Too many companies operate under the false belief that their organization is not a good candidate for Directors and Officers Insurance without proper knowledge of the full breadth of its coverages and protection. This can be a very dangerous supposition on the part of a company that could see its directors and/or officers held personally liable—thus risking their personal assets including family assets and estates. The statistics are alarming enough to make one consider the various reasons a claim might be brought against a company, or even an individual personally.

According to a Chubb 2004 Private Company Risk Survey, nearly 40% of privately held companies stated that is was likely their Directors and/or Officers would be sued, and 18% of those surveyed were sued during the past few years.

Beyond that, almost a third of surveyed companies reported a direct or indirect effect from the Sarbanes-Oxley (SOX) Act of 2002.

Even if a lawsuit is baseless or fraudulent, companies still have to pay to defend them. The Tillinghast Towers Perrin D&O survey of 2004 stated the average defense cost for all reported D&O suits was $370,002 with an average indemnity of $2,160,909.

After looking into it, many companies decide that, as it turns out, D&O coverage is a necessary company safeguard after all, as many of the things they thought were covered by their general liability policies, are in fact not. When that happens, it is important to note that unlike most general liability policies, which are somewhat standard, D&O policies can differ greatly. If one is shopping for a policy one must give credence to the need for understanding both the definitions of the terms below and how they factor into the policies they are considering:

• Claims-Made Coverage vs. an Occurrence Policy
• Extended Reporting Period/Tail Issues
• Policy Limits
• Defense Inside the Limit
• Failure to Provide Insurance Exclusion
• Retroactive Date/Prior and Pending Litigation Date
• Employment-Related Practices Issue

With the tremendously high propensity for employers to face lawsuits, and so many aspects of coverage left out by other policies, finding out whether or not your organization needs a D&O policy may be the difference between an executive team member exhaling a sigh of relief at a policy stepping in to do its job, and seeing his car towed away after being sued for his own personal assets.

Health Care Reform is all over the news these days, and while there are many important ideas being batted around – the simple truth is we don’t know what will happen. The question is- how can we be proactive and prepare for the changes coming our way?

A possible answer may be found in programs that are readily available to us now. Long-Term Care (LTC) insurance and Health Savings Accounts (HSA’s) are strange bedfellows, but they both offer tax incentives, opportunities for savings, and flexible choices that may help to stave off some of the uncertainty surrounding the current Health Care Reform conundrum. Each of these benefits is designed to provide individuals, employers and employees with options to help them plan for the future.

Long-Term Care insurance has been around for years, but the complexity of the options and the cost associated can be daunting. Rather than working through these issues to find solutions, many people believe that their family will take care of them in their convalescent years, or that Medicare will be there to pay for nursing home coverage. However, what may not be clear is that Medicare only helps to pay for 12% of the cost of nursing homes, and even less for the cost of home care. Additionally, the emotional and financial burden that can be placed on a family caring for a seriously ill or disabled family member can be devastating.

According to a Georgetown University publication, 37% of people who actually need long term care today are working adults under the age of 65. This is typically due to unexpected events like car accidents, strokes, head traumas and neurological conditions such as Multiple Sclerosis or ALS. LTC offers tax free financial assistance with home care and/or nursing home care.

The trick is to buy the policy at an age that makes sense. Generally, LTC policies are more affordable when purchased when the buyer is 40 or under. Once the policy is purchased, the rate is typically locked in, and barring changes the insured may make to the plan, the policy premium does not change. LTC policies come with many options that can include coverage for home health care provided by family members.

Where Health Savings Accounts (HSA’s) come in is that contributions, earned interest and withdrawals are federally tax free. The best part of HSA’s is that the High Deductible Health Plans offered with these accounts are less expensive than traditional PPO’s and give employers the ability to offer flexible health benefits to employees while, at the same time, promoting wellness and tax free savings. Employees can use the funds to pay for LTC insurance premiums should the need arise or on an ongoing basis.
There are many ways employers can package their programs to benefit both the employees and the corporation. For example, employers can pay for the executive staff’s LTC plan and offer the group discount to employees on a voluntary basis. The key is to carefully consider all options and help prepare employees for the looming reform ahead.

Valerie Antillon, SPHR, is an HR Consultant & Account Manager for Montage Insurance. She has over 15 years of HR experience, specializing in employee benefits in the Finance and Technology industries.

As companies are reducing hours and wages the human resources professional may need to review the impact towards the employee benefit program. If your company has reduced the salaries of the employees and they are working the same hours then you will want to check your life and disability offerings.

At the point of adjudication of the claim, which would be the claim date, the life and disability carrier will ask for the salary earned the day before the claim date. If your employee’s life insurance benefit is a 1, 2, 3, 4 or 5 times the salary you may want to put a temporary revision in place to your contract if your company has reduced salaries.

Many companies are continuing to pay the premium based on the salary and if the salary goes down it is important to ensure the benefits are not going down as well, unless this is your intention. Some carriers will adjudicate the claim based on the premium; however it is important to ask the question, because you may be paying the higher rate and the benefit may reduce.

According to Louis Gallucci from The Hartford, these are a few questions you may want to ask your carrier representative:
If a claim was to occur during this reduction of salary period of time, would we be able to calculate the salary off an average of six months of income rather than the salary at the point of the claim?

If you believe the reduction of salary period of time will go beyond a six month period of time, then you may want to amend your plan document.
If your employee’s hours have been reduced lower than the thirty hours, or number of hours to qualify for your employee benefit plans, you may ask to amend your contract to the current number of hours worked to qualify.

Another alternative would be to inform your carrier your salary has reduced and you do not want the benefit to reduce. You can determine if you need to add 5% or 10% to the amount of benefit. So instead, if 1 x salary was $45,000 and has been reduced to $40,000, then you will add a 11% or 11.5% increase to the benefit to be paid out. This would be a change to a 2.1% or 2.2% depending on your needs. This way your employee’s loved ones will not receive less than the employer desires.

As far as the disability products, it is possible to amend your Summary Plan Document (SPD) adding the provision to 70% all source. In order to make up for the decrease in salary, the company can ask for this contract change. The carrier will not offset from other sources of income, including CASDI, until the employee has 70% of their income. Contact your carrier for your plan details.

In the current economy, Human Resources Professionals are looking for creative alternatives to layoffs. One area to consider for cost-savings is your health insurance plans. Coupling a money saving High Deductible Health Plan (HDHP) with a tax savings Health Savings Account (HSA) can help employers realize on-going savings in their annual renewal while encouraging employees to save for their future medical costs. At Danone Simpson Insurance Services LLC we helped one of our clients transition all of their employees to an HDHP/HSA and they were able to save over $300,000 in their annual premium.

High Deductible Health Plans/Health Savings Accounts
According to the 2008 Kaiser Family Foundation Employer Health Benefits Survey, there has been “an increase in the percentage of workers enrolled in high deductible health plans.”

HDHP’s are PPO plans with high deductibles. They offer participants the flexibility to use health care providers both in and out of the carrier’s network. Most importantly they usually come with a cheaper price tag than traditional HMO’s, and lower deductible PPO’s. According to the Kaiser Family Foundation Survey, “average premiums for HDHP’s are lower than the overall average for all plan types for both single and family coverage.”

The higher deductible provides an incentive for the health care consumer to shop for the best prices on prescriptions as well as encourage negotiations with their doctors since the first dollars spent come directly from the participant’s pocket. With an HDHP, participants are more likely to go in-network for their health care since the cost is less. Participants pay only the carrier’s negotiated price for services rendered. Shopping around and using in-network providers help to keep costs in check – and the carriers respond with lower renewal rates on average.

These plans not only encourage participants to shop around, but when they are coupled with Health Savings Accounts (HSA’s), they offer the opportunity to save for future health care costs. In short, HSA’s offer participants a triple tax incentive.

When coupled with the employer’s Section 125 Premium Only Plan, employees can contribute to HSA’s on a pre-tax basis. The funds, which always remain with the participant (no “use it or lose it” rules apply), grow in the account tax-free. When used for qualified medical expenses, funds are withdrawn from the account tax free.

Of course, there are some basic rules that apply to that the employer should consider before offering HSA’s to their employees:

• The employee must be enrolled in an HSA compatible HDHP – they can not be enrolled in any other plan at the same time.
• They may not be claimed as a dependent on someone else’s tax return.
• They may not be receiving Medicare.

Health Savings Accounts are intended to work alongside HDHP’s by providing tax savings when using the health plans first dollar deductibles.
Considering the savings on the HDHP and the tax savings employers can realize, these plans can be a viable long term cost savings tool.

For more information, please contact Valerie Antillon, HR Consultant/Account Manager, Montage Insurance – 1 (888) 839-2147.