Therefore, using an HRA translates into a $350,000 savings for the exact same benefit plan.

    What to watch out for

    There are some pitfalls in administering an HRA. Because an HRA is a self-funded plan layered over a fully insured plan (rather than a reimbursement plan), all self-insured guidelines apply. For example, self-insured employers, as well as all insurance issuers, must help fund the Patient-Centered Outcomes Research Institute by paying the PCORI fee. Employers administering HRAs must also abide by nondiscrimination rules. Most employers work with a third-party administrator to pay claims, handle fees and ensure compliance.

    It’s vital for employers to ensure HRAs are being administered properly to avoid penalties. But as health insurance costs continue to rise, HRAs are becoming a more popular way to control costs and provide a level of benefits that employees will appreciate.

     

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  2. The Cost of Noncompliance

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    By Meaghan Tyndale-Williams, Vice President – Commercial Lines

    Do You Know Your Organization’s Responsibilities Before and After a Cyber Breach?

    Many states have established their own laws regarding the actions a company must take after a cyber breach. In New Jersey, according to the NJ Identity Theft Prevention Act:

    • Businesses in New Jersey are required to respond to a data breach quickly.
    • The business must notify those impacted through email or written notice.
    • If the breach affects more than 1,000 people, the business owner must notify all consumer-reporting agencies.

    Complying with these procedures needs to be taken very seriously. The Consumer Fraud Act enforces data breach notification statutes in New Jersey, and if a business willfully, knowingly or recklessly violates this act, the business may have to pay the injured parties three times the damages (plus attorney fees and court costs). Most recently in New Jersey, the Attorney General fined Virtua Medical Group $418,000 for failing to protect the privacy of 1,650 patients’ medical information. Virtua was not the cause of the breach; the information became exposed by a vendor. However, Virtua had not conducted a risk assessment, had not instituted a workforce security awareness program and had no contingency plan in place for information recovery, which are violations of the NJ Consumer Fraud Act and HIPAA.

    In 2018 so far, cyber breaches have affected the following private companies, federal agencies, and local school districts in New Jersey:

    Best Buy – April 13, 2018
    Under Armour/MyFitnessPal – April 5, 2018
    Saks Fifth Avenue and Lord & Taylor – April 5, 2018
    Panera Bread – April 5, 2018
    Carefirst – April 5, 2018
    Orbitz – March 23, 2018
    Walmart Partner MBM Company Exposes Data On 1.3 Million Customers – March 23, 2018
    Applebee’s – March 12, 2018
    2,844 New Data Breaches Containing Over 80 Million Records Discovered – March 12, 2018
    Equifax – March 2, 2018
    Nis America – March 2, 2018
    United States Marine Corps Forces Reserve – March 2, 2018
    23,000 Digital Certificate Private Keys Compromised – March 2, 2018
    Bongo International/Fedex – February 16, 2018
    Us Immigration and Customs Enforcement – January 25, 2018

    Most organizations have no idea that cyber-attacks can wreak such havoc on their bottom lines. The current laws place the burden squarely on the shoulders of each organization to regularly assess their risks, implement extensive cybersecurity systems, and enforce similar processes at their third-party service providers. Penalties are especially harsh if regulators believe that a hacked organization failed to take appropriate precautions to safeguard personal data. Post breach, a company may face a combination of fines and mandates to improve cybersecurity programs.

    With the updates in the current cybersecurity laws, sole reliance on your IT professionals is not enough. In addition to having an insurance policy in place to help pay for some or all of the costs associated with a breach, all businesses need a written cybersecurity plan. Such a policy should cover a regular process for identifying potential risks, practical measures to prevent those risks from materializing, and reference plans to respond and recover from potential incidents as soon as they occur. An insurance broker knowledgeable in this area can help you with both.

     

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  3. Employer Mandate Requirements

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    By Barry Fields, Vice President – Employee Benefits

    The Internal Revenue Service (IRS) has begun to notify employers via a letter (Letter 226J) containing several attachments that a company may owe a penalty for failing to comply with the employer mandate requirements for the 2015 calendar year under the Affordable Care Act (ACA). The letter begins as follows:

    “We have made a preliminary calculation of the employer shared responsibility payment (esrp) that you owe.”

    If you receive such a letter, don’t panic! This is just the first step in assessing an employer mandate penalty. The IRS’s determination of whether an employer may be liable for a penalty and the amount of the potential payment is based on information reported to the IRS on Forms 1094-C and 1095-C for 2015 (filed in early 2016) and the IRS’s records of whom received a premium tax credit. If the IRS determines that, for at least one month in the year, one or more of the employer’s full-time employees received a premium tax credit and the employer did not satisfy the offer-of-coverage rules, Letter 226J will be mailed to the employer. It will include:

    • a brief explanation of the employer mandate provisions;
    • a summary table itemizing the proposed payment by month and indicating whether liability applies for each month and, if so, whether it’s for the A penalty or the B penalty;
    • an explanation of the summary table;
    • a response form (Form 14764: ESRP Response);
    • an employee premium tax credit listing (Form 14765: Employee Premium Tax Credit[PTC] Listing) which lists, by month, the employees who received a PTC that triggered the letter;
    • the actions the employer should take if it agrees or disagrees with the proposed penalty; and
    • the actions the IRS will take if the employer does not respond in a timely manner.

    greatest concern about the employer mandate is an employee who waives your coverage and receives a subsidized individual policy from the Marketplace Exchange when the employee was not entitled to one. Since we believe this is a common mistake, do not panic. It will take some effort to avoid the penalty, but in the end, you are safe if the medical program offered by your company met the “Minimum Value” and the “Affordability” requirements for all full-time employees.

     

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  4. That Sunny August Day That Changed My Life

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    By Ryan Hager, Assistant Vice President – Commercial Lines

    It was your typical Florida morning in the month of August. It was so hot and humid that when you left the safety of the air-conditioned car, the heat hit you like a wall. It was only 7 a.m., and that was not a good sign of what the weather had in store for the rest of the day. For two weeks every August, I would have this daily battle with Mother Nature as I attended camp at the PGA Center for Golf Learning and Performance. For the entire year leading up to it, I would look forward to the golf camp. Just as important, was getting to stay the two weeks with my grandparents and spending quality time together.

    Just like we had every morning, my grandfather was driving me up I-95 to Port St. Lucie where I had eight hours of working on my golf game ahead of me. My grandfather always preached the importance of being early, no matter what. This meant that we left every morning around 7:10 a.m. to drive to a facility twenty minutes away for a camp that didn’t start until 8 a.m. If you tried telling him that this was a little over-the-top, then he would leave a whopping five minutes later. Like every other sixteen-year-old, I would struggle getting up in the morning and wanted to wait until the very last millisecond to get up and leave. This morning was no different than any other morning, I was half asleep in the car ride to camp; what I didn’t realize was that I was about to have a conversation that would change my entire life.

    At this point in my life, I lived and breathed golf. I was the first one on the course and the last one off. During the frigid Jersey winters, I would set up a net in my garage and hit at least 300 balls a day. As a result of my passion for the game, I was interested in seeking a career in the golf industry as a teaching professional. It may not have been the most stable career choice, or one that would have provided me with the best quality of life, but nevertheless it was the path I was set on taking.

    We had just turned onto I-95 when my grandfather looked over at me and asked that I promise him one thing: give JGS a shot. After all, he began his role as President of JGS in 1962 where he stayed for over 34 years! My grandfather spent a career pitching JGS to clients and industry professionals, and on this summer day, he was now making the pitch to his grandson. He discussed the ability to work with my family, the endless opportunities, and the chance to be a part of something great. The request was simple. I didn’t have to force myself into a career that made me miserable; rather, just work at my family’s business for a summer and consider it as a viable career path. One thing was made clear from the beginning: no matter what decision I made, I would always have his support behind me. Eight months later, I walked into JGS for the first time as a summer intern. Much has changed since my grandfather was President; JGS has grown from a handful of employees to over eighty; we have been recognized by our peers as a top-100 brokerage in the country; and we continue to innovate our practices. However, there are some things that have not changed at JGS. We are still a family-owned business in an industry that has been dominated by the big guys acquiring the independent voice.

    This year I will mark my fifth year at JGS, and even though my grandfather is no longer with us, I still feel his influence every single day. I am honored to be able to work with one of his former clients, a client for whom he and my father traveled to Maryland every summer to present their insurance renewal. Last year’s annual drive was different, for the first time it was myself and my father driving down to Maryland to present that long-time client’s insurance renewal. When I think back to that day I can’t help but think about that one sunny day in August with my grandfather that changed my life.

     

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  5. Atypical Umbrella Claims

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    By Ken Hager, COO

    Do You Have Enough “Sleep Insurance”?

    I am often asked what is the proper insurance limit a company should purchase: $1,000,000? $5,000,000? $10,000,000? Or perhaps no umbrella at all? What do you think a proper limit should be? There is no easy way to answer that question, and one size definitely doesn’t fit all. Think about this question, pick a number, and write it down now before you read the rest of this article. To help you make that very personal decision, I thought it appropriate to discuss what an umbrella is and what it isn’t and share some unusual claims that we have experienced through our umbrella program.

    An umbrella in simplest terms refers to additional limits (known as excess limits) of liability insurance to protect you from catastrophic claims. An umbrella will typically afford you higher liability limits over your primary liability policies, also known as your underlying schedule. It is important that you review all of your liability policies, which may include general liability, automobile liability, foreign liability, professional liability, directors and officers’ liability, employer’s liability, employment practices liability, and perhaps liquor liability depending on your business exposures. A general rule of thumb is when purchasing an umbrella, you list any and all primary liability policies on the “underlying schedule.” If you have a policy, say directors and officers, and it isn’t listed on the umbrella liability schedule, then you will find yourself with a gap or no additional liability limits than the primary policy.

    Why is this important? As I explain to my clients, an umbrella policy is basically “sleep insurance,” peace of mind knowing that in the event of a catastrophe, you have enough dollars to pay against any claims rendered. Most people understand that a bad auto accident can eat through a million dollars of automobile limits pretty quickly, especially if there are fatalities. Many of the claims we see are due to this very issue and is one of the driving (pardon the pun) forces of claims against a business. But if, for example, you are a community association and have a board of directors, you have an exposure that needs to be listed on the umbrella liability schedule for the umbrella policy to be effective. If you have purchased any of the types of liability previously mentioned, then you have already recognized the fact that your company has a real exposure that could affect you at any time.

    Let me give you some atypical umbrella claims—real examples that we’ve paid out on behalf of our insureds—to help you get a better feel for what types of exposures may face your company that you probably never gave a second thought to:

    • Building blew up due to alleged gas leak. Three fatalities. Removal of an oil tank while digging for a replacement gas line caused an explosion. Suit brought against property manager, building owner, PSE&G and contractor. Our insured building owner was found liable for$1.65 million. Underlying policy paid for defense costs and primary limit of $1,000,000; umbrella policy for building owner paid $650,000.
    • Claimant dove into pool and was severely injured. After the incident, local inspectors deemed the pool was indeed unsafe and violated code. Pool was closed. Umbrella paid $1,187,000.
    • Claimant was walking down stairs of insured’s building when railing came off of wall. At the time of the incident, claimant was found to be legally intoxicated from tests taken at hospital. Claimant suffered a broken ankle and leg. Jury found in favor of claimant and was awarded $2.3 million; umbrella paid $1.3 million.
    • Claimant dove into pool and sustained a fractured neck. Allegations of improper depth markings, improper lighting and lack of signage. Our insured was found liable for $3,900,000, of which the underlying policy paid out$1,000,000 and umbrella paid out $2,900,000.
    • Two children in an apartment building were taken to the hospital with alleged mercury poisoning. Insured hired a contractor to replace all of the old thermostats in the building, which had mercury switches. However, instead of following the law with proper disposal methods, contractor placed the thermostats in the dumpsters while the children were outside playing. One of the children got severe mercury poisoning and recovered; the other 13-year-old child suffered permanent physical and mental impairment and will be impaired for life. Building owner’s share of liability was $5,000,000, of which umbrella paid out $4,000,000.
    • Unit owner was burglarized and subsequently shot during the burglary. Allegations of inadequate security, failure to provide safe premises and improper lighting. Claimant awarded $5.2 million, of which the umbrella picked up $4.2 million.
    • Boy on bike struck and killed by vehicle on sidewalk at entrance to association. Father was seriously injured as well. The allegation was obstruction of view and failure to maintain/regulate entrance landscaping and signage at entrance to association. Hedges at entrance way were twice the height allowed by code; stop sign was shorter than required by code. Jury verdict of $12 million, of which association was found 30 percent at fault, property manager 60 percent, and driver of the vehicle 10 percent. Due to the fact that the property manager was listed as an additional named insured on the association policy, umbrella paid $11,870,000.

    These are just a handful of what we call atypical claims that most people wouldn’t contemplate when deciding on whether or not to purchase an umbrella and, if so, for what dollar amount. Unfortunately, we have multiple claims for inadequate security, obstruction-of-view claims, quadriplegic pool accidents, trip-and-falls and other atypical as well as typical claims. As a result, we always recommend that clients price out limits and purchase the highest affordable limit that they can budget for. Our umbrella program that we manage nationwide can offer from $1,000,000 to $100,000,000 in limits at very reasonable prices.

    Now please take a look at the number you wrote down when you started to read this article and compare it to the number currently in your head. Is it the same? We hope that your company never faces tragedies like the ones outlined here, but we recommend you prepare yourself adequately just in case. Do you have enough “sleep insurance”?

     

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  6. Single-Premium Life: An Innovative Solution For Businesses Succession, Deferred Compensation, and Estate Planning

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    By John E. McEnery, Board of Directors

    A single-premium life insurance is exactly what it sounds like. You pay a one-time premium at the beginning of the contract and you never have to pay for it again. It may not sound all that different compared to other forms of life insurance, but if you take a deep dive below the surface, you will find all kinds of pleasant surprises.

    Single-premium life insurance is a great way for businesses with excellent cash flow or extra cash on their balance sheet to provide a great life insurance benefit to top employees without sacrificing the value of that liquidity. These are some additional benefits of single-premium policies.

    Great Earnings Potential

    Improved return on cash. If you are looking for an alternative to your bank’s low rate-of-return on cash accounts, consider this type of policy, which functions like cash but carries a large payoff when invested wisely and held long term.

    Range of return options. Whether you are an experienced or novice investor, it’s easy to customize your portfolio to fit your individual risk tolerance level. For example, you can select from fixed options, like whole or universal, which are correlated to interest rates; indexed options, which are correlated to the S&P with a floor and a cap for lower volatility and which resets annually; or variable options, which may include more aggressive selections, like mutual funds, which are volatile and have a risk of loss.

    Ultimate Flexibility

    Versatile payout options. Beneficiaries can structure their policy payout according to their needs, from a single lump sum to a scheduled payout over a period of time.

    Collateral value. You can borrow up to 100 percent of the life insurance premium, pledging the policy’s cash surrender value as the primary collateral. Your out-of-pocket cost is the interest on the borrowed premium rather than on the actual premium.

    Wide Range of Applications

    Succession planning. These types of policies can be used to help meet long-term business goals in cases where there are multiple owners, intrafamily succession goals, exit planning concerns, and Employee Stock Ownership Plans (ESOPs).

    Supplemental retirement planning. Single-payment policies are ideal in situations where a company wants to recognize key people that are critical to its success but who are ineligible to receive equity. This benefit can be used to incentivize employees based on performance and provide them with significant retirement benefits.

    Estate planning. Individuals and families with significant net worth and highly illiquid assets can benefit from this versatile cash equivalent in building a more balanced portfolio.

    Fewer Taxes and Penalties

    No surrender charge. Unlike many other insurance policies, there is no surrender penalty, which means you are free to terminate your policy early and cash it in for the value of your investments.

    Tax-deferred investment. There are no taxes due on this type of policy until funds are withdrawn; because it accumulates tax free, its value can grow more quickly.

    Contact us today to view a few sample fact patterns that demonstrates the utility and flexibility of this creative product.

    Disclaimer: These views are intended to provide an overview of succession issues. This article is intended to be for educational purposes only. Seek your own legal, accounting, and insurance advice before forming a succession plan.

     

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  7. Distracted Driving And Crash Avoidance Systems

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    By Eric Wokas CSP, Risk Control Consultant

    One solution to the problem of distracted driving is an array of new technologies that assist the driver with warnings or automatic braking to avoid or mitigate a crash. These advanced technologies vary in their function and how they operate. In general, they monitor driver input and the environment around the vehicle and warn the driver when they detect the possibility of a collision. In some cases, they may automatically brake or steer the vehicle if the driver does not act to avoid a collision.

    The simplest and least costly technologies are collision warning systems (CWS). These systems assist a driver in preventing or mitigating collisions by presenting some combination of auditory, visual and tactile warnings. These various warning alerts aid drivers in a variety of potentially dangerous situations, including frontal collision, blind spot detection and lane departure. An Insurance Institute for Highway Safety (IIHS) study found that forward collision warning alone reduces rear-end crashes by 23 percent, while forward collision warning with autobrake reduces them by 39 percent. The autobrake systems also greatly reduce rear-end crashes involving injury. The Highway Loss Data Institute (HLDI) conducted similar studies comparing insurance claim rates for vehicles equipped with front crash prevention systems with claim rates for the same models without such systems. Vehicles equipped with these systems consistently show lower claim rates for damage to other vehicles and for injuries to people in other vehicles.

    Blind spot detection has shown to reduce lane-change crashes by 14 percent. HLDI research has also found that blind spot detection lowers rates of insurance claims covering damage to other vehicles. Another warning system, lane departure warning, has not brought down insurance claim rates, but it has reduced rates of single-vehicle, sideswipe and head-on crashes reported to the police. Rearview cameras are effective in preventing backing crashes reported to the police, which most often are crashes in which a vehicle backs into another vehicle. The effect of rearview cameras on insurance claims has been less clear. Vehicles with rearview cameras tend to show lower rates of claims for damage caused to other vehicles, but some systems also have higher rates of claims covering damage to their own vehicle. Rear parking sensors have reduced insurance claims, but have had inconsistent effects on backing crashes reported to the police. Appropriate driver responses and acceptance of crash avoidance technologies are critical to the success of these technologies. If drivers don’t trust the systems or find them annoying or not useful, they may disable them. Similarly, if drivers experience warnings but do not understand them, are overwhelmed by them, or do not take an appropriate corrective action, then the systems will be ineffective. Institute surveys of owners of vehicles with crash avoidance technologies found that, despite some annoyances such as false alerts, most drivers left the systems turned on most of the time and felt the systems made them safer drivers.

    Another concern is that drivers might rely on crash avoidance systems too much and feel freer to look away from the road or take other risks. In the Institute’s surveys, many owners reported safer driving habits with the systems (e.g., using turn signals more often with lane departure warning systems). Fewer owners reported potentially unsafe behavior, such as waiting for an alert before braking or allowing the vehicle to brake for them at least some of the time. For systems requiring drivers to take action, their effectiveness depends on whether drivers use the technologies, understand the information provided by the system and respond appropriately. Interpreting warnings from multiple systems may be confusing or even distracting for some drivers. In addition to driver challenges, the technology itself can have limitations. For example, lane departure warning systems use sensors to register lane markings or the road edge, which may be problematic on roads that aren’t well-marked or are covered with snow. Sensors such as cameras, radar, and LIDAR (a technology that uses laser light to measure distances) also may not function well in low light or inclement weather. Some systems only work at certain speeds.

    Crash avoidance features can address all kinds of distractions by bringing drivers’ attentions back to the road or taking action for them. Front crash prevention systems are making a measurable difference in insurance claims.

    Future technology could include other potential game changers. A consortium of federal and state agencies, research organizations and automakers are developing vehicle-to-vehicle and vehicle-to-infrastructure communications platforms that could take crash avoidance even further. The idea is that cars will be able to communicate with each other and roadway infrastructure to help ease congestion and avoid crashes. The National Highway Traffic Safety Administration (NHTSA) estimates that connected vehicle technology could potentially address about 80 percent of crashes involving nonimpaired drivers.

     

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  8. Meeting Minutes: The Most Important Minute of the Day

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    By Ross Rutman, Marketing/Producer

    Community association board meetings—(where important homeowner matters are discussed and decisions are made)—contribute to the success of community associations. Since board meetings result in significant decisions that impact community members, it is necessary to record these decisions in official board meeting minutes. These minutes serve as a historical record and provide pertinent information to the community. Recording accurate minutes can also prevent potential litigation risks for Association directors and officers.

    What are board meeting minutes?

    Board meeting minutes are a written record of the official actions taken by an Association’s Board of Directors during scheduled meetings. The minutes document the topics discussed and record the decisions voted on during these meetings. There are two sets of minutes: one for closed sessions (Board members only) and another for open sessions (those that include homeowners). The minutes can also serve as a reminder of what was previously discussed to avoid rehashing old business.

    What is the purpose of board meeting minutes?

    There are two main purposes of board meeting minutes:

    1. They inform members of decisions that impact their community association.
    2. They can serve as evidence in the case of a lawsuit against the Association.

    For Board members, meeting minutes are valuable evidence that the Board made decisions in good faith and carried out its fiduciary duties to the Association.

    What should be included in board meeting minutes?

    Board meeting minutes should be easy to read and include only essential information. Most importantly, members should be able to understand what Board actions were taken and approved. At a minimum, the minutes should include the following:

    • Name of the Association
    • Date and time of the meeting as well as the location
    • Names of all Board members, noted as present or absent
    • Names of guests in attendance, including those invited to speak
    • Whether or not a quorum was present
    • All Board actions taken
    • Signature of the Board secretary or other official qualified to sign
    • Supporting documentation, if applicable

    It is generally the Board secretary’s responsibility to record and certify the minutes. Keep in mind that all of the Board directors and officers may be held liable if the minutes are falsified or embellished. It is best for the person recording the minutes to be someone other than a Board member since focusing on the task of taking minutes could potentially take this member out of important discussions.

    After the meeting, the open session minutes should be made available to all Association members, whether by mail, email, or posting the minutes in a common area or on a community website. A printed copy of the minutes should be kept in the Association’s Board minutes book. An electronic copy should also be retained.

    What should not be included in the board meeting minutes?

    Meeting minutes do not need to be a transcript; rather, they should be a summary of the meeting. Avoid recording the following:

    • Names of homeowner members present
    • Every conversation that took place, especially those that lead to unnecessary discussions
    • Owner comments during the meeting, especially of a confidential or sensitive nature

    Boards should discuss confidential or sensitive information, including delinquencies, in the closed session. Minutes that contain sensitive information should be kept separate from open session minutes.

    Meeting minutes are a valuable communication tool and may be used as evidence during a lawsuit. Contact me today for additional resources to manage and protect your Association.

     

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  9. Reducing The Risk Of Supply Chain Disruptions

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    By Gwenyth Luu, Director – Commercial Lines

    Butterflies are beautiful creatures. Songs and poems have been written about them as long as their striking colors have enchanted us. They also serve as a wonderful metaphor when discussing supply chain disruption. With its origins in weather predicting, the concept known as the “Butterfly Effect” states that small causes can have larger effects. For instance, that a butterfly’s flapping wings in South Africa can create weather in New York. The same can be said of supply chain disruption. The smallest interruption in the chain can cause significant revenue loss to even the most established business. The supply chain must be proactively managed to minimize financial, confidential, operational, reputational, and legal risks. Fortunately, with strategic planning, not only can an organization prevent such losses but it can possibly be poised to take advantage of situations when competitors are left unprepared.

    Evaluate Chain Weaknesses

    The first step is to evaluate as many potentially disruptive scenarios as possible. For most, this begins with reviewing where each of their suppliers operate and how they deliver their goods or services. Here we want to identify if a supplier may be unable to deliver and manufacture due to natural disasters such as hurricanes in Florida, earthquakes in California, blizzards in the Northeast, tsunamis in Japan, or volcanoes in Iceland. It is as important to identify potential risks associated with a loss in utility service. Consider the impact to a business if the local power grid became compromised, a nearby gas line broke, or communications equipment went down. Such interruptions could be devastating.

    Identify Safeguards & Alternatives

    Risk managers are tasked with minimizing risk to person or property. For supply chains, their responsibility is to insulate a business from disruption. Mitigation strategies can take many forms. Some methods may include identifying suppliers in different geographic regions to reduce interruptions caused by weather. More simplistic ways would consist of maintaining certain levels of inventory to wait out any disruption. Building safeguards is another approach to reduce supply chain disruption. On-site generators can provide power when the local grid cannot while off-site information storage and communications backups give assurances that access to data will be readily available.

    Transfer the Risk

    When the ability or cost to mitigate supply chain risks exceeds a business’s capability, a business may be able to transfer the risk to an insurance company. The most commonly known type of insurance product to address this risk is Business Income. An insurance company can provide loss of income suffered by a business when damage is caused to its premises. Often overlooked is the availability of Contingent Business Income. Offered as additional coverage with many insurers, this option provides funds to businesses that have lost revenue as a result of one of their suppliers suffering a loss.

    Develop Strategic Partnerships

    There is an important balance in maintaining supply chain efficiency and reducing risk. While sourcing goods from multiple suppliers may reduce the risk of a supply chain interruption, it may not make financial sense when secondary supplier pricing reduces profitability. On premises, increasing inventory levels and building redundant systems are also common risk management strategies, but these too may be prohibitively expensive pursuits. However, depending on your specific business, you may be able to enter into contracts which would provide the goods and services required to continue operating in the face of a disruption. For example, if you live in a hurricane-prone area, you could contract with a general contractor who would access and repair your property ahead of others. Or, you may consider a future contract providing for the delivery of supplies after a triggering event by a supplier.

    Build & Review Your Plan

    Identifying your exposure to a supply chain disruption is worthless without having an executable plan. If and when the time comes, the faster an organization can respond to an interruption, the less negative impact to the bottom line. Remember, in many instances, your business will not be the only business impacted
    by disruptive events. When this occurs, competition for the goods and services which are the lifeblood of your business can increase dramatically. This makes your actionable speed a critical factor for the survivability of your business. Develop a plan organized first by each potentially disruptive event. From there, identify the responsible employee and, if necessary, employee team. Outline step by step what actions to take and by whom. A good plan could be the quintessence of an organization’s survival, as the future cannot be predicted.

     

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  10. My Last 120 Days, A Look Back

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    By Conor Moran, Assistant Vice President – Commercial Lines

    My last 120 days in the insurance industry have been a tremendous learning experience to say the least. In the Fall I traveled to Hanover, Maryland, to attend the Hartford Insurance School for an extensive two-week course. It is there that I learned in-depth information about coverages across all lines of insurance. It was a great networking experience as well, I had the opportunity to meet other producers from across the country. Their years of industry experience varied, some were brand new while others had been in the business for over 20 years. This goes to show you that no matter how long you’ve been in the industry, there is always something new to learn!

    I spent two long weeks soaking in as much information as I could, knowing that there would be an exam at the conclusion of the course to earn a designation. After two weeks acting like a sponge, it paid off! I had passed the exam and earned my first designation, a Commercial Lines Coverage Specialist (CLCS) designation to further solidify my ever-growing knowledge of the insurance industry. I felt more confident than ever about my ability to help businesses understand their risk and gain control over their insurance programs.

    Upon returning back to the office, I was ready to hit the ground running. I performed extensive research on prospective clients, picked up the phone and start making cold calls. It seemed as if every call was met with rejection. It took some time, but I eventually secured my first appointment! I was overcome with excitement. Finally, I had the opportunity to put my insurance knowledge to use. The research and hard work I have done had finally paid off!

    I spent hours preparing for my first appointment. When the day came, I was ready! At least I thought I was. It wasn’t until I was greeting the buyer that I started to feel nervous. I began to question everything: what if I can’t articulate the services I can provide to the buyer? Should I be using insurance terminology, or everyday language, or maybe both? As I sat down for my first appointment, my mind was racing. I was thinking faster than I could speak. After the first couple minutes of scrambled thoughts and words, I took a step back and said to myself, Conor, you know what you are talking about! Just slow it down, put yourself in the buyer’s shoes.

    Suddenly a switch flipped, and everything came naturally. I finished our meeting feeling confident. After the appointment, the buyer said they were impressed with our services and I received a Broker of Record. Being their Broker of Record means that I would be the official broker designated by the policy holder to represent and manage their insurance program. Nothing in that moment could have made me happier!

    It’s normal to feel down in this industry when you face rejection on a daily basis. Sometimes you just want to give up. After all, rejection is a part of life. If everything was easy, there wouldn’t be such a thing as hard work and the amazing feeling of accomplishment. You just have to keep your head up, continue to work hard, and the opportunities will follow!

     

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