Small Business Issues	Balanced Insurance Coverage Does your business  carry enough insurance  to provide for a soft landing? By Jerry Blackwelder Other tips: Step one: Find the Best Broker
Taken together, coverage for business liability, worker’s comp and employee benefits represent a sizeable investment of any company’s annual operating budget. To help determine your company’s insurance needs, it’s helpful to study the various insurance categories individually.

Around the kitchen table of her family’s home, “with three kids at my feet,” Gayle Tuttle realized her dream of launching a healthcare consulting company.

Her business soon outgrew the kitchen table, so she rented office space near her home in Clayton, a suburb of Raleigh. Now, nearly 10 years later, Perigee Healthcare Services operates from a modern office building just off Interstate 40 in the northwest Raleigh area, employs upwards of 400 seasonal workers who completed more than 200,000 medical records this spring for clients in more than a dozen states.

Managing such explosive growth has been challenging for Tuttle, who says some of the most difficult decisions she’s made involved her company’s evolving insurance needs. That’s an assessment often heard from small business owners, whose advice, insights and recommendations on business insurance we sought out for this story.

Tuttle’s first business insurance policy, purchased soon after she outgrew her kitchen and leased office space, “was a basic, general office policy to cover the computer, office contents and loss of work due to fire or theft,” she recalls. As the business grew, insurance issues grew in dollar value and complexity. Tuttle says she realized she owned a real business the day she had to buy unemployment and workers’ comp insurance. In addition to those state-mandated policies, there were other types of insurance her clients insisted she have.

“We have encountered a trail of contractual requirements” from clients who, by virtue of the type business served, must insure that contractors are covered for all eventualities, says Tuttle, who is an NCCBI member and is married to Steve Tuttle, the editor of this magazine. She is a member of the NCCBI Small Business Advisory Board.

Perigee’s most recent insurance problem arose when the company needed to expand its management ranks by hiring a few highly trained, qualified employees. Tuttle was concerned she couldn’t attract the best candidates because Perigee didn’t offer health insurance, so she consulted an insurance broker. She learned that an employee health benefit plan was shockingly expensive, but the company believed there was no other choice. “We have hired three or four managers in the last six months that would not have been possible unless we provided them with health insurance,” she notes.

Tuttle and other small business owners we talked to said an employee benefit like basic health insurance coverage has become a given in today’s workplace in order to recruit and retain good employees. Some coverage areas, like unemployment and worker’s compensation insurance, are dictated by law. Liability coverage, though not universally mandated, is essential unless the business owner is willing to face the risk of loss personally.

In between are a host of other group products developed by insurance companies to provide employee life insurance, dental and vision benefits, retirement, disability and specific coverage for major medical needs.

Wading through the maze of insurance offerings can be overwhelming to a business owner, especially one attempting it alone. Tuttle dealt with the dilemma by assembling an advisory team comprised of “a good insurance broker, an excellent attorney and an outstanding accountant.”

Her strategy has been proved correct, she says, because the professionals “have gone out of their way to support me and the company and see us through.”

By seeking counsel from all three, she was able to determine both the company’s needs and what coverage the business could afford. “Getting into the insurance area is expensive,” she admits, adding that her advice to new business owners would be to “not buy more than you need prematurely.”

Taken together, coverage for business liability, worker’s comp and employee benefits represent a sizeable investment of any company’s annual operating budget. To help determine your company’s insurance needs, it’s helpful to study the various insurance categories individually.


Employee Health Insurance

In 1984, Ralph Shelton of Greensboro started a company brokering coal and fuel oil across the Southeast, determined to provide reputable service to his customers and good compensation and benefits to his employees. He has been successful, recently adding natural gas to his product offerings. Shelton is also a member of NCCBI’s Small Business Advisory Board and of the organization’s board and executive committee.

But on the eve of Southeast Fuel’s 20th anniversary, Shelton is troubled and frustrated — not by the competition or by the economy but by the cost of providing health insurance to his workforce.

“Healthcare costs for small companies are going up 20 percent a year,” Shelton maintains. “It’s certainly one of our most expensive monthly bills.”

Concern for the cost of continuing to provide employee health insurance is one of the most pressing insurance issues facing businesses large and small across North Carolina today, including Shelton. “It’s a frightening thing,” he says, “and it leads me to believe something has to be done on a national scale.”

Gayle Tuttle shares Ralph Shelton’s concern, even though Perigee is in its first year of providing employee health coverage. “We are spending about $600 a month on average for each employee,” she says of the company’s health coverage plan. “I’ve been reading about and fearing the increased costs, but it’s just not a consideration to take it away.”

In the 21st century workplace, businesses offering ongoing health insurance as an employee benefit must ante up or lose a valued perk among workers, even though the majority of employees only seldom use the coverage. “With health claims, 80 percent of the costs are driven by 20 percent of the population,” explains John Dail, president of the J. Arthur Dail Brokerage Consulting Firm he formed in 1987 with offices in Charlotte and Smithfield.

A money-saving tip often heard is to explore alternative approaches to employee health benefits. Many companies are seriously considering a consumer-driven healthcare plan setting annual dollar limits on employee expenditures for medical claims. “Employees see the cost of medicine that way,” Dail says.

Educating employees about the cost of medical care is essential, Dail feels. He relates the story of one of his clients — who has thousands of employees — reporting annual spending in excess of $100 million to provide health insurance coverage. “The average worker can’t fathom that amount of money,” Dail says. “They need to understand the difference in cost between a hospital and a doctor’s office visit.”

The last few years have seen the rise of several specialized group healthcare programs that have become popular with some companies and workers. Employee programs are now available to cover dental and vision needs as well as specific illnesses such as cancer, heart attacks and strokes. Disability programs and long-term care coverage have also been packaged for employees.

Dail warns his clients that before embarking on the additional voluntary programs to keep in mind that general healthcare policies contain a ceiling on employee out-of-pocket expenses, so that they should study existing policies to avoid duplication of coverage.


Worker’s Comp, UI

The federal government sets guidelines for employer contributions to worker’s compensation insurance based on the size of the workforce and the occupations involved. Federal law requires that any company with three or more employees provide workers’ comp insurance. A proprietor or partner in the company may also become covered by the policy if they are actively engaged in running the business. Generaly, a sole proprietorship, partnership or corporation is required to provide unemployment insurance coverage for its workers if the business has one or more employees for 20 or more weeks in a calendar year, or pays $1,500 in wages during a calendar quarter.

David Wright, a certified insurance counselor and accredited advisor in insurance at the G.R. Little agency in Elizabeth City, suggests that companies should be careful not to underestimate payroll and revenue figures for worker’s comp payments because audits are conducted annually to make sure the estimates match up with actual sales and payroll expenditures.

Rates for workers comp insurance rise in relation to the number and severity of on-the-job accidents a company experiences. To keep their  rates down, larger companies like SAS, the Cary-based software giant with 9,000 employees, take preventive measures ahead of time. “Keeping employees healthy is a key issue in worker’s compensation,” says Mary Jo Hill, head of risk management operations for SAS. “We have a healthcare center here on site we use for worker’s compensation injuries so our employees can be back to work with no cost incurred.”

The health center, Hill feels, “has served our employee base well and helped to control costs internally.” In addition, Hill’s staff includes a safety coordinator and two full-time ergonomics specialists as part of the company’s drive to “work heavily on training those at risk to try and keep them from getting hurt.”


Liability

Regardless of the nature of a business, “premises liability is paramount in this litigious society,” broker David Wright maintains. Wright suggests that companies “should not scrimp on liability insurance limits,” recommending umbrella policies providing excess liability coverage as the company grows.

Hill agrees with that philosophy, saying that “what’s required by law is never enough” to cover actual losses. The higher coverage limits, she adds, must be balanced against “what the company can afford to buy.”

The larger a company, the more complex liability insurance issues become. Companies like SAS, with offices across the U.S. and even overseas, must be careful to ensure they have adequate policies in place to meet varying local requirements. Policies are also written differently depending on whether the facilities are owned or leased by the company.

But to the business owner the concern for liability does not end with bricks and mortar. Liability insurance questions extend to the company’s equipment, vehicles, tools and products stored on site.

Company-owned automobiles or other vehicles “are a company’s biggest exposure, greater than anything else,” Wright says, noting that vehicle coverage is one area in particular where he recommends higher limits than may be required by law.

The nature of the company’s business can also dictate specialized liability requirements. Gayle Tuttle’s business allows HMOs and other medical providers to outsource the personnel reviews they need to sustain accreditation and pharmaceutical manufacturers to conduct required clinical tests. Tuttle pioneered the new business concept, and even today there are only a handful of companies in the nation providing such services.

Because of the nature of the business, no classification existed relative to the liability insurance coverage clients would require Perigee Healthcare to maintain.

As a result, when Tuttle landed her first HMO contract she had to have in place “almost as much liability coverage as doctors,” she says. The policy included errors and omissions and extended to directors and officers. Tuttle is still “struggling to get a better classification,” and advises companies to “be careful going into contracts to know what the insurance requirements are and build them into the contract price.”


Other Coverages

Once basic business insurance issues have been resolved, many companies look to additional coverage areas such as life insurance, disability, pension plans and specific policies for key executives.

Ralph Shelton offers a 401(k) pension plan to Southeast Fuel’s seven employees. In addition to health and dental coverage, Perigee Healthcare matches employee contributions up to 3 percent in a simple retirement program.

In establishing a corporate pension plan, the company should consider the salary variance between workers and executives, advises Gary Pendleton of Raleigh, president of Preferred Planning and Insurance. Because of contribution limits to traditional group retirement plans, employees sometimes retire with up to 80 percent of their salary, Pendleton says, while executives might receive only 30 percent of their yearly pay.

Pendleton, who has specialized in key executive benefits for nearly 25 years, often recommends “superimposing a discriminatory non-qualified deferred compensation retirement plan” to more adequately provide retirement income for executive personnel. Similar discriminatory coverage for business owners and partners may be available, Pendleton notes, for disability and health coverage.

“Becoming disabled is 10 times more likely than death before the age of 65,” Pendleton says. And while group disability policies may contain a payment ceiling far below an executive’s income level, policies are available to more adequately compensate corporate leaders.

Key executive healthcare plans often cover medical needs such as hearing aids and braces that may not be reimbursed under employee group plans.

Business owners should address the ongoing financial health of their companies, Pendleton feels, by buying life insurance policies with the corporation as beneficiary. In the event of the death of a business executive, a company-owned insurance policy “allows money for the corporation to go out and find a replacement,” he says. Further, he believes insurance should also be incorporated into partnership buy/sell agreements.

Working with a tax attorney, Pendleton has drawn plans-for-life coverage made payable to the corporation to purchase the stock of a partner who dies. Policies are also available to compensate companies for a partner who becomes disabled.

Business insurance may be intimidating at first, but seeking good advice and counsel, thoroughly examining policies and buying coverage to meet company needs and budget can make it easier.




Step One: Find the Best Broker
Mary Jo Hill remembers the unusual scene vividly — a fully-grown tiger roaming the halls of the SAS headquarters in Cary before ducking into an office and settling down on a computer keyboard.

The tiger-on-the-keyboard episode has become legendary at SAS, the world’s largest privately-held computer software manufacturer. The tiger had been brought in to star in a multi-media presentation. During a stroll through the SAS offices, the tiger managed to escape for his own private tour.

To Hill, risk manager for SAS, the episode presented a whole new series of “what if’s” that she had never anticipated. The job of expecting the unexpected is clearly critical to a successful business insurance program. Hill came to SAS fully versed in risk management from the insurance brokerage point of view.

Not surprisingly, Hill advises companies without internal risk management offices to seek out a good insurance broker. “Brokers can serve as risk managers for small companies when they are wearing their advisory hats,” she suggests.

One area in which they can be particularly helpful, says broker David Wright of Elizabeth City, is in providing insurance-company developed policies and procedures manuals for new employees thoroughly outlining the details of coverage.

Selecting a good broker is a challenging process, given the number of insurance vendors operating in North Carolina today. Gayle Tuttle of Perigee Healthcare in Raleigh sought referrals from business friends and her network of NCCBI contacts to identify a broker with a good reputation in representing employers.

The early days of the relationship between a company and an insurance broker can be key to the success. From a business standpoint, the company is committing a significant portion of its annual budget in the hope of guarding against even larger expenditures down the road. A good broker will attempt from the very beginning to learn everything he or she can about the new account.

David Wright of G.R. Little Insurance practices that philosophy. “The first thing I ask is where the company’s revenues are coming from and their plans for growth,” he says.

Tuttle concurs, feeling that part of the broker’s job is to “understand our business and bring insurance companies to the table. It takes a patient broker,” she says, “to deal with an educated consumer.”

After an analysis of the company’s mission, the broker is in a better position to recommend appropriate insurance programs.

The company and the broker should also meet periodically to review insurance coverage in light of the growth and expansion of the business. The review is also an opportunity for the company to seek out competitive quotes from other insurance brokers.

Once a relationship is solidified, some companies are tempted to stay the course rather than seek lower premiums. “We have to remind ourselves to shop around and get the best buy,” Tuttle notes.

Brokers may also work in conjunction with other business professionals, such as attorneys, accountants and bankers to develop proper strategies to meet a company’s business insurance needs. In addition, it may be necessary to bring in other brokers who specialize in varying insurance programs. “Our job is to make sure there are no surprises,” Wright says.

Sometimes surprises can’t be avoided, but fortunately for Mary Jo Hill and SAS the tiger-on-the-keyboard story had a happy ending. Evidently just curious with no malice in mind, the tiger allowed itself to be recaptured and escorted away.  — Jerry Blackwelder

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